FedEx and UPS Have New Competition: You're Never Going to Guess Who It Is

By Markets Fool.com

Retailers, seeking to compete with the likes of Amazon.com and its Prime Service havecircumvented the problem of paying third-party services for delivering products to customers by using their stores as distribution centers, allowing them to more effectively compete.

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The ship-to-store delivery model allows retailers to level the playing field, even tilt it in their favor, via more efficient and cost-effective logistics operations. Another package on a truck already heading to a store incurs no additional cost. But it also opens up more opportunities for competition in package delivery.

Amazon.com may have fanciful visions of using drones to deliver packages, but there are more practical options available today. Image: Amazon.com.

The latest development in the product delivery world is an app: comically named "Roadie". Roadie is the latest app seeking to leverage the power of the Internet to bypass delivery middlemen UPS and FedEx . The company unites its network of drivers with those that hired them and has them converge in a rather unlikely setting: Waffle House restaurants.

Delivery on a full stomach
According to The Wall Street Journal, Roadie is available in 10 southeastern states. The app that is downloaded to your smartphone lets users indicate the type of package they want delivered, along with the pickup and drop-off locations. It could be delivered right to your door if you choose, but if the spate of assaults allegedly committed by ride-sharing drivers has you wary of inviting a stranger to your house, you can opt to have it left at the local Waffle House, which is using its 1,700 restaurants as a distribution hub of sorts, or Roadie Roadhouse as they're being called.

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The Internet's revolution of package delivery even has Amazon taking notice; this is ironic since Amazon pioneered the use of the Web to upset the order of things in retail. Now it finds itself having to quickly build out distribution centers so that more orders can get into the hands of its customers in a timely fashion. In select markets, subscribers to Amazon's $99-per-year Prime service can getsame-day delivery on some purchases, including groceries and dry goods, and the new Prime Now option can even deliver some orders in 60 minutes or less for just $6.

However, the Roadie-Waffle House partnership serves as more of a direct competitor to UPS, FedEx, and even the U.S. Postal Service. While some items could be more expensive to ship using Roadie, on larger packages it will be the lower-cost alternative.

Roadies, which is what the drivers are called, start their deliveries only in the southeast at the moment (the app is looking to expand), but the package can actually be delivered anywhere in the U.S. If you're willing to drive you can take the package. So long as you're 18, have a valid driver's license (which you need to scan to the company), and valid auto insurance, you're good to go to sign up.

Costs range between $12 and $200, depending on the item, and the driver is paid 80% of the price.Waffle House entices drivers to participate by offering them a free waffle when they download the app and a free drink when they make a delivery.

Like its rivals, Roadie does have limits on what its drivers can haul, like cigarettes, alcohol, and firearms and ammo, along with cash, prescription drugs, gasoline, and curiously, air bags.

A free waffle might prove too enticing to overcome in the next phase of package delivery growth. Image: Roadie.

Whether Roadie can make a real dent in the package delivery business, however, remains to be seen as there are significant hurdles to surmount. Shipments of illegal goods, for example, is starting to dog the big carriers, and there's the risk of merchandise being stolen. But Roadie can also replicate Amazon Prime's next-day delivery model at virtually no cost.

How UPS might be affected
Which might be why UPS is investing in Roadie through its investment arm UPS Strategic Enterprise Fund, using the investment to learn about new ways of doing business without building out a service of its own. The service also lends itself to being co-opted should it prove advantageous. When car-sharing service Zipcar took off, for example, car rental giant Hertzlaunched its own competing business and then Avis Budget Groupacquired Zipcar. A similar shakeout is likely in package delivery at some point.

Call it the sharing economy or collaborative consumption, but the shared production and consumption of goods and services is transforming how business is getting done. Some estimates see sharing services becoming a $535 billion industry over the next 10 years, and Roadie's competitive advantages could be make it a dangerous David to the Goliaths of package delivery.

The article FedEx and UPS Have New Competition: You're Never Going to Guess Who It Is originally appeared on Fool.com.

Follow Rich Duprey's coverage of all the most important news and developments in the leading brand name products you use. Hehas no position in any stocks mentioned. The Motley Fool recommends Amazon.com, FedEx, and United Parcel Service. The Motley Fool owns shares of Amazon.com and Hertz Global Holdings. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.