The Supply Side: Drone delivery among retailers becomes more prevalent

Once seen as a small possibility, drone delivery for online orders has become a reality for Walmart and some of its competitors. Drone deliveries are increasing with ongoing investments among big retailers following more leeway from the Federal Aviation Administration (FAA).

Walmart has tested drone deliveries with various partners for the past two years but more recently ramped up investments in the final-mile delivery method following the guidelines released by the FAA in January 2021.

Walmart announced in May 2022 that it was expanding its investment with DroneUp to 34 sites by the end of the year. The drone towers have become fixtures at local Walmart stores in Pea Ridge, Store 100 in Bentonville, and the Walmart Neighborhood Market store in Farmington.

Walmart said the investment would make drone delivery available to more than 4 million U.S. households in Arizona, Arkansas, Florida, Texas, Utah and Virginia, according to David Guggina, Walmart executive over innovation and automation. He said the investment allows Walmart to make over 1 million drone deliveries annually.

Using the Walmart Express order option, consumers can place orders between 8 a.m. and 8 p.m. for thousands of items such as Tylenol, diapers or hot dog buns and then track the delivery online. Customers pay $3.99 for each drone delivery which they can receive within 30 minutes of the online order. The weight limit is 10 pounds.

“After completing hundreds of deliveries within a matter of months across our existing DroneUp hubs, we’ve seen firsthand how drones can offer customers a practical solution for getting certain items fast,” Guggina said. “More importantly, we’ve seen a positive response from our customers that have used the service. In fact, while we initially thought customers would use the service for emergency items, we’re finding they use it for its sheer convenience, like a quick fix for a weeknight meal. Case in point: The top-selling item at one of our current hubs is Hamburger Helper.”

Since 2020, Walmart also has had drone delivery pilots in place, with Flytrex and Zipline focusing on consumables, grocery, and health and wellness deliveries in select U.S. markets.

Alphabet, parent of Google, announced in April drone delivery service in Dallas/Fort Worth metro on behalf of retailers such as Walgreens. The drone service delivers health and wellness products to customers’ homes.

Google said the scalable drone delivery operation in the Dallas metro area is the largest to date. Walgreens employees in the Dallas area process orders and load packages onto drones, while Google Wing oversees the delivery from a remote location.

Amazon said in August that it would launch drone delivery in California and College Station, Texas, later this year, marking the retailer’s first U.S. commercial drone debut. The online retail giant has tested drones for the past 10 years and began delivering packages via drones in the United Kingdom in 2013. Amazon has worked with the FAA since 2020, operating as an airline and testing drone delivery via a Part 135 Air Carrier Certificate.

“We developed and validated over 500 safety and efficiency processes, which formed the basis of our Part 135 submission. The FAA also rigorously inspected our drones and build process and practices,” Amazon noted in the Aug. 22 release.

Amazon said customers in Lockeford, Calif., and College Station would soon see Prime Air-eligible items on Amazon. They will place an order as they usually would and receive an estimated arrival time with a status tracker for their order. For these deliveries, the drone will fly to the designated delivery location, descend to the customer’s backyard, and hover at a safe height. It will then release the package and return to altitude.

With elevated fuel prices and ongoing workforce challenges, analysts expect to see retailers use drones for more final-mile delivery. The delivery method holds potential for retailers to serve customers while reducing final-mile costs, said Oliver Chen, a retail analyst with Cowen.

Ark Invest estimates the cost per drone delivery in the U.S. now averages between 88 cents and 52 cents per package.

CONSUMER REACTION
Consumers mainly favor drone delivery, even if it costs a bit more. A recent survey by marketing firm Smarty found that 48% of shoppers are willing to pay more for drone delivery if it means getting the items within an hour or so of order. The items consumers were most willing to order via drone delivery include food (40%), medicine (38%), batteries (30%), and smartphone replacement (30%).

“As technology advances in the shopping industry, delivery methods might soon change to include alternate forms of transportation like drone deliveries,” Vipin Porwal, CEO and founder of Smarty, said in the release. “But consumers don’t seem concerned about technological advances as much as they are about receiving their purchases, especially if it means they get their products faster.”

Smarty also asked consumers to express their most significant concerns with drone delivery. Topping that list was delivery to the wrong address (58%) or damage to the item during the trip (51%).

Auterion, a flight control tech company, surveyed consumers in July about drone delivery and found that 58% favor drone delivery. A whopping 64% see the delivery method as beneficial soon. Also, 47% said they would purchase from a specific retailer to get the option of drone delivery.

About one-third of consumers think it’s possible now or within a year for Americans to integrate drone delivery into shopping options. 36% said they remain doubtful about drone delivery, citing government scrutiny and ongoing regulation.

Lorenz Meier, co-founder and CEO of Auterion, expects the doubtful population to decrease as more retailers offer drone delivery.

“Home delivery has become the new convenience store, with groceries, clothing, household items and food leading delivery orders for more than 80% of Americans. We expect that drone delivery will become the preferred delivery method for consumers, creating better shopping experiences by both reducing delivery times and bringing a positive impact on the environment,” he said.

Editor’s note: The Supply Side section of Talk Business & Politics focuses on the companies, organizations, issues and individuals engaged in providing products and services to retailers. The Supply Side is managed by Talk Business & Politics and sponsored by Propak Logistics.