Have you ordered food or gone out to eat recently and experienced delays or staff shortages? You’re not alone. Retailers and restaurants alike are resorting to new tactics, such as marketing campaigns, for hiring candidates to meet customer demand.
The latest jobs report captures the situation well: 11 million job openings across all industries for only 6 million people, resulting in a stark chasm between jobs and candidates. It’s a refrain that’s repeated on earnings calls by CEOs.
So, how will this ongoing dynamic affect retailers?
There are many ways where a persistent mismatch between jobs and candidates may affect retailers, but one area, in particular, sticks out: last-mile delivery. In fact, this was identified by several speakers at Shoptalk 2022 as an area “ripe for disruption.”
Coupled with Elon Musk’s recent comments on the latest Tesla earnings call regarding the direction of the auto manufacturer and we may be in the early stages of a shift in delivery as we know it.
Innovator’s Dilemma: Market dynamics open the door for less expensive competitors
The pandemic dramatically changed consumer expectations of last-mile delivery as customers became accustomed to quick, convenient offerings from their favorite restaurants and faster fulfillment of ecommerce orders through new service options, like curbside pickup.
Uber, DoorDash and Instacart have spent the last two years capitalizing on the momentum. They have pitched retailers on becoming their trusted delivery partners to meet consumer demand while providing delivery platforms and greater utilization to scale their business.
However, market dynamics are changing the landscape.
Rising last-mile costs – both driver wages and gas prices – along with massive resets in delivery platform market caps amidst rising interest rates are forcing delivery providers to make difficult choices. Uber’s CEO, Dara Khosrowshahi, recently announced to employees that the company would slash spending on marketing and incentives and emphasized profitability as measured by free cash flow (FCF).
Meanwhile, Instacart declared a 40% reduction in its valuation this spring, and recent reports indicate that consumers have reduced grocery delivery demand amid rising prices.
The shift in focus to the bottom line and cash management, while de-emphasizing growth, means last-mile costs from delivery partners may continue to rise or, at the very least, remain elevated to ensure the platforms’ profitability on historically thin or negative margins.
The current dynamics – rising prices, incremental improvements and margin expansion – are the bedrocks of The Innovator’s Dilemma, Clay Christensen’s seminal theory on market disruption. Last-mile delivery offers a significant opportunity for new entrants to better serve customers – and even new ones, such as dollar stores – than current players.
Source: Harvard Business Review , Clay Christensen
A new last-mile entrant: Who else but Elon?
It seems like Elon Musk is everywhere these days, so it should come as no surprise that Tesla lurks in the background of the current last-mile environment poised to upend the traditional delivery platforms.
Musk’s comments on the recent Tesla Q1 earnings call provide a window into what the market dynamics might look like. Loup Funds‘ Gene Munster, who has followed Tesla for a long time, lays out the implications in a clear and concise manner:
“Musk commented on the Q1 call that they’re working on a new vehicle, a ‘dedicated robotaxi that’s highly optimized for autonomy . . . it would not have steering wheel or pedals’ and would be ‘optimized for trying to achieve the lowest fully considered cost per mile.’ Elon expects to have volume production of the robotaxi in 2024. Assuming that actual production is delayed a couple of years means that Lyft and Uber, as we know them, have about four years left.
“While ride-sharing companies have partnered to find a path to autonomy, and those partners will eventually get the autonomy piece right, they won’t be able to keep up on the production side. Autonomy without production is meaningless.”
Lowest fully considered cost per mile? That’s music to any retailer’s ear.
In an environment where current providers are focused on cash flow and hiring more drivers, Tesla – if it can pull it off – has an opening to upend last-mile delivery as we know it.
Testing already in place for automated delivery – just not done at scale
Tesla may not be the first entrant with the aim of fully autonomous delivery or mobility services. Players, such as Nuro, Gatik and or Starship, all offer autonomous delivery services and have had tests with large retailers in the space.
However, Tesla’s advantage in self-driving software, routing and manufacturing makes it the most credible entrant with a clear path to scale with customers in the crowded automated delivery market.
While we might still be a few years away from any significant change in the last-mile delivery space, the current environment – coupled with Elon Musk’s latest comments – makes it clear that some sort of change is on the horizon.
