The three business models for delivery platforms

In recent years, a new form of consumer delivery has been developed in city centres: crowd-delivery or “crowd delivery”. This is a practice that falls within the framework of initiatives originating from “crowd-sourcing”. Crowd delivery, by definition, consists of using a crowd of individuals to take responsibility for the final delivery to consumers.

Proposed in urban centers by many start-ups, these initiatives are developed for the distribution of meals (e.g. Deliveroo), for products from large food retailers (e.g. Instacart), or even consumer products in the broad sense (e.g. Postmates).

Such devices are based on the fact that individuals today can be easily informed and mobilized through the use of the Internet and smartphones. This new connection then allows these start-ups to take advantage of the crowd’s physical and logistical resources by using these various resources (drive power, personal vehicles, public transport, etc.) to get the crowd to perform part of the logistical operations required in any supply chain: delivery.

What strategies do crowd delivery companies follow?

The rise of crowd-delivery causes a lot of ink to flow, especially because of the social models that often lead to the exploitation of delivery people. Without neglecting these aspects, we were particularly interested in research published in the journal Financial management strategy the strategies followed by crowd-delivery companies to penetrate the distribution sector. Crowd delivery seems capable of challenging the competitive balance of the sector by overlaying an already complex omnichannel context with a new way of delivering products to consumers.

Some startups offering crowd delivery services have already reached impressive sizes. Instacart has thus gone from a 2017 valuation of $3.4 billion to $39 billion in 2021! The platform announced in 2019 to mobilize 500,000 traders and employs 5,261 people, it works with 600 distributors representing 45,000 points of sale.

This is how Instacart works.

As for Postmates, valued in October 2016 at $460 million, it raised $140 million in additional funding to end up being acquired in 2020 by Uber for $2.65 billion. In several sectors (hotels with Airbnb, passenger transport with Blablacar, etc.) the emergence of these digital and collaborative actors is therefore disruptive.

Crowd delivery as a logistics service provider

The analysis we performed on about 30 cases of crowd-delivery companies reveals three types of business models. The first is for companies to offer distributors a crowd-sourced delivery service to the end consumer. These companies then play the role of logistics service provider and their service aims to enrich distributors’ offer of urban delivery.

We can mention as an example You2you, now Yper, present in more than 5,000 French cities. One of the emblematic companies of this model in France is shopopop, which operates deliveries from mass distribution, specialized distribution, from independent retailers, florists, wine merchants, etc., from private individuals. The Nantes-based company, born in 2015, raised 20 million euros in December, it serves half a million customers in France and is expanding in Europe via Italy, Portugal and Belgium to begin with.

This service provider has always been true to the crowd and highlights on its website that traders who wish to join it do not need self-employed status. The 300,000 delivery people thus mobilized thus work exclusively within the framework of an income supplement.

The three types of roles played by crowd delivery companies.

Crowd Delivery as an Online City Distributor

The second type of model is presented by companies that offer consumers an online shopping platform that includes a crowd-sourced delivery service. They act as an online urban distributor and their service aims to give consumers in an urban area access to the offer of a number of existing manufacturers/distributors.

We can quote Instacart, which ships traders Americans to shop in supermarkets, or of course Deliveroo, which gives access to a range of restaurants from their phone. Here, the people who ensure the deliveries are more often auto-entrepreneurs than simple people looking for a side job.

It is not uncommon for them to work in parallel on many platforms, and their working conditions are often degraded. That said, the model continues to expand, attacking medium-sized French cities after the metropolises, as consumer appetite for home delivery, already strong, is recovering from the Covid period.

Crowd delivery as the focal point of an integrated offer

The third model concerns companies that market their offer themselves by having it delivered by the crowd. These companies control the design and production of the offer they deliver to the customers using the quantity. One example is PopChef, which delivers the meals it makes itself through bike delivery people. This model contains opposing initiatives.

It is actually taken over by the “ghost kitchen” or the “dark kitchen”, virtual restaurants which have especially developed under confinement based on the limitation of human resources (no service) and the low importance of food, location to develop their profitability .

Unsurprisingly, while restaurateurs sometimes close their brick-and-mortar stores to choose this model, it is often very attractive to the large producers of the former model who want to move up the value chain: it was Deliveroo that launched the first communal kitchen concept for restaurateurs in England in 2017.

The disruptive potential of the online urban retailer

Among these three models, the one with the most disruptive nature is undoubtedly that of the online city distributor. The applications implemented by start-ups to refer and distribute offers from distributors, if they give them visibility and a noticeable increase in sales, are not satisfied with capturing a part of their margins. The emergence of these new intermediaries is likely to cause distributors to lose direct contact with consumers.

So if US consumers continue to use Instacart in large numbers, nothing will stop this player from pitting traditional distributors against each other to negotiate discounts for its users. The danger is all the greater for distributors, since start-up crowd-delivery companies are no longer anonymous service providers, but use aggressive marketing (viral communication, promotion of the company name on means of transport, etc.). These startups strive to be highly visible to individuals: both potential employees (the crowd) and potential customers (of the platform). By making progress in this “masked” way, these companies are reorganizing distribution.

What strategic response from distributors?

However, it is not certain that the affected companies will succeed in replacing the distributors, because the latter have become aware of this threat and are trying to avoid the loss of direct connections with the consumer. The challenge is that their points of sale will not simply become warehouses where “personal shoppers” will draw to the audience to meet their customers’ demands.

For this, some develop their own crowd-delivery services and, like Walmart, use their own employees. Others have bought a crowd-delivery player, as Monoprix did with epicery.

American giant Walmart uses its own employees for its crowd-delivery services.
Random Retail/Flickr, CC BY-SA

But despite all this, this logic of “dark shops” is multiplied and worrisome. One of the challenges may be to play on experience-based marketing, to make consumers want to visit the physical point of sale! Beyond this point, the second question concerns the weaknesses of their own social model.

Thus, Instacart has seen 31,000 members of its “crowd” launch a class-action lawsuit against the company’s wage practices, raising serious questions about the viability — long term — of its contract model.

What regulation of the sector by the public authorities?

While, as we mentioned at the beginning of the article, the social model of these companies is subject to debate, it is clear that their future will depend on the rules that will or will not be imposed by the states. The observation we can make today is that there is an urgent need to act to provide a real protective framework for the work of delivery people and to promote deliveries that do not have a significant environmental impact.

The public authorities must take their responsibility to avoid the slippage that we observe: start-ups that do not pay their taxes in France, while extracting part of the value from companies established there, using a workforce with very little protection, as in In order to deliver quickly tends more and more to mobilize polluting scooters and generates tons of cardboard! In short, a social and ecological disaster to satisfy a hasty and unaccustomed consumer?

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