Original Source: http://on.wsj.com/24syGeQ
For United Parcel Service, investment is an opportunity to observe a market in which it doesn’t yet compete
A guest-services representative uses the Deliv app on an iPad at the Williams-Sonoma in Tysons Corner, Va. PHOTO: GETTY IMAGES
By GREG BENSINGER and LAURA STEVENS
Updated Feb. 24, 2016 9:57 a.m. ET
Same-day delivery startup Deliv Inc. is getting a funding boost from an unlikely source: United Parcel Service Inc.
The Palo Alto, Calif., company fetches goods from brick-and-mortar retailers to bring them to customers’ homes nearby, one of a crop of such firms hoping to win the day in so-called last-mile delivery, typically the priciest leg of an order’s journey.
Deliv announced the $28 million funding round, led by UPS, on Wednesday with existing investors including Upfront Ventures, RPM Ventures and mall operators General Growth Properties Inc. and Simon Property Group Inc., among others. This round brings the four-year-old company’s total funding to $40.5 million, though a valuation couldn’t be learned.
Last-mile delivery has proven a hotly contested battleground, with dozens of startups, the U.S. Postal Service and Amazon.com Inc. all vying for accounts with retailers, restaurants and grocery stores to bring goods to people’s homes. Delivery is often within one hour at a fee of around $5.
But it can be difficult to scratch out profit without high volume. EBay Inc. tried a similar one-hour delivery service, but killed the effort last summer after it failed to gain much traction with customers seeking products like collectibles that the company is known for. Deliv Chief Executive Daphne Carmeli said she avoids cost overruns by bundling orders and delivering them at set times, though the company is dependent on customers desiring the service when shopping at other retailers.
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Deliv works with mall operators to incorporate its software into tenants’ online checkout systems. The startup has struck delivery deals with retailers like Kohl’s Corp. and Macy’s Inc. and Alphabet Inc.’s Google Express service, as well as other young companies like the meals-subscription service Plated. It counts about 4,000 retailers using its service, said Ms. Carmeli, who declined to discuss revenue.
“UPS is the world’s largest transportation carrier,” said Ms. Carmeli. “There has got to be something I can learn from them about delivery.”
The company, which relies on contract drivers to help keep costs like insurance and health care down, charges retailers a fee, averaging about $5, that is based on distance traveled from their stores. The retailers typically pass that fee on to customers.
“Since you’re fulfilling orders from local stores you can get it to customers pretty quick,” said Ms. Carmeli.
She said the company is profitable on a gross-margin basis in some of its 17 geographic markets.
For UPS, which is gaining a Deliv board seat, the investment is an opportunity to observe a marketplace and business model in which it doesn’t yet participate.
“We’ve had our eye on Deliv for quite a while,” said Rimas Kapeskas, head of UPS’s Strategic Enterprise Fund, which made the investment.
Specifically, UPS is interested in Deliv’s software, which allows the firm to connect directly with retailers’ websites. The investment will also help UPS to determine consumer demand for same-day deliveries and learn about that behavior.
“I struggle to understand what it is that I need in less than a few hours,” said Mr. Kapeskas.
UPS and FedEx Corp., currently, offer same-day deliveries, but focus primarily on high-margin sectors like health care. Instead, they offer evening pickups from retailers, allowing for next-day delivery.
As most online orders are placed in the evening after people get home from work, both UPS and FedEx. have said there is more demand on their networks for next-day deliveries than same day.
“I think you’re seeing large e-commerce players move to offer same-day delivery, and that sort of option would be of interest for folks looking for capacity,” said Jack Atkins, a transportation analyst with Stephens Inc. “In sort of major population centers where you have the density, you could absolutely see that gain some traction.”
Still, the demand for same-day deliveries is largely unknown, Mr. Atkins said.
“If the demand is there, to what degree does cost play a role? Am I willing to pay extra to make that happen? Or am I willing to get it in two days through my [Amazon] Prime membership?”
Write to Greg Bensinger at greg.bensinger@wsj.com and Laura Stevens at laura.stevens@wsj.com
