Retail

The On-Demand Delivery Dilemma

On demand

It was really just a short time ago — less than a year really, when it seems every business was clamoring to describe itself as the Uber of something — office space rental, apartment rental, meal delivery, rides for kids, groceries, Mexican candy, dog walking, parking — it would probably be shorter to name a list of common American tasks and chores that did not have some kind of "Uberized" service attached to it.

And on a conceptual level, what's not to love? Consumers hate going to the grocery store, driving in traffic and coming up with what to cook for dinner. And, armed with a fleet of contract workers with cellphones and the will to work on-demand, as well as a mobile platform to keep everyone connected and organized, everybody wins.

Easy-peasy, lemon squeezy, right?

For a while — yes actually.  Easy to start (you can by a "build your own Uber-like business" box kit these days), peasy to get VC funding for and lemon squeezy to generate buzz around. Which, as it turns out, may end up being the ultimate downfall of the wave of platform business that suddenly appeared to take on the "Uber of X" mantle — these business are easy enough to conceive of and even sell.

Building them to scale and running them profitably? Well, that as it turns out is a horse of a very different color. That, Karen Webster noted in a recent commentary, is a long and difficult road that requires constant vigilance and fine-tuning, even when one is as big a success as Uber.

Plus, the sad reality is that most of these firms are never even going to get close to being Uber.

"[There are] hundreds of delivery platforms who can’t scale because there’s too much supply and not enough paying consumers to drive the demand. Not to mention the hundreds of “Uber of Xs” who have found that actually being an Uber is a lot harder than saying that you’re just like it."

And now it looks like the glory days of easy funding are coming to an end in the "on-demand/Uber of X" marketplace, as investors are suddenly less worried about missing out on a firm that has great potential, and more worried about throwing good money after a firm that has slim odds of ever actually turning a profit.

And the results so far this year have been sobering — and eye-opening.  Many firms have folded, some have managed narrow escapes and many, many more are at least worth keeping an eye on for troubles on the horizon. The rule of day, it seems, is pivot, pair-up or perish.

So what's the breakdown?

Saying Goodbye 

Many firms have simply folded so far in 2016 — part of what is being cheerfully referred to as the on-demand apocalypse. Notable bow-outs include:

Shuddle | Billed as the "Uber for Kids," the Shuddle service promise specialized drivers, transparency for parents and safe rides for kids. Until it very abruptly shut down after having raised a little over $12 million. The reason? Inability to raise further funds.

“On behalf of the entire team here at Shuddle, we are saddened to inform you that Shuddle will be ceasing operations and closing business as of end-of-the-day Friday, April 15th,” a message on the Shuddle site read. “We worked hard to find the financial resources that would allow us to continue to grow, but ultimately could not raise the funding required to continue operations.”

BlackjetBilled as the Uber for private air travel, Blackjet was eventually grounded by premature reports of its impending doom, and the fact that they were unable to continue to raise funding. Still, CEO Dean Rotchin remains upbeat.

“There are some aggressive, interesting models out there today; someone will make this work,” he said.

Kitchit  | Kitchit was an on-demand service premised on the idea that if consumers would order meals on-demand, or meal kits on-demand, surely it stands to reason they would also be happy to order up a private chef on-demand as well. And while the idea got a lot of buzz — and was able to raise $8 million in funding — it was unable to gain scale or grow to profitability. Eventual reason for closing down? Couldn't raise new funds.

"Less capitalized peers have fared worse. SpoonRocket, Dinner Lab, and most recently Kitchensurfing, at times our closest rival, have all failed to garner sufficient investment to extend their work. Today Kitchit joins their ranks," a statement on the company's site read.

SpoonRocket (Dinner Lab, Kitchensurfing) | As mentioned in the above quotes, SpoonRocket, Dinner Lab and Kitchensurfing were all meal on-demand platforms that allowed customers to order a hot and ready to go pre-cooked, home-cooked meal (as opposed to a meal from a restaurant). Two out of three all folded for lack of funding.  SpoonRocket was the exception there — though it initially announced its bankruptcy after being unable to raise additional funds or find a buyer — the firm pulled off a last-minute deal with Brazilian firm iFood.

“We are very happy to have found a home for our technology with iFood,” SpoonRocket CEO Anson Tsui said in a release. “Even though SpoonRocket did not work out, I do believe we have one of the best food delivery systems in the world and it is amazing to see it live on through iFood.”

Preparing To Pivot 

While many firms have simply disappeared, many others in the on-demand market have started making some big, big changes, as they more aggressively pursue the path to profitability.

Instacart | Instacart made headlines a few weeks ago with reported plans to cut driver pay by up to 63 percent in some cities. Instacart decided to lower pay per delivery in San Francisco and Los Angeles from $4 to $1.50. Instacart is also cutting the per-item fee paid to drivers who collect products from stores; that number dropped from $0.50 per item to a shiny quarter each. That news followed planned layoffs announced in December. Instacart noted the efficiency cuts still leave workers well above minimum wage.

“We have made some recent rate changes to reduce variability in how much shoppers earn, and we are constantly innovating to help shoppers get more orders,” Instacart said in a statement to WSJ. “After these changes, our shoppers will earn, on average, an effective rate of $15 to $20 per hour.”

Zirx  & Eden | Zirx was an on-demand valet service that gave urbanintes in a rush access to a valet on call to park their car for them. Eden was an on-demand tech support service. Both on-demand services hit the same brick wall early on: while building a consumer-facing business seemed like a good idea at the time, consumer demand for their services proved too inconsistent to build a business around. Enterprise customers? That is a whole other story, and both firms eventually took their B2C on-demand firms and repositioned them as B2B service firms.

“Maybe it was a $200 million business if it worked, but it wasn’t ever going to be a $10 billion business,” noted Eden founder Joe DuBey.

Both of the startup’s founders agreed they missed the B2B opportunity at first because they were focused on consumers for the good reason that they are consumers. But when they saw the writing on the wall, and knew that they couldn’t scale, they jumped ship to where they could.

Good Eggs | Goods Eggs is one of many players in the on-demand grocery game — its "secret sauce" being its focus on fresh and organic goods.  It is also very likely an on-demand firm that is circling dangerously close to going under. About a month ago, the firm announced it was discontinuing all operations outside its home city of San Francisco and laying off the majority of its 140-person staff.

"The single biggest mistake we made was growing too quickly, to multiple cities, before fully figuring out the challenges of building an entirely new food supply chain. We were motivated by enthusiasm for our mission and eagerness to bring Good Eggs to more people. But the best of intentions were not enough to overcome the complexity."

So, is this, as The Doors would say, the end (my friend)?

The good news is probably not. During the oncoming crush of bad news concerning the market space, Postmates managed to cough up some extremely encouraging information about its financial strength and stability.

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