Americans love to stay at home. In an age when everything is simply a mouse click away, people can get almost everything they need delivered straight to their doorstep. As a result, e-commerce businesses have surged, brick-and-mortar stores have failed, and Americans are getting fatter by the day. While that last point might seem irrelevant, many Americans, who already walk less than most other nationalities, now feel that simply driving to the supermarket for groceries is too much of a chore.
In this age of instant gratification, people now expect the almighty Internet to magically deliver everything to their home, including fresh groceries via same-day delivery. This growing demand has caught the attention of three major companies – Google Inc (NASDAQ:GOOG), Amazon.com, Inc. (NASDAQ:AMZN) and Wal-Mart Stores, Inc. (NYSE:WMT) – and each of them has a unique approach to handling this new market.
In a previous article, I noted that investors should pay close attention to Google Inc (NASDAQ:GOOG)’s new project, Google Shopping Express. To create this fledgling e-commerce service, Google partnered with several major brick-and-mortar retailers, including Target Corporation (NYSE:TGT), Walgreen Company (NYSE:WAG), Staples, Inc. (NASDAQ:SPLS) and American Eagle Outfitters (NYSE:AEO), to provide an online storefront and same-day delivery for their products. Google also signed deals with local grocers to deliver fresh food.
To tie everything together, Google Inc (NASDAQ:GOOG) signed contracts with various courier services, which re-branded their delivery vans and uniforms with the Google logo, to create a unified storefront and delivery service, which uses its brick-and-mortar partners as order fulfillment centers.
Although Google only launched the service in an experimental phase in San Francisco two months ago, it has since expanded its service to the rest of the Bay Area. Google Shopping Express’ most notable advantage is that it asks participating retailers to pay for the same-day delivery surcharges, which means that products purchased via Google’s service will cost exactly the same as in the store – at very little cost to Google.
Google Inc (NASDAQ:GOOG)’s greatest strength in this venture is the support from brick-and-mortar retailers, which are itching for payback against e-commerce giant Amazon.com, Inc. (NASDAQ:AMZN). Unifying all of their e-commerce initiatives under Google’s single banner is a mutually beneficial deal that could help Google grow its e-commerce offerings and help participating retailers generate higher direct-to-consumer sales.
Amazon
Although Google’s new initiative shows promise, Amazon has been carrying on a similar experiment, AmazonFresh, over the past five years in Seattle. This service provides same-day delivery of fresh groceries from participating businesses. There are now reports, however, that Amazon.com, Inc. (NASDAQ:AMZN) is ready to expand AmazonFresh into Los Angeles and San Francisco later this year, as well as into 20 additional markets in 2014.
However, this aggressive expansion is expected to run into some problems. Will participating retailers be willing to pay same-day delivery surcharges over such as a large area? Will expenses rise to the point of offsetting gains in Amazon’s other business segments?
For now, however, Amazon.com, Inc. (NASDAQ:AMZN) has one major supporter – Shutl, a software-based service that allows multichannel (brick-and-mortar and e-commerce) retailers to offer cheaper and more efficient delivery services through partnerships with local 24/7 courier services. Shutl, which is based in the U.K., reaches 75% if the country with its courier service, and recently launched its services in New York, San Francisco and Chicago.
Shutl CEO Tom Allason states that his company’s same-day delivery services generally cost less than $10 per item. Allason claims that deliveries within a 10-mile radius of a retailer’s brick-and-mortar location can be fulfilled between an hour to an hour-and-a-half. By comparison, Amazon’s next-day delivery service costs $3.99 for Prime members and $8.99 + $0.99 per item for non-Prime members. While AmazonFresh is an interesting niche business for Amazon.com, Inc. (NASDAQ:AMZN) to dabble in, it is not as revolutionary a step as Google Inc (NASDAQ:GOOG) Shopping Express, which seeks to build a whole new e-commerce ecosystem backed by major national tailers.
Wal-Mart
Retail giant Wal-Mart Stores, Inc. (NYSE:WMT) also has its own plans for same-day delivery. It recently introduced same–day delivery services in five markets across the United States, and has been testing same-day grocery deliveries for the past two years in San Jose, Calif.
Unlike Google and Amazon, which rely on other businesses’ brick-and-mortar operations, Wal-Mart has the strength of its 4,043 domestic stores spread across the country. That saturation allows it to deliver its products faster than other multichannel retailers. If Wal-Mart Stores, Inc. (NYSE:WMT) pushes its same-day services nationwide, then it could expand at a much faster rate than either Google Inc (NASDAQ:GOOG) or Amazon, since the fulfillment infrastructure has already been built.
Wal-Mart is eager to push back at Amazon.com, Inc. (NASDAQ:AMZN), which has steadily eroded its brick-and-mortar sales over the past decade. However, that push could come at a steep price, since the costs of same-day delivery might not be widely accepted by customers, which could force Wal-Mart to absorb the costs instead. Like Amazon, Wal-Mart charges $10 for same-day delivery, with no minimum purchase. Yet unlike Google or Amazon, Wal-Mart Stores, Inc. (NYSE:WMT) does not have partners to negotiate shipping deals with – there is only the unpleasant choice of absorbing those costs or passing them on to its customers.
To solve this dilemma, Wal-Mart Stores, Inc. (NYSE:WMT) has considered rolling out a crowdsourced delivery system to compensate in-store customers with discounts to aid with local deliveries. Although this is a creative idea, the idea of making customers accountable for other people’s purchases is a bizarre and risky one. There are major privacy issues, such as Wal-Mart giving out customers’ personal addresses to complete strangers, and security ones, where the participating customers might simply steal the items they were supposed to ship. While I doubt that this idea of crowdsourced delivery will ever become a reality, it highlights Wal-Mart’s desperation to find viable alternative shipping methods that can help preserve its margins.
The Foolish Bottom Line
Regardless of what the future holds for these same-day delivery initiatives from Google, Amazon.com, Inc. (NASDAQ:AMZN) and Wal-Mart Stores, Inc. (NYSE:WMT), one thing is certain: there is a market for instantly delivered goods across America. However, all three retailers would do well to remember the dire fate of online grocer Webvan, which went bankrupt in 2001 when it failed to balance the costs of same-day delivery with acceptable costs. Besides near-instant gratification, consumers have come to expect prices similar to brick-and-mortar retailers from online stores.
It will be interesting to see what experimenting with same-day deliveries can do for these three companies, which focus on very different businesses. Google Inc (NASDAQ:GOOG)’s primary business is display and search advertising, not e-commerce. Amazon is nothing but e-commerce. Meanwhile, less than 2% of Wal-Mart’s top line is generated by e-commerce, despite its recent efforts to boost its online presence.
In my opinion, if large retailers continue standing behind Google and help shoulder same-day shipping costs, then I believe that it has the upper hand. However, if Wal-Mart Stores, Inc. (NYSE:WMT) starts transforming more of its brick-and-mortar locations into online fulfillment centers, then it could seriously challenge Amazon.com, Inc. (NASDAQ:AMZN) by forcing the latter to invest more heavily in fulfillment centers.
Whatever the outcome, one thing is certain – consumers, who could soon be offered faster, more varied online shipping options will be the ultimate beneficiaries of this new battle between these three companies.
Leo Sun has no position in any stocks mentioned. The Motley Fool recommends Amazon.com and Google Inc (NASDAQ:GOOG). The Motley Fool owns shares of Amazon.com and Google.
The article Profiting in the Age of Instant Gratification originally appeared on Fool.com.
Leo is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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