Trouble for Home-Delivery Apps?

Model seeks profitability as retailers dabble with offering convenience

Angel Abcede, Senior Editor/Tobacco, CSP

7-eleven Postmates home delivery convenience stores

OAKBROOK TERRACE -- Just as convenience-store retailers like 7-Eleven begin testing home delivery, the startups leading the charge within the mobile-app space face an uphill battle to retain drivers and achieve profitability, reports say.

The problems stem from the middleman format of many of these startups, which have to hire people to not only drive cars but also take in food orders and then manually call restaurants to fill them, according to an article in the New York Times. Startups also offer incentives to customers to try the service, which cuts profits, and must recruit and train drivers who often leave when delivery volumes don’t add up to sufficient pay.

Investors poured more than $730 million into delivery firms such as DoorDash, Instacart and Postmates from early 2014 through the first half of 2015, up more than 1,100% from the same period a year and a half prior, said the report, citing data from CB Insights, a New York-based venture-capital analytics firm.

The Times reported that Good Eggs, an organic grocery delivery service, shuttered its offices outside of San Francisco last August and that San Francisco-based Instacart, a grocery deliver service, laid off 12 recruiters.

Dallas-based 7-Eleven initiated home-delivery programs in San Francisco and Austin, Texas, with Postmates, San Francisco, last summer, while announcing home delivery in New York, Los Angeles, Chicago, Washington, D.C., and Boston through San Francisco-based DoorDash.

The relationship between 7-Eleven and DoorDash will include in-store marketing, local promotions and the availability of “convenience packs” or groups of products that make purchasing common items from 7-Eleven stores more convenient, the company said last year. Initially, the delivery service fee was reportedly $2.99.

For the past few years, Casey’s General Stores, Ankeny, Iowa, another major c-store player involved in home delivery, has offered the service internally to extend its pizza program. During investor calls, officials said delivery volumes at some stores didn’t warrant the labor expense, but believed the service was viable going forward.

Other major retailers outside of the convenience-store channel have initiated home-delivery tests, including Target, Minneapolis; Costco, Issaquah, Wash.; and Whole Foods, Austin, Texas, in addition to online retailers such as Seattle-based Amazon with its Amazon Fresh program.

Angel Abcede, CSP/Winsight By Angel Abcede, Senior Editor/Tobacco, CSP
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