In a move aimed at better understanding the inner workings of the same-day delivery model, UPS has taken a lead role in a new $28 million Series B funding round for crowdsourced delivery startup Deliv, although the amount of its minority stake is not being disclosed. Deliv has raised $40.5 million in funding to date.
The investment is being made through the UPS Strategic Enterprise Fund, and Bill Smith, UPS’s head of product and market innovation, has been named a Deliv director. This relationship could help UPS catch up with FedEx SameDay City, a courier-based service it provides for retailers in 23 markets, although UPS labor agreements could make this problematic. SameDay City customers include Neiman Marcus and Stadium Auto Parts, as well as ecommerce platform provider Jagged Peak.
Other participants in the round include existing investors Upfront Ventures, RPM Ventures, PivotNorth Capital, General Growth Properties, The Macerich Company, Simon Venture Group, Taubman Centers, Inc. and Westfield Corp., many of whom are mall property holding companies. Deliv’s main model involves generating deliveries from multiple retailers at mall collection points to gain efficiency and economies of scale.
Deliv is currently in 20 U.S. markets and has an impressive list of retail clients, including Macy’s, Bloomingdale’s, Best Buy, Kohl’s, Chicos, Crate & Barrel, Express and Walgreens as well as marketplaces and ecommerce providers like Google Express, Farfetch, The Bouqs and Plated.
Rimas Kapeskas, managing director of the UPS Strategic Enterprise Fund, said UPS was intrigued by Deliv’s platform and its integration with retailers, and the efficiency of its model.
“They’re not chasing individual consumers, so the acquisition cost is very low compared to other crowdsourced models out there,” Kapeskas said. “It’s also interesting they’re not doing straight point-to-point delivery like couriers, but have more of an aggregation model with large mall operators. We’re more interested in understanding the effects of the economies of aggregation.”
While UPS already provides some specialized same-day delivery service, such as through its logistics division for time-sensitive parts or healthcare orders, Kapeskas said retail is a different story.
“As ecommerce continues to evolve, including more use of social and mobile, the definition of consumer demand may include more on-demand delivery in other categories, something we’ll understand more by watching Deliv, looking at it from a slightly different perspective,” he said.
Daphne Carmeli, CEO and founder of Deliv, said the two organizations had been in touch over the last couple of years, and discovered mutual interests that led to the investment.
“They’re the world’s largest transportation carrier and have built an incredible business across different segments and products, with a lot of expertise in logistics and delivery,” Carmeli said. “We’re very focused on the last mile, adopting a very disruptive business model, challenging the current economies of scale, and that’s an area they don’t have experience in. We can learn from each other, and we have many shared customers, so it’s an opportunity to leverage one another.”
Rob Martinez, president and CEO of parcel negotiation firm Shipware, noted that UPS was taking a stake in Deliv, not making an outright acquisition, and so was on more of a learning mission as noted by Kapeskas. Martinez also said he believes same-day delivery won’t see broader adoption until prices come down from the $20-25 range, where it’s too expensive for the masses and too high for decent margins on anything other than luxury items.
There has been talk of UberRUSH moving its pricing down to the $10-$15 range, as it integrates with more retailers and delivery services through its API. Deliv is able to charge $5 per delivery due to the economies of scale through the mall collection points.
“Shipware works with hundreds of retailers to optimize their parcel delivery pricing and services options,” Martinez said. “To date, only one has asked us to include crowdsourced delivery providers in our recommendations. Same-day delivery will grow significantly in the next few years, but not enough to significantly disrupt FedEx and UPS’s next-day business models.”
John Haber, founder and CEO of Spend Management Experts, said he remains a skeptic on mass adoption of same-day delivery, arguing that there are only so many items people need that quickly. Still he acknowledged that the market is exploding, with tons of money pouring in and new players entering the fray – and it could continue to grow within the younger urban demographic.
“All of a sudden there’s a whole lot of competition in shipping that wasn’t there three years ago,” Haber said. “There are also pressures from Amazon that UPS and FedEx weren’t facing before. For us and our clients, it’s exciting to watch.”
Jerry Hempstead, principal of Hempstead Consulting, said UPS will likely find that its own cost model is prohibitive in any attempt to duplicate what Deliv is doing at its price point, especially given its labor costs and contracts.
“What remains to be seen is the reaction of the Teamsters to the outsourcing model of using independent drivers rather than card-carrying union members,” Hempstead said, referring to the union representing 250,000 UPS employees, including drivers and dock workers. “But since this is just an investment and a minority stake, it’s not UPS doing any subcontracting. Certainly what Deliv is doing is nothing UPS couldn’t build with its own trucks, drivers, terminals and technology, but its agreements with bargaining units would make the service offering problematic for UPS if it grows.”