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Delivery Apps: Convenient? Expensive?

Sigma Investment Counselors

November 24, 2015

A proliferation of rapid-delivery apps has turned the smart phone into a magic wand that can direct a wide variety of products and services to your door.  Of course, instant gratification tends to carry a price, with a plethora of fees, and delivery and service charges.  Is it worth it?  That is the critical question for investors and consumers.  Investors want to participate in what works, which requires an understanding of the business model.  Consumers have to weigh the alternatives.

We are all familiar with Amazon and Uber, but in addition, particularly in larger cities such as San Francisco and New York, you can order almost instant-delivery of a wide variety of products, from a latte to a week’s groceries.

To attract investors, it is incumbent on vendors to be able to charge enough to make a profit.  Consumers have to weigh convenience against cost, in the context of alternatives.

It is interesting to note that the concept of delivery apps tends to work best in large, congested cities where a significant percentage of the population enjoys above average incomes but does not have convenient access to a motor vehicle.

An analogy that most of us may be familiar with would be staying at a nice resort where the meals are relatively expensive.  Do you eat at the resort or go into town, where the dining options are both interesting and cheaper.  Remember, if you go into town you have to pay for transportation both ways.

All comments and suggestions are welcome.

Walter J. Kirchberger, CFA®

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