Has last-mile delivery reached its saturation point? [Part two]
In the first part of this feature, we charted the growth of last-mile delivery in the Middle East and North Africa (Mena). In this second part, we consider the impact of this explosive growth on the sector.
Since 2019, 45 new startups focused on the last-mile delivery sector have emerged across Mena. This rapid growth has mostly been a result of the rise of online shopping as consumers today demand quicker, more convenient delivery times with the ability to track their orders.
While most of these new entrants are in the courier space, there has also been a surge in startups offering delivery or courier management software as well as alternative delivery models like pickup and drop-off and smart lockers.
The rapid growth witnessed in last-mile delivery has propelled many governments across the region to take steps to regulate the sector. In Saudi Arabia for example, where the number of last-mile delivery startups has tripled over the past year, the Saudi Communication and Information Technology Commission (CITC) now requires all last-mile and tech-based delivery companies to have a licence in order to operate in the country.
Similarly in the UAE, the Roads and Transport Authority (RTA) recently introduced an operations manual for last-mile delivery companies, which is primarily aimed at helping the regulators better understand the scene, protect the rights of couriers and ensure that they are given proper training and valid licences. In Kuwait, the Delivery Companies' Union passed new regulation capping drivers’ salaries at KD 160-200 per hour in order to standardise salaries, a move that was met with a mix of criticism and support.
For businesses, the rising competition has led to quicker, cheaper deliveries with better coverage. New tools and technologies like chatbots and route optimisation are commonplace.
“With all these new entrants that have come in, everybody's kind of upped their game,” says Rabih Allaf, global director at Aramex. “It’s become…not necessarily saturated, but definitely a crowded market.”
Yet despite these new players, the region’s last-mile sector is still dominated by the incumbents, namely Aramex.
“You have VC-funded startups that have come in and grabbed some market share, so there [are] various players that have come in and have been successful because they either focus on one area where it’s a high density city where they can provide different types of deliveries, or they have an edge in terms of tech tools [bringing in] lots of automation and really focusing on the experience,” says Allaf.
High density areas allow couriers to pool several deliveries together, allowing for greater efficiency while also lowering the cost per order. It also allows for faster delivery times with a growing number of retailers now able to offer next-day or same-day deliveries, usually at a premium price. More and more companies are pushing the envelope in this regard. Over the past few months there has been a surge in quick-commerce startups, offering delivery times of as little as 15 minutes in some cases.
“One of the key trends is speed. There’s a big emphasis on that; there’s where we saw the demand. The customer today is very impatient, and they actually want everything now. But, the key differentiating factors among the incumbent players are definitely number one is your fleet size, especially when it comes to food delivery or very quick commerce,” says Ayush Khatri, ex growth and strategy director at UAE-based Lyve.
Ultimately however, the main differentiating factor these new entrants employ is lower cost.
“You always have the [startup] that comes in and tries to buy the market in terms of cost and so they’ll sell below a certain price,” says Allaf. “Let’s say the average selling price is Dh15 in the UAE, they’ll come and sell at Dh10 or Dh8, take the loss for three, four or five months, depending on how much money’s in the bank to penetrate the market. The idea is to build up from there once they have economies of scale.”
Can last-mile be profitable?
But achieving economies of scale is difficult in this sector particularly given the level of competition and the high cash-burn rate.
“I think a lot of it is people underestimate how much money is needed to scale or to grow. I think it's a race to the bottom in last-mile, I've seen some scary rate cards that come out from some of these new entrants,” says Allaf. “It's also very tough to make money in last-mile, you may have a chance in Egypt or in Saudi still, because there's not that many players but places like the UAE are very, very saturated.”
Besides some regulation regarding courier salaries, delivery prices are typically not regulated in the region.
“One view is to let them burn their money and the ecosystem benefits from it, but what happens is it impacts everybody, so there’s a network effect to that. To be able to turn a profit in today's market, you need to sweat all of your assets and leverage tools to make sure that you're as efficient as possible within your network,” adds Allaf.
Aligning with Allaf, Khatri says that in order for companies to scale efficiently they have to move past the per-driver model and expand to multiple verticals to ensure that their fleet of drivers is fully optimised.
"[I] think the players that are going to win in this market are the ones that focus on multi verticals. So the players that focus on food, grocery, e-commerce, pharmaceutical, pretty much anything that requires the last-mile really allows you to optimise your unit costs. Multi vertical is key to survival," he adds.
The need to optimise the work of drivers has never become more pronounced, especially amid the current shortage of drivers facing businesses in the UAE and the wider GCC, where there is a heavy reliance on expats working as couriers.
Where is the future headed?
As consumers increase their online shopping habits, the last-mile delivery sector will face new entrants of multiple stakeholders. From this, it is imperative for incumbent players to continuously work to adapt their business strategies to the changing needs of retail and catch up to evolving customer expectations, in order to remain agile and minimise the risk of being vulnerable to stiff competition.
A standing example of this is UAE-based Fetchr, which was once considered a regional success story, after managing to raise more than $77 million. Now, the company is in the process of liquidation after being hit with $100 million worth of tax bills in Saudi Arabia. Fetchr could not keep pace with the explosive growth in e-commerce and retail. The company's downfall initially started when it could not keep up with high demand during the Black Friday sales season back in 2018, one of the biggest shopping seasons of the year. The company's customer service system suddenly went down, leading to delivery delays and buyers cancelling orders.
Given how intricate and intertwined processes in last-mile delivery are, moving forward, more collaborations, partnerships and acquisitions are likely to take place. Having a responsive, collaborative ecosystem where there could be greater utilisation of existing assets and solutions offered by different startups would eventually help improve the sector’s agility and enhance its attractiveness.
“[I think] that's the natural shake-up that will happen in the region. You have a lot of these startups that come in, and their goal is to get gobbled up by a bigger player. And so you'll see a lot of consolidation,” says Allaf.
For Hasan Jabarti, CEO and co-founder of Saudi Arabia-based courier aggregator platform Diggiepacks, the sector is big enough to accommodate more players.
“There are a lot of opportunities over there not only in the last-mile of owning delivery segments, not only in warehousing and fulfilment but other segments; we're talking about the customs clearance, the freight forward, the storage between cities, deliveries, last-mile, first-mile on-demand deliveries, bullet delivery, etc. There are a lot of companies over there in the market. But no one knows about the majority of them,” he says
For a mapping of the last-mile delivery startups in the GCC, please click here
For a mapping of the last-mile delivery startups in North Africa and the Levant, please click here
For a breakdown of different types of last-mile delivery startups across Mena, please click here