Pizza Drone, Anyone?

Hello faithful readership, after a well deserved summer break, I am back!

Last week I saw footage of the first successful drone pizza delivery in New Zealand.  Domino’s Pizza (NYSE:DPZ) delivered a piping hot pizza to a picnic blanket in a park.  This got me thinking about the drone delivery system on a bigger scale, and how will this apply to more mundane deliveries.
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Let’s face it, whether you like the idea or not, it is pretty cool to have anything delivered to you by drone.  From a pizza delivered to your favorite picnic spot, to a bottle of sports drink delivered to the middle of your hike in a mountain top.  There are also very practical measures, you can have a package dropped within your fence or even in your back yard, while you are away, hence reducing the chance of it being stolen if left at your doorstep and avoiding the dreaded card in your letterbox.

The way I see it, there are two types of deliveries:  urgent deliveries, and everything else.  An urgent delivery is classified as something that has to get to the consumer within a very short period of time or it better not get there.  This applies to hot food delivery, pizza, Chinese, fried chicken or anything other meal that has to arrive hot.  It also applies to life saving events – delivery of blood or organs.  Everything else, whether you need it within a day or a week can be classified as non-urgent.

The reason I make this distinction, is because urgent deliveries are generally done one at a time by one person (in car, bike or motorcycle),. where other deliveries are done in a truck.  And it is there where the crux of the debate lies:

A truck can deliver 100 packages a day, using 8 man hours, and some fuel.  This is still the most efficient delivery method for non-urgent packages.  Especially because drones can’t deal with delivering several packages to a single addressee, and the service is often offered by the merchants, not by the logistics company.  Fedex (NYSE:FDX), UPS (NYSE:UPS) and USPS have distribution centers where they sort packages, and then send trucks out for door-to-door delivery along a route.

Retailers like Amazon (NASDAQ:AMZN) who offer drone delivery need to send out the drones from their warehouses to the customer’s address.  This can prove challenging given the warehouses locations.  The alternative is for them to use truck and plane logistics to move the goods around the country and consolidate them at distribution centers closer to towns, and use the drones for last mile delivery.  Either way, drone delivery can proof to be challenging to say the least.

Drone delivery would be a great idea for a company like Walmart (NYSE:WMT), which claims that 90% of the US population live within 15 minutes of a Walmart store.  Drones can also provide extremely useful when delivering organs for transplant.  Many organs arrive from other locations by plane, and the delivery from the airport to the hospital is usually done by ambulance (where a helicopter is not available).  A drone could do that in half the time.

Where I see a great market for drone delivery is in the food business.  Pizza, Chinese or other type of deliveries can be made by drone, controlled from the restaurant.  A small flotilla of drones could easily replace delivery boys, ensure the pizza arrives in 30 minutes or less, and deliver hot food every time.  It could also increase the delivery radius of a restaurant.  Some welcome collateral effects include reduction in street congestion.  The initial cost would be anywhere between $1,000 and $3,000 this could put off a few mom and pop shops, but running costs as well as personnel costs will be reduced considerably over the life of the drone.

To conclude, I think there is a great potential for drone deliveries in the foreseeable future, but I don’t think they will be replacing the UPS guy any time soon… pizza delivery boys on the other hand, beware your days may be numbered.