Can Same-Day Delivery Overcome Its Costs and Complexities?

A survey from UPS-owned Roadie finds retailers still seeking to determine whether the sender or customer should cover the costs of same-day delivery, as the practice makes the last mile “more expensive, more complex and (sometimes) less efficient, placing more pressure on companies to meet customer expectations without breaking the bank.”

On the positive side, the survey of 150 organizations offering same-day delivery found benefits to adding the offering, such as higher customer satisfaction, sales, and retention rates. The majority of respondents (80%) reported increased revenue after implementing the practice.

However, the related costs were significant, including close to half of respondents reporting six-figure startup costs (with a median cost of $400,000). Moreover, operational costs rose for 79% of companies after rolling out same-day delivery, including those related to inventory and shipping.

To compensate for the costs of same-day delivery, Roadie advises creating efficiencies at the distribution point, whether that’s a store location or warehouse. Steps may include adding a dark store to speed picking and packing, investing in micro-fulfillment centers to bring inventory closer to households, tapping automation, and consolidating orders. Roadie’s survey found 79% of respondents either charging for delivery or having raised their product prices to offset costs.

McKinsey analysis that came out late last year found same-day delivery remains a “small segment of the market,” making up between 2% and 3% of the courier, express, and parcel (CEP) market in the U.S., with the growth slowed by COVID-related capacity constraints. 

Globally, same-day delivery was found to be more prevalent in major cities. McKinsey wrote, “Currently, only large metropoles can generate the demand and supply volumes to enable same-day services.”

McKinsey also found that, excluding the grocery channel, only a few retailers “are large enough to build same-day networks,” and urban regulations, tied to concerns over autonomous delivery vehicles, air quality, and congestion, can restrict same-day delivery.

For consumers, surveys show a greater willingness to pay for reliability over speed. Many consumers also miss the daily cutoff deadlines for making same-day orders, typically before 1 or 2 o’clock in the afternoon. McKinsey wrote, “Extending the time limit is an option for boosting same-day orders, but it may require ramping up capacity by, for example, introducing increased automation.”

The research from Roadie and McKinsey comes as same-day delivery is receiving greater attention. Target is rolling out a new paid membership offering that includes home deliveries as a key perk, while Walmart is offering home deliveries earlier in the morning. Kroger said last week that online sales grew 12% in 2023, led by a 25% jump in delivery sales.

Last December, Amazon celebrated its 1 billionth package delivered from its same-day sites, which total more than 55 locations in the U.S.