5 Things Brick-And-Mortars Need To Know About The On-Demand Economy

'Traditional' businesses should work with on-demand app upstarts — not against them. Here's how.

Forty-five million Americans have identified with being a part of the on-demand economy — an economy projected in a recent McKinsey study to boost global GDP by 2.7 trillion by 2025.

But while the “on-demand economy” — an umbrella term meant to encompass on-demand delivery and staffing as well as the sharing economy as a whole — is full of promise when it comes to seamless ordering solutions, it is a whole new world for traditional brick-and-mortar businesses. These companies are left asking if tech-savvy upstarts could put them out of business, or if they need to offer on-demand delivery on their own in order to compete.

The rise of on-demand does have the possibility to disrupt and reshape entire industries, but that doesn’t mean that physical commerce won’t still play a vital role. Quite the opposite, in fact.

Here are the five things that brick-and-mortar businesses need to know about the evolution of the on-demand economy before it outpaces them.

Partnerships And Integrations With On-Demand Delivery Apps Will Become Even More Vital

Partnerships in the food delivery space are already well established. Take, for example, Uber Eats: The entire concept of the program revolves around physical eateries preparing food for Uber to deliver.

“On the food side, [the shift towards on-demand delivery partnerships] has already happened,” said Holger Luedorf, SVP business at delivery specialist Postmates. Not only is the company delivering food from existing restaurant kitchens, but “we have restaurants that are starting to set up commissary kitchens in order to cater to the demand that is coming from on-demand delivery services like Postmates. They don’t have to spend the money on the waiters; they can focus on the food and the cooking and the back of the kitchen, so to speak. And we drive the demand.”

Companies like Uber and Lyft are driving similar partnerships, according to former Lyft senior manager Paige Thelen, who advised that every company — whether an on-demand delivery provider or a brick-and-mortar business — should drive integrations based on a shared mission and consumer base.

“Our philosophy around partnerships [is that] taking care of our communities is something we truly believe in, and something that we work hard to do every day,” Thelen said. “At the same time, we all share something in common every day: a commute into work and that first cup of coffee to start your day. It was this truth that made, for example, a partnership between Lyft and Starbucks make so much sense. Finding partners with shared values and visions is the best way to create a meaningful experience for customers, while also making the partnership work for the business.”

For his part, Luedorf believes that the second major vertical shift is going to come in the retail sector. In fact, we’ve already seen its beginnings: Pottery Barn teamed up with Munchery for on-demand delivery of its cookware, and Via drove customers — literally — to physical Frye stores in New York. Expect to see a lot more of this over the next several years, and brick-and-mortar businesses need to catch up.

The good news is that “for us, brick and mortar retailers are [absolutely] critical. We are starting to see that what has happened with prepared food [delivery] is ultimately changing how brick-and-mortar businesses are thinking about their business overall,”Luedorf said. “They are still attracting foot traffic into those stores; people are actually making purchases there. But, on-demand delivery, both for retail and for food, is growing. We are going to see this shift on the retail side.”

Brick-and-mortar businesses are actually the backbone of delivery enterprises like Postmates, which uses the city and the city’s retailers essentially as its warehouses. And these types of partnerships, Luedorf explained, could be the key to competing with the likes of Amazon. The physical store locations act as stockrooms, and companies like Postmates provide the immediate or near-immediate local delivery — acting as a competitor to Amazon Prime.

“In a sense, yes, what we’re allowing these retailers to do is to emulate what Amazon is doing with Prime Now,” Luedorf said. “They can do the same thing because they have a great variety of goods, and the only thing they are missing is the logistics piece. And that can be solved [through] partnerships.”

On-Demand Isn’t Just Consumer Facing

According to a 2016 survey from Burston-Marsteller, 45.3 percent of adult Americans have worked in the on-demand economy — roughly 22 percent of the population.

And that doesn’t mean they’re all working for apps. We tend to think of the on-demand economy as populated by pioneering consumer-facing apps like Uber and Postmates, but as disruptive as these companies have been, the business-to-business use case could have as much — or even more — of an impact. To wit: By 2020, between 40 and 50 percent of the workforce is expected to be made up of independent contractors, many of who will be staffed in an “on-demand” fashion.” This means that businesses of all stripes will hire part-time employees though digital means.

“In our survey, we saw that 60 percent of the same population that were surveyed are using independent contractors, and they are happy with them as independent contractors. You have a [strong] indication that this is an emerging trend,” said Rowan Benecke, global chair of Burson-Marsteller, who helped engineer the survey.

It’s true that full-time “traditional” staff offers employers more control and perhaps reliability — but Benecke stated that even respondents who were happy with their full time staff began to indicate that they were growing more interested in looking at more flexible types of arrangements to more adequately manage different workflows, as well as ebbs and flows in demand.

“Just in the six months between two different surveys [of the industry], we saw the awareness of the actual term ‘on-demand economy’ was more prevalent six months later than it was at the end of [2015],” Benecke said. “We’re on the early stages of the education curve, just in terms of awareness on the topic. Once people are familiar with the topic, then they’re more interested to explore it and what it means for them. That’s why [we’re starting to see] take up rates increase, companies indicating that they’re going to hire more contract workers, or people saying they’re more interested in that kind of working arrangement for themselves. We’re going to see those numbers grow exponentially each year I would imagine — and [drastically] in the next five years.”

Should businesses drop everything to adopt alternative staffing models? Of course not. But it’s a trend to keep in mind, and hiring part-time employees in an on-demand fashion only when specific tasks need to be accomplished can be an effective cost-savings — so long as the company doesn’t cut corners when it comes to retaining necessary full-time employees.

The “Postmates Bubble?” Don’t Worry So Much.

 In early 2016, a bold New York Times headline declared the on-demand dream “dead,” leading many news outlets to ask if the so-called “Postmates bubble” was destined to pop. Is it true?

On-demand prices have shifted, to be sure. But what is up for debate is whether any visible prices changes are — or ever will be — prohibitive.

As a first example, Postmates service fees can vary, and few would call them “cheap.” But last year, the company made a shift that makes many of its deliveries more affordable: With the introduction of Postmates Plus, delivery fees for a set number of popular city merchants stayed flatly $2.99. For a user placing a Postmates order from the central Flatiron neighborhood in Manhattan, for example, this means that 177 merchants — preferred partners of Postmates — are available for less than $3 in delivery charges.

This cheaper service still only represents about 30 percent of Postmates total orders, but the company — as well as “cheaper” competitor DoorDash — says it sees opportunities for continuing to lower prices as it grows, a point that Manjoo conceded in the Times piece.

Additionally, some of the aforementioned on-demand services have been able to manage or lower prices as they scale. But for those that can’t and yet are still in business — Manjoo mentioned Instacart’s delivery raise from $4 to $6 — a question: Has the on-demand economy ever been about affordability?

Many analysts say no. Sure, everyone enjoys getting an Uber for cheap (when there isn’t surge pricing, of course), but the true draw of on-demand is the convenience factor — not discounts.

“I don’t think there’s going to be a bubble in terms of the demand for these types of services,” Beneke said, reinforcing this point. “I think consumers are increasingly going to be more comfortable as they become more aware of this [economy] and as they trust these brands. It’s hard to dial back a consumers’ expectation to have them want less, in terms of services or options or ways of experiencing a brand.

“But I think, for companies, this is a critical time to communicate more. What we know from working in consumer marketing areas is that, particularly when it comes to Millennial audiences, they want to feel an emotional attachment to a service as opposed to just a rational. I think that’s a lesson for companies who are building services to meet consumers in an on-demand model: Don’t underestimate the importance of communicating about your brand and about your service.”

Manjoo made a fair point in the Times piece when he wrote, “investors saw Uber’s success as a template for Ubers for everything. ‘The industry went through a period where we said, let’s look at any big service industry, stick ‘on-demand’ on it, and we’ve got an Uber,” said Hunter Walk, a venture capitalist at the firm Homebrew, which has invested in at least one on-demand company, the shipping service Shyp.’

This is a valuable lesson. If anyone should know that one size doesn’t fit all in the business world, it should be on-demand entities, the ultimate purveyors of customized experiences. Communicating an individual value proposition from a unique perspective is a must.

Think Outside The Box — This Economic Shift Impacts All Verticals

The importance placed on on-demand delivery partnerships does appear to leave some businesses out in the cold. For example, merchants like ProFlowers paying for customers Uber ride to the store makes sense for retailers and restaurants, but not so much for, say, hoteliers.

But the applications of on-demand service are truly wide ranging, and traditional businesses must consider this.

“Smarter hotels are [beginning] to optimize direct relationships with platforms for enhanced service level relationships,” said Loren Gray, a long time analyst and founder of Hospitality Digital Marketing. “If a hotel is not willing to provide the service in lieu of the on-demand service, it’s best they collaborate as if it was an extension of their own service program. To do less would allow for the degrading of their product as a commodity and not a service, and therefore not promote a guest’s sense of loyalty or memorability of experience, since after all, the guest would be creating their own solutions in deference to the hotels service support.”

All of that is to say that customers will use on-demand services — like, say, ordering Postmates when room service doesn’t have their preferred food option — whether the hotel partners with that on-demand service provider or not. Having a partnership in place that allows for a more seamless guest experience, as well as gives guests the absolute most options possible, is a way to engender loyalty in the mobile age.

Disruption Is Always Possible

Over the next several years, the progress of on-demand service integration is set continue. And, as stated, the number of Americans partaking in alternative, on-demand staffing models will skyrocket. But, to use a cliché that is time-honored for a reason, the only true constant in this world is change.

Is there a chance the disruptors will face disruption? Of course. People’s desires for experiences that cater to them personally and for the ability to live their lives more easily through technology won’t change. But there’s always a chance that the how of on-demand will change: Will it be run primarily through wearables? Through technology we haven’t seen yet? The sky, certainly, is the limit.

What is important is that businesses work to stay on the cutting edge. Survey customers about what apps they use, what companies they frequent, and what about the current customer experience is working for them. Partner with tech companies that have big ideas about new technology, redefining delivery, advancing customer service, and more.

As Jay Shetty stated at xAd’s On Location event in late 2016, after all, “Uber doesn’t own any cars. AirBnB doesn’t own any real estate. They’re [just] connected thinkers who leveraged the sharing economy” and had big ideas. With teamwork and innovation, your company could be, too.

About The Author
Lauryn Chamberlain Lauryn Chamberlain @laurynchamberla

Lauryn Chamberlain is the Associate Editor of A New York City based journalist, she specializes in stories related to retail, dining, hospitality, and travel.