Amazon fights Walmart in the ‘last mile’ race



Posted on 06/26/2017 by David Radke

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In their recently announced purchase of upscale grocery retailer Whole Foods, Amazon hopes to gain several things. Customers, real estate and mounds of data are just a few of the big-ticket items that will likely change hands, along with an estimated $13.7 billion, in the course of the deal. But according to some business analysts, the merger is the latest push by one of the world's largest online retailers to solve a problem that is fundamental to the business.

"The last mile problem is a crucial challenge in logistics."

In transportation and supply chain management, as well as telecommunications, a primary goal is solving what's known as the "last mile problem." Essentially, it involves understanding the mismatch between the most efficient way to transport a large number of goods, and the most accurate way to get those individual parcels to a customer's doorstep. Moving items over trucks, railways, airplanes and ships is obviously the cheapest and fastest way to move a large amount of product from point A to B. But a disproportionate share of the costs - as much as 28 percent according to a University of Delaware study - is taken up by the final leg of the journey. In short, the final mile of a delivery could end up costing more than the previous 500.

Therefore, solving the last mile problem has become crucial in the hyper-competitive e-commerce industry. One possible solution is one of brute force, which Slate reporter Daniel Gross argues for. Gross noted that a fellow business writer summed up the Amazon/Whole Foods deal as boiling down to "431 upper-income, prime-location distribution nodes for everything [Amazon] does."

Why the last mile matters

The last mile becomes an even bigger problem when dealing with perishable goods, as Amazon's grocery service already does. Many of these items may spoil if left in the heat for too long. Food like produce is also harder to pack into square boxes, which means precious cargo space quickly disappears. Finally, Amazon and most other online retailers usually need to outsource delivery anyway, giving them less control over the last mile, but still responsible for any mistakes.

As Gross pointed out, the last mile was less of an issue in the recent past, when brick-and-mortar stores essentially took on this role. Stores can stock a surplus of goods and still provide personalized service at less cost than delivery. But that means essentially shifting the last mile investment from the business to the consumer. Amazon, as well as established retailers like Walmart, have been working to ease that burden in the digital age.

Walmart makes its move

With its purchase of Whole Foods, Amazon could gain a leg up on Walmart, which now directly competes with the e-commerce giant in some of the same product categories. Walmart recently introduced an option to pick up items in-store, or even curbside, at some locations, making it easy for customers to shop online. Amazon will no doubt look to expand on this concept by converting Whole Foods locations into pickup and drop off centers. 

On the same day the Amazon/Whole Foods deal was announced, Walmart revealed its own new plans to grow its digital business, purchasing the online men's fashion service Bonobos. As Neil Irwin of The New York Times explained, these two deals between two competing corporate monoliths represent a broader shift in the global economy. It's a shift that particularly impacts the transportation industry, since trucks and drivers will be on the front lines of the last mile.

As Irwin explained, this can be both a positive and negative development for many different industries, including transportation. On one hand, it means Amazon and Walmart will certainly continue to hire and invest in people and technology involved in transporting goods. On the other hand, it means these two giants will continue to dominate a large swath of the global economy. Irwin and others have argued that this phenomenon is expanding the gap between the companies that succeed and those that fail, with implications for their employees' incomes and job prospects. Only time will tell how serious this effect will be in total.

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