May 27, 2022
Investigating the current state and future of global e-commerce supply chains.
This post is part of a five-part Field Study by Alpaca exploring the current state of global e-commerce supply chains and the opportunities we see ahead. Use these quick links to read the entire series: Part 1: Global Supply Chains, Part 2: Delivery, Part 3: Cross-Boarder, Part 4: Returns, Part 5: Conclusion.
I was visiting friends in the Finger Lakes region of New York this past weekend, which famously housed Mark Twain, Harriet Tubman, and the Erie Canal. Built in 1825 for $7.1M, the largest public works project for that time, the Erie Canal put New York on the map as the leader in population, industry, and economic trade. And it allowed for goods from as far as Europe and Asia to make their way to the Great Plains, establishing ties from the Midwestern states to New England that would endear the Union together economically once civil war broke out. But more than anything, it enabled cheap, fast delivery.
Last week, we introduced one of the key investment themes for global supply chain: enabling fast delivery. Just like the Erie Canal opened up quicker, less expensive delivery options for early Americans, new entrants are working to empower merchants to compete with Amazon-like speed.
Let’s first review why the faster deliveries have become normalized and why investment in the last mile has surged.
62% of e-commerce shoppers define a positive experience with a brand as fast shipping.
75% of online shoppers in a survey expect free delivery.
Faster delivery hinges on what is commonly known as the last mile. This is the final leg of the product’s journey in the logistics network. And the last mile consists of two primary components:
Over the last five years, startups addressing the last mile have raised more capital compared to any other mile in the e-commerce supply chain stack combined. Why? Because it’s complex. E-commerce inventory is expansive and is typically scattered at different locations throughout the country. There’s a lack of communication and transparency between the brand and customer during the delivery process (as the product is typically fulfilled and delivered by different parties). And its complexity is only outshined by its demand.
Thanks to Amazon Prime, 1- and 2-day delivery has become the baseline customer expectation. Amazon has invested in everything from drones to crowdsourced delivery via Amazon Flex, which enables anyone with a vehicle to make local, same-day deliveries. And other brands and retailers must keep up to remain competitive.
Large retailers have the benefit of enabling faster shipping by absorbing some of the high shipping costs for customers and/or by having inventory located throughout the country. Even still, in order to compete with Amazon many of these companies have begun exploring alternate solutions to get packages to customers faster and more efficiently. Wal-Mart bought JoyRun and Parcel. Target purchased Deliv and Shipt. And Shopify just bought Delivrr.
For smaller, emerging brands, however, offering same-day or next-day shipping is an expensive challenge. We see this as an interesting opportunity.
Looking at startups who are enabling faster delivery, we can segment the space as follows. Important to note we’ve also categorized fulfillment players in terms of how asset heavy or light they are.
We expect consumer demand for fast delivery to remain high. However, we see a gap in the market between the delivery time that big e-commerce retailers can offer versus smaller DTC brands. This gap is widening with the current supply chain crisis. As costs to ship and import rise, container ships will continue to go to the highest bidders (i.e. large, public companies), so consumers will have fewer choices, and will likely have to transact with large, public-traded companies who have a better grip on the supply chain (i.e. Amazon, Walmart). So we see white space for capital-light solutions that place inventory as close as possible to the customer for smaller brands, such as through a micro-fulfillment model. There are also challenges switching from one 3PL to another, so we see a technology to optimize the migration between 3PLs as an opportunity area as well.
We’re particularly interested in solutions that not only enable fast delivery, but also provide features that enhance the customer experience. For instance, Bond uses non-traditional space in prime locations within New York City to house inventory and has a fleet of motorized bikes to reach customers quickly. Bond also offers features like delivery scheduling, direct text with couriers (and the ability to change your delivery location from home to a brunch spot), and the simultaneous pickup of returns and delivery of an exchange. In our following posts, I will dive into some of the circular solutions attempting to better last mile delivery by batching drop offs and pick ups.
While we haven’t seen a startup doing this, we could also see a delivery model where, similar to Prime, customers pay a flat annual fee for fast delivery from a handful of brands. We could see a delivery bundle of brands that target a similar customer (i.e. a package for beauty enthusiasts that includes the likes of Glossier, No B.S., Starface, and Ceremonia).
Next week, we will discuss the second investment opportunity we saw: Cross-border. So stay tuned.
In the meantime, please join us in continuing the conversation Wednesday, June 1st for a panel led by Forbes Senior Editor Alex Konrad on the Now and What’s Next for the Global Supply Chain.
To keep up with the latest from Alpaca, connect with us on Twitter, Instagram, and LinkedIn @alpacavc, subscribe to our bi-weekly newsletter The Rundown here, or by reaching out directly to [email protected].
Alpaca VC Investment Management LLC is a U.S. Securities and Exchange Commission-registered investment adviser. Alpaca VC Investment Management LLC is committed to diversity and inclusion in the workplace. We prohibit discrimination and harassment of any kind based on race, color, sex, religion, sexual orientation, national origin, disability, genetic information, pregnancy, or any other protected characteristic as outlined by federal, state, or local laws.