Retailers, You Should Pay Attention To DronesPublished on September 9, 2016
Until recently, I wondered if the attention on drones was more hype than substance. Are we really going to have a bunch of flying machines buzzing around above us delivering packages?
Until recently, I wondered if the attention on drones was more hype than substance. Are we really going to have a bunch of flying machines buzzing around above us delivering packages? It sounds like science-fiction. Of course, a few years ago driverless cars seemed pretty far out there; now they’ve become more and more a part of regular conversation. Likewise, before Pokémon Go, widespread use of augmented reality seemed surreal; are we really going to see hordes of people walking around cities like zombies, looking at their phones? Well…yes.
So when I recently met Andriyas, a bright young drone specialist, I wanted to learn all I could about drones and, especially, how they could impact retailing. The more Andriyas and I talked, and the more additional research I did, the clearer it became to me that drones have the potential to have a meaningful impact on retailing. In the real, non-science-fiction world—the world we do business in.
With this in mind, I put together this quick summary to help retailers understand more about the potential for drones in the industry.
Why would a retailer use drones?
There are two main applications for drones in retail that are currently foreseeable. The first is drone monitoring for things like site selection, building security and inventory management. The second, and potentially more disruptive application, involves using drones for delivery.
All retailers know the challenges of finding good sites and the importance of getting a holistic view of a property. Drones can provide a 360 degree view of a building or a site as well as the surrounding areas and traffic patterns. Another monitoring use is in inventory management. Walmart’s US based Vice President of Last Mile and Emerging Science recently told reporters that drones could complete a physical inventory of a Walmart warehouse in just a day; compared to the current month-long process.
While further out on the timeline for widespread adoption, drone delivery has the potential to make a big impact. Drones could be a cost-effective alternative to road delivery for low-weight packages traveling those challenging last miles. If you’ve ever wondered why Amazon is so interested in drones, it probably has something to do with the fact that 86% of their packages weigh less than 5 lbs, and they say that drones will help them make deliveries in 30 minutes or less. A recent Deutsche Bank report projected that a decade from now drones would reduce the unit cost of each Amazon delivery by about half. So the benefits would be lower delivery costs and faster delivery times – pretty important benefits to most retailers as ecommerce continues to grow.
What will it take for drone delivery to become mainstream?
A high hurdle to mainstream drone use is government regulation. New Zealand is regarded as a leader in this area, while other nations such as Japan and the UK are also considered to be ahead of the US and Canada, although progress is being made. In August, the US Federal Aviation Administration (FAA) instituted new regulations making it easier to operate drones although not specifically addressing drone delivery. Canadian regulators are in the process of creating and updating the rules for drone use in Canada.
There are also technical and social issues to be addressed. These include the how-to’s of operating drone fleets, serving high density locations, and battery life. Not small challenges, but other disruptive technologies like self-driving cars also have to overcome these types of challenges along the road to widespread use.
Which retailers are using drones?
Among major companies currently testing drones are Amazon, Walmart, Alibaba, Google, 7-Eleven and Domino’s. While some are testing delivery in the US, some are also going abroad to learn in countries with more favorable regulatory climates. Domino’s is launching drone-based pizza delivery service in New Zealand. Amazon is testing drone delivery in the UK. Logistics company DHL has been using drones for almost two years on a small route in Germany. In the US, 7-Eleven made its first commercial drone delivery in Nevada this July (which, of course, included Slurpees). In October, Walmart reportedly applied to U.S. regulators for permission to test drones for home delivery, curbside pickup and checking warehouse inventories.
What’s the likelihood that drones will have a big impact on retail?
Beyond near-term applications like helping with real estate site selection, there are potentially larger strategic implications for retailers, particularly related to delivery. You may think the likelihood of widespread drone deliveries is very low and so far off that it requires no attention from you today, and maybe not ever. You very well may be right, although here are a few things to consider:
- Ecommerce will continue to grow – Canada and the US are far behind countries like the UK and China in ecommerce penetration
- Amazon is dominating US ecommerce growth – they captured 60% of US online sales growth in 2015
- Amazon, among others, is investing a lot of effort and money into innovating in its distribution network (drones, self-driving vehicles, planes)
While not all of their initiatives may work, it’s worth asking yourself these questions: How likely is it that Amazon (or possibly another company) will disrupt how retail distribution works? What could this look like? Could drones play a role in this by providing deliveries in minutes at a low cost?
What should you do about this?
Does drone delivery create a threat to or an opportunity for your business, or are you certain there is no potential impact? If you haven’t thought about it yet, this would be a good time to consider if it’s likely that it could affect your business; and if so, what the potential impact could be. Since drone delivery is still in its infancy, you have some time. Use the time to do your homework. Just a few ideas to start:
- Monitoring the results of drone use in other countries and by other companies
- Learning more about Amazon and its plans
- Conducting a more in-depth review of this and other technology-enabled innovations and incorporating this into your strategy
At this point, perhaps technologies like this can seem hard to imagine as realistic. All too often, these types of innovations aren’t seen as important given the many ongoing challenges of running a business or capitalizing on near-term opportunities. However, an innovation isn’t transformational until it is accepted, and when it is, if you haven’t prepared, it can be too late. We continue to see industries be disrupted by technology-enabled innovations – from Uber disrupting taxis to Spotify and others disrupting the music industry. Don’t wait until technology enabled innovations disrupt your business before you create your strategy for the future.
If you have any questions please feel free to email me directly at email@example.com
Thank you to Andriyas Redel for his help. Andryias is the founder of Spectr a network to connect drone owners and those who want to rent them.