Consumers expect faster delivery for free, but leaders in the same-day space are still operating at a loss.
When Amazon launched its two-day delivery model under the Prime membership program in 2005, no competitor came close to its model of fulfillment. Since then, things have only sped up.
Amazon’s same-day deliveries increased four-fold between 2019 and the first half of 2023, when it moved 1.8 billion items, and the company gave the Wall Street Journal a look inside one of its same-day delivery centers. These are purpose-built centers in major metropolitan areas that are designed to fulfill orders within hours. Amazon shared that during the most recent Prime Day, it had fulfilled and delivered an order in 53 minutes. Major retailers like Walmart and Target have gotten into the same-day delivery market by relying on store fulfillment and utilizing their own last mile operations (such as Target’s Shipt acquisition).
Our 2023 Home Delivery Report found that consumers now expect free and fast delivery inside three days of ordering, a trend that will likely continue: 26% of respondents said they would only accept same-day delivery on orders, 21% would accept two-day delivery, and 40% said four days was the maximum wait they’d endure for deliveries. At the same time, only 48% of companies surveyed were able to offer free shipping, and 47% said they couldn’t meet three-day delivery windows.
For companies capable of meeting inventory and fulfillment demands, it’s a battle for market share. A 2022 Bringg survey found that 99% of companies canvassed plan to offer same-day delivery by 2025.
Walgreens launched same-day delivery in 2022 as part of a broader plan to better utilize their existing store footprint for eCommerce, relying third-party delivery services such as DoorDash and UberEats. They are also utilizing their stores as mini fulfillment centers, shipping packages with FedEx for non-same day e-commerce orders.
Regional fulfillment and fast delivery represent a sea change for e-commerce and can, in some cases, lower delivery costs, so should other retailers be chasing this trend? Target estimates that fulfilling from stores costs them 40% less than using a traditional fulfillment ceter model. The answer depends on scalability, distribution and reach, and cash flow.
How Amazon won at same-day delivery
The same-day delivery market is expected by Statista to grow to $26 billion by 2027, but it’s a costly endeavor upfront. The success of same-day delivery programs hinges on a few things:
- Capacity for investment upfront. For years, Amazon has been willing and able to offset Prime program costs with revenue from other arms of the company. Retailers surveyed for our 2023 Home Delivery Report said home delivery costs had almost doubled over the past 12 months.
- The ability to analyze inventory and sales data to identify in-demand and time-sensitive products, as did Amazon with the 100,000 products it keeps stocked at 23-hours-a-day same-day centers.
- A fulfillment strategy to bridge the last-hour journey, as with Amazon’s fleet of zero-emissions electric vehicles and Target’s Shipt services.
- A payment model to satisfy consumer expectations for “free” delivery. Target provides the option of a delivery fee or Shipt membership, while Walmart has Walmart+. (Our data shows consumers would rather pick up in-store than absorb a $5 increase in delivery fees.)
- Scale. As of 2023, Amazon had more than 175 fulfillment centers and more than 1,000 distribution centers in the U.S., allowing them to serve 90 regional hotspots. Walmart had 4,700 stores in the U.S., and more than 10,000 worldwide.
- Reverse logistics. The National Retail Federation estimates that 16% of retail purchases are returned. Addressing reverse logistics costs and operational impacts will be a critical differentiator for supply chains in the coming years.
Retailers thinking about entering the same-day delivery race need to look at their data analysis capabilities, processes and systems, revenue onramp, and upfront investment.
The strategy comes down to: What is the investment required to get same-day delivery? How long are we willing to wait for same-day delivery to turn a profit? What are the risks if we don’t offer this service?
What lies down the road for same-day delivery?
Take it from the small-time sellers on Etsy: it’s easy to promise fast delivery and quite difficult to do it well.
Two-day and same-day delivery require a significant investment that may not deliver a return for years. Despite operating in a duopoly, Uber didn’t report a profit until the second quarter of 2023. DoorDash has only recorded one profitable quarter in its history during the height of the pandemic.
As our 2023 Home Delivery data shows, consumer expectations have shifted permanently on the far side of at-home lockdowns. While growth in curbside pickup has stalled, the appetite for popular everyday household goods via delivery services continues to grow. Thirty-seven percent of corporate respondents were considering four-hour delivery services and 35% are considering white-glove delivery. We also see a shift in behavior due to environmental conscientiousness.
Three-quarters of surveyed consumers in our 2022 survey said they don’t mind if their order arrives in multiple packages over multiple days; of those, 60% would be willing to wait between a few days and a week for their packages, so perhaps there is room on the porch for differentiation outside of speed. Either way, we see retailers looking to optimize their distribution network (70%), invest in tech platforms and transport management services to optimize routes and deliveries (63%), and diversify their carrier strategy by adding regional carriers (49%). Winning in an era of terminal velocity—a race to be fastest—means managing costs.