The Outlook for Retail Drone Deliveries

The delivery of retail merchandise via drones represents a paradox. Everyone seems to agree that drone delivery will play a huge role in last-mile deliveries, largely because of its potential cost advantages. However, at present, there remain obstacles in the areas of flight concerns, consumer habits, regulation, infrastructure, and trust.

The Economics of Retail Drone Delivery

Let’s start with economics. The average cost of delivering a package is currently about $10, and a bit lower for multiple-package delivery. In contrast, consumers are willing to pay only about $1.50 per delivery, which is blurred by paid membership fees for companies such as Amazon Prime and Costco. With fuel prices rising steeply, the economics of drone delivery could be compelling. Drones fly directly to the delivery point, don’t idle, require less labor, and use rechargeable batteries instead of diesel or gasoline. While the economics of delivering small, general merchandise or lightweight grocery and pharmaceutical items are clearly the most practical — which is why we are seeing some of those deliveries today — the other issues associated with retail drone deliveries are complex and muddled.

For example, there are basic questions involving the physics of flight. Carrying liquids through the air involves precise loading so they don’t slosh around and impede flight. What about hazardous materials? Should they be allowed to be transported by drones? How do you allow for changes in weather? Trucks can make deliveries when it’s rainy and windy, while drones probably cannot. There is also concern about battery life; you don’t want a battery to die in midair and have a drone drop from the sky. Many of these issues involve regulation, which is evolving and unclear at the moment.

Where Does Retail Drone Delivery Fit?

There is the question of where drone delivery would fit in the world of shopping and the retail experience. I believe that recognizing the two types of shopping that people do can help identify the applications that will be most successful. One type of shopping involves examining and selecting merchandise, such as choosing the right tomato or other kind of produce, picking out a steak, or selecting a shirt or a pair of shoes. That kind of shopping doesn’t lend itself to drone delivery. On the other hand, there is replenishment shopping, which involves refilling items used on a regular basis that don’t require touch or feel or a demo to seal the deal. A great example of this is paper towels. Once someone decides which brand of paper towels they like, future purchases do not involve any decision-making.

Retailers would want replenishment items delivered by drone. There would be no returns and no discussion about freshness. Customers could set up regular delivery schedules, and inventories would be easier to manage. Drone deliveries would also be desirable for deliveries when customers run out of a standard item — say sugar or flour — and need it in a hurry because they are baking cookies for a birthday party. Retailers could charge a premium for a rush or immediate delivery.

Even for replenishment shopping, drone delivery raises another issue: someone must be at the receiving end to go to the landing site and accept the merchandise. What if there is no nearby landing site? What if there is, but the intended recipient can’t easily leave their home to pick up the delivery? Humans can bring a package to someone’s door, but a drone cannot. For that reason, it’s likely that drone delivery and human delivery will be used in tandem at some point, with humans and technology determining which method is most appropriate depending on the circumstances.

The Infrastructure of Retail Drone Delivery

Of course, all this presupposes the infrastructure for drone deliveries is in place, which means places where drones can safely take off and land. This currently doesn’t exist; nor do the air traffic control mechanisms that would allow for safe flights around local airfields. Incorporating the right governors within the piloting software would ensure that drones do not enter a no-fly zone, but this still needs to be proved. Until a regulatory system is in place, we are not yet ready for a massive explosion in drone usage.

Another big question mark is public trust, especially in areas involving the safety and security of daily operations. Safety is paramount for the industry to be successful. If a drone or its contents fall out of the sky and cause damage, a fire, injury, or death, it will be difficult for the industry to recover.

While many people think it’s cool and futuristic when they see an occasional drone flying overhead, they may think differently if they start seeing lots of drones all the time. People could start to wonder if they are being monitored or surveilled, and even if not, they may come to believe that drones are more of a nuisance than they are worth.

One last thought: the whole idea of drone delivery was actually a marketing ploy by Amazon to get Christmas-shopping buzz for itself before Thanksgiving a few years ago. It was hype, not a business model, but it turned into an entirely new industry and a legitimate business strategy. Still, the industry is young and so much needs to be worked out. More than anything, it requires patience.

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About Tom Douglass

Tom Douglass is the founder and Chief Executive Officer of Catapult Consulting of Arkansas, based in Bentonville, Arkansas. He also serves as Technology Ventures Advisor at the University of Arkansas and entrepreneur in residence at Fuel Accelerator. Until mid-2019, Tom served as Director of Emerging Technology at Walmart, where he held several high-level transportation and logistics posts over his almost two decades with the company. He started his career at UPS and later served as transportation manager at Tops Markets.

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This retail industry article is adapted from the GLG teleconference “Retail Drone Deliveries: Opportunities and Outlook.” If you would like to speak with experts like Tom Douglass, or any of our approximately 1 million Network Members, please contact us.

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Read our earlier article, The Commercial Drone Market: Four Things You May Not Know.