Startups Race To Cash In On The Growing Last-Mile Delivery Market

Immediate gratification.

That’s what appears to be driving the on-demand delivery space, which has seen its share of struggles in recent times.

Nowadays, consumers expect to receive merchandise, food, and groceries in less time than ever before, thanks in large part to online retail giant Amazon. Other merchants have clamored to come up with ways to compete – some more successfully than others. For example, many traditional grocers have partnered with Instacart. Other retailers have opted to work with startups that offer on-demand delivery so they can quickly get their inventory to customers without shipping.

One of those startups, Postmates, confirmed a $140 million funding round at a $600 million valuation last October. The San Francisco-based startup has raised a total of $278 million since it was founded in 2011. Its success seems tied to its ability to make money beyond delivery fees. According to TechCrunch, about 6,000 merchants pay for better placement on Postmate’s app and to be featured in the Postmates Plus Unlimited program. However, some of the company’s growth plans have been delayed.

Other on-demand delivery companies, such as Maple, haven’t fared so well. The New York-based prepared food delivery startup raised more than $25 million only to be acquired by UK-based food delivery company Deliveroo earlier this month.

It’s not as great as it sounds. With the acquisition, Maple announced it was ceasing operations in New York – the only market it was in.

Munchery has also had its share of ups and downs, having announced it was laying off 30 employees in January and a controversial recapitalization in late March.

Ups

But it’s not all doom and gloom in the sector. On May 10, Austin-based same-day delivery service provider Dropoff raised $8.5 million in a Series B round led by Fulcrum Equity Partners out of Atlanta. That round also saw participation from existing investors Greycroft Partners and Correlation Ventures.

Dropoff has raised a total of $15.5 million since it was founded in 2014, and it has grown to 65 employees.

“The courier industry is decades old, hyperfragmented and very much locally driven,” said CEO Sean Spector. “It tends to be mom and pop for the most part with very little use of technology.”

Spector likens Dropoff’s services to FedEx Overnight but for same-day delivery geared toward businesses and enterprises. Clients include Nordstrom’s, Whole Foods, McKesson, Sprinkle’s Cupcakes, and Neiman Marcus.

“A whole new wave of industries and verticals are starting to use same-day that never before have,” Spector said. “Traditional retail and the grocery industry are massive industries that are working to stay competitive with Amazon and increase customer satisfaction by trying to figure out a same-day delivery solution to offer their customers.”

Dropoff’s revenue has been growing at triple-digit rates year-over-year according to Spector. The company plans to use its new funding to expand from its current 15 markets (in California, Arizona, Colorado, Texas, Florida, and Tennessee) to 50 over the next couple of years.

The company is different from competitors, according to Spector, in that it offers credentialed uniformed drivers, transparent pricing and round-the-clock customer support.

Market Demand

There is evidence supporting the potential for growth for companies like Dropoff.

Nearly 25 percent of consumers are willing to pay significant premiums for same-day or instant delivery, according to 4,700 respondents to a McKinsey & Company survey measured in Germany, China, and the United States. McKinsey predicted “[t]his share is likely to increase, given that younger consumers are more inclined (just over 30 percent) to choose same-day and instant delivery over regular delivery.”

Fulcrum Equity Partners’ Jim Douglass said his firm was impressed with Dropoff’s “superior logistics technology that allows a customer to see exactly where an order is.”

Dropoff is able to help retailers that are trying to meet omnichannel demand with inventory in local markets, he said.

“They are approaching it from a branded local courier via national platform approach,” Douglass explained to Crunchbase News. “We see three major segments that are going to drive same-day delivery growth: medical, business services and retailers. There’s a lot of market out there that’s today being served by a lot of local and unsophisticated couriers. That’s where the need from Dropoff comes in.”

So while the last-mile space is definitely a competitive one, it appears there’s lots of potential for growth – especially for those who can provide convenience and pricing that appeals to businesses and consumers alike.