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How will same-day and on-demand delivery evolve in urban markets?

By Florian Bauer, Ludwig Hausmann, Jan Krause, and Thomas Netzer (McKinsey)

Delivery start-ups have struck a chord with consumers. But brick-and-mortar retailers and parcel services could still compete by playing to their strengths.

The B2C delivery market has been roiled by change in the past few years. In a 2014 McKinsey report on logistics trends, same-day delivery was considered “the next evolutionary step in parcel logistics.” Back then, a consumer survey indicated that latent demand for higher-convenience offers would give fast parcel delivery (service within 1 to 12 hours) 15 percent of the market for B2C domestic parcel deliveries by 2020. The supply side at the time, however, was just emerging. While early providers of same-day delivery gained market traction, they weren’t alone for long.

A new set of competitors—on-demand urban delivery providers—has since entered the B2C delivery market. These start-ups, including Deliveroo and Foodora in Europe, as well as DoorDash and Postmates in the United States, offer a different form of service: they integrate demand aggregation via their own mobile platforms with dedicated in-house operations to enable (almost) instant delivery. These innovations in the go-to-market approach and logistics model have attracted almost $5 billion in venture capital (VC) since 2014 in Western markets alone (exhibit), with leading players on average raising more than 90 percent of their total funding in that period. That’s shaking up the urban shopping and delivery landscape.

US and EU venture capital financing history for urban delivery start-ups, looking at urban grocery and urban prepared food delivery for 2010-13 and 2014-17

Intrigued by this rapid evolution and the recent developments, we undertook new research, which included conducting interviews with more than 40 industry experts, from start-up founders to investors and their partners along the entire value chain, as well as making test purchases. We discuss our findings on the market in this article and a new report, The urban delivery bet: USD 5 billion in venture capital at risk?

Many delivery start-ups are one-trick ponies

Although urban delivery start-ups are striking a chord with consumers, their rise is ultimately due to investors’ bets on a virtuous cycle. Namely, the success of the urban delivery market depends on scale at a level that is only possible with heavy up-front investment.

More than two-thirds of today’s urban delivery start-up action is in one category: prepared-food delivery. However, winners in this space are already emerging, and their dominance is clear. For the many runners up, a new hunting ground is needed, but it will be hard to come by. Markets such as groceries or nonfood retail do not offer the same rare combination of high gross margins and high urgency as hot food does. At average variable costs per delivery as high as $7 to $10, profitability will remain out of reach for these start-ups in the broader market—unless they reinvent themselves and address the limitations of their instant delivery model. This entails moving from pure point-to-point delivery to more cost-efficient network-based consolidation (and with it, from instant to same-day delivery) and adopting “old school” models of product warehousing and employment. For most new entrants, however, a shift of this magnitude would exceed their capabilities and budgets, and trying to make it happen would set them up for failure.

But start-ups unleashed a big opportunity—and some traditional players are well placed to compete

Even as most start-ups struggle to adapt, their impact on urban consumers’ expectations will be lasting: shoppers have grown fond of having the city at their fingertips. Given this renewed attention to and scope for service enhancements, the same-day formula in retail could come full circle. As same-day delivery stands to outgrow instant delivery by ten to one, it could unlock an opportunity worth more than $200 billion for retailers in Europe and North America over the next decade.

In this context, two types of traditional players could make a mark. On the retail side, brick-and-mortar stores stand to recapture ground from fast-growing pure e-tailers. They alone have the dense network of physical stores to support same-day order fulfillment and delivery from “the city as a warehouse.” In logistics, incumbent parcel services—not start-ups—stand to gain at least 80 percent of the future same-day market. Only they have the critical capabilities that retailers will seek: proven expertise in consolidated network operations, synergies with significant base volume, and the commercial capabilities and standing big-customer relationships to support such deals.

About the author(s)

Florian Bauer is an associate partner in McKinsey’s Vienna office, Ludwig Hausmann is an associate partner in the Munich office, and Jan Krause is a partner in the Cologne office, where Thomas Netzer is a senior partner.

Competing on Customer Journeys

Decoding leadership: What really matters

By Claudio Feser, Fernanda Mayol, and Ramesh Srinivasan

New research suggests that the secret to developing effective leaders is to encourage four types of behavior.

Telling CEOs these days that leadership drives performance is a bit like saying that oxygen is necessary to breathe. Over 90 percent of CEOs are already planning to increase investment in leadership development because they see it as the single most important human-capital issue their organizations face.1And they’re right to do so: earlier McKinsey research has consistently shown that good leadership is a critical part of organizational health, which is an important driver of shareholder returns.2

A big, unresolved issue is what sort of leadership behavior organizations should encourage. Is leadership so contextual that it defies standard definitions or development approaches?3Should companies now concentrate their efforts on priorities such as role modeling, making decisions quickly, defining visions, and shaping leaders who are good at adapting? Should they stress the virtues of enthusiastic communication? In the absence of any academic or practitioner consensus on the answers, leadership-development programs address an extraordinary range of issues, which may help explain why only 43 percent of CEOs are confident that their training investments will bear fruit.

Our most recent research, however, suggests that a small subset of leadership skills closely correlates with leadership success, particularly among frontline leaders. Using our own practical experience and searching the relevant academic literature, we came up with a comprehensive list of 20 distinct leadership traits. Next, we surveyed 189,000 people in 81 diverse organizations4around the world to assess how frequently certain kinds of leadership behavior are applied within their organizations. Finally, we divided the sample into organizations whose leadership performance was strong (the top quartile of leadership effectiveness as measured by McKinsey’s Organizational Health Index) and those that were weak (bottom quartile).

What we found was that leaders in organizations with high-quality leadership teams typically displayed 4 of the 20 possible types of behavior; these 4, indeed, explained 89 percent of the variance between strong and weak organizations in terms of leadership effectiveness (exhibit).

  • Solving problems effectively. The process that precedes decision making is problem solving, when information is gathered, analyzed, and considered. This is deceptively difficult to get right, yet it is a key input into decision making for major issues (such as M&A) as well as daily ones (such as how to handle a team dispute).
  • Operating with a strong results orientation. Leadership is about not only developing and communicating a vision and setting objectives but also following through to achieve results. Leaders with a strong results orientation tend to emphasize the importance of efficiency and productivity and to prioritize the highest-value work.
  • Seeking different perspectives. This trait is conspicuous in managers who monitor trends affecting organizations, grasp changes in the environment, encourage employees to contribute ideas that could improve performance, accurately differentiate between important and unimportant issues, and give the appropriate weight to stakeholder concerns. Leaders who do well on this dimension typically base their decisions on sound analysis and avoid the many biases to which decisions are prone.
  • Supporting others. Leaders who are supportive understand and sense how other people feel. By showing authenticity and a sincere interest in those around them, they build trust and inspire and help colleagues to overcome challenges. They intervene in group work to promote organizational efficiency, allaying unwarranted fears about external threats and preventing the energy of employees from dissipating into internal conflict.

We’re not saying that the centuries-old debate about what distinguishes great leaders is over or that context is unimportant. Experience shows that different business situations often require different styles of leadership. We do believe, however, that our research points to a kind of core leadership behavior that will be relevant to most companies today, notably on the front line. For organizations investing in the development of their future leaders, prioritizing these four areas is a good place to start.

About the author(s)

Claudio Feser is a director in McKinsey’s Zürich office, Fernanda Mayol is an associate principal in the Rio de Janeiro office, and Ramesh Srinivasan is a director in the New York office.

The authors wish to thank Michael Bazigos, Nate Boaz, Aaron De Smet, Lili Duan, Chris Gagnon, Bill Schaninger, and Ekaterina Titova for their contributions to this article.


Future Stores

From the book “Gamechangers: Creating Innovative Strategies for Business and Brands; Lessons in Innovation from Those Winning the Game”

Cover image for Gamechangers: Creating Innovative Strategies for Business and Brands; Lessons in Innovation from Those Winning the Game


Futurestore, Rethinking the World of Retail

From Amazon to Etsy, ZaoZao and Zappos … through branded boutiques and online marketplaces, digital walls and mobile marketing, big data and personalized promotions … what is the future of retailing, in general, and for your business?

Walking around the Burberry flagship store on London’s Regent Street, with its beautifully arranged clothes, its magic mirrors that superimpose your image in the clothes of your fantasy and place of your choice, and the VVIP room on the top floor, it is a world of imagination, where emotions not rational desire prevails. It is the work of designer Christopher Bailey who has overseen the rejuvenation of the brand from its ‘chav’ ubiquity to its super premium status. The $100,000 limited edition white alligator skin jacket, not to everyone’s taste, perhaps demonstrates this stretch. It is a brand that is truly global, more Asian than European if measured by its custom, and more digital then physical, based on the focus of its innovations. Burberry showcases the future of retail – as a niche focused, premium branded, hybrid experience.


Online retail has grown rapidly over the last decade, from a marginal bolt-on, to major revenue stream in a multi-channel model. In the USA, it has grown by around 18% per year, and now accounts for 8% of all sales. But digital is more that this, it is not just another way but a fundamental capability that can enhance every channel. Search on your phone, buy online, pick up in store. Go to the store, use your phone to buy, delivered to your home. Retail innovation is about hybrids, combining physical and digital activities and options in a more experiential and valuable way.

Retail purpose, formats and incentives all change – whilst loyalty cards originally drove behaviour through points, people soon became wise that the rewards were trivial compared to special offers in store. Whilst stores have enhanced their shopper experiences, markets have fragmented with more space for discounters. In Turkey, for example, BIM has taken around 40% of the food market with low price, small outlets across cities. At the same time, online players have morphed into credible alternatives, where Amazon sells wines and eBay replaces physical outlet stores. More emotionally, technologies such as Synqera from Russia can ‘mind-read’ a shopper’s emotions, judging how to best engage them as they shop and how to make them smile.


Mobile is already a huge factor: at upmarket fashion retailer Gilt, 50% of shoppers and 30% of sales are by mobile. It is the glue that brings together online and offline, creating more personal experiences, from individual promotions geo-targeted, to in-store research and navigation, price checks and comparisons, as well as fast and safe payment. As newspapers are replaced by digital news, TV is on demand, and online retailers never close their doors, the way retailers engage and serve consumers changes. We expect 24-hour access, we don’t tolerate stock outs, compare prices instantly, shop beyond our borders, and demand delivery in 24 hours.

Big data, the huge quantities of transactional data, mashed with other sources of personal and behavioural data through complex algorithms, means that marketing is highly personalized. Around 35% of all Amazon purchases and 75% of Netflix movie choices are based on recommendations. Of course these suggestions compete with the much more trusted recommmendations of friends and peers on social media, often valued around 10 times more highly than anything from a brand. A brand therefore needs to think laterally about how to influence communities, and give them the abilities and incentives to influence each other. Consumers also become much less tolerant of failures, unavailable products or poor service, they expect free and easy returns, and they immediately tweet their feelings, particularly the negative ones, to thousands of people like them.

Together, our gamechangers show how the variety of innovations builds a future vision of retail. The demand side is led by the engaging, personal experiences – driven by the passion of Zappos, the collaboration of Threadless. On the supply side, this is about the efficiency and speed of Amazon, the reach and richness of Aramex or Etsy, and the transparency of Positive Luxury. In between is the ability to match niche segments with lifestyle store experiences, and whilst the Abercrombie brand portfolio is not without challenges, it knows how to connect.

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