How The ‘Last Mile’ Will Lead To Game-Changing Returns

The surprising announcement last month of Amazon’s (Nasdaq: AMZN ) intention to acquire high-end grocer Whole Foods Market (Nasdaq: WFM ) conforms to the age-old notion that nobody can do it alone.

Even Amazon — the original “if you build it, they will come” company… the company that never cared much about margins but was obsessed about volume (which turned out to be just the right solution for e-commerce) — couldn’t do it all without the help of others.

Quite often, this help has come in the form of an acquisition. Of course, the $13.7 billion purchase of Whole Foods, if it goes through, would be the company’s largest acquisition to date. But Amazon has also used smaller acquisitions to help build its grand vision.

Since going public in 1997, all its acquisitions have resulted in the creation of the Amazon we know now.

For example, in 1998, the company made a somewhat puzzling purchase of IMDB, a leading website for facts and information about TV and movies; now it serves as both a content provider and a marketing tool. Its 1999 purchase of Alexa, then just a web navigation service, is now a subsidiary for web analytics and search engine optimization (SEO). Millions of people now talk to Alexa personally when they want to order something, play music or simply know the day’s weather forecast in their city. Then there’s the 2009 acquisition of Zappos for $1.2 billion in stock and the 2016 acquisition of privately-held Cloud9 IDE, an enterprise and developer cloud platform.

But just like in its early days, the company still wants to grow. Hence the move into groceries.

Some analysts, however, theorize that what Amazon is going for isn’t really a grocery business but rather a solution to the infamous “last mile” problem.

What exactly is this problem, and why is it so important?

‘The Last Mile’: The Key To Solving Online Retail

The “last mile” is an industry term for the final leg of a goods delivery. In other words, it’s the usually short distance from the distribution center to your house.

As ordering goods online becomes more and more popular, the need to deliver those goods quickly and cost-efficiently to their ultimate destination has grown into a significant issue. It’s no longer sufficient to get them to a store and let customers take care of that “last mile” themselves; now, we want things delivered straight to our door.

Today, if a company wants to stay in business, it has to offer competitive delivery at a compelling cost for its products. Otherwise, it will lose business to the competitors who are able to either crack the “last mile” puzzle (or are at least willing to eat the costs of timely delivery).

Indeed, this is no longer a question of what the consumer “wants” — efficient and timely delivery is now considered as reasonable an expectation as a fully-stocked physical store or a website that doesn’t crash. In other words, it’s a must.

One reason the “last mile” has become such a big issue for e-commerce companies is that there isn’t much flex room for things like costs and timing. According to a 2016 study by McKinsey, 70% of consumers are content with the cheapest form of delivery — meaning, in other words, that the majority isn’t willing to pay extra for the goods to be delivered directly to our homes. Only 5% of all consumers were willing to pay more for a reliable, timely delivery.

As we’ve come to accept a delayed gratification that comes with online shopping, we are generally willing to wait rather than pay extra for that “last mile.”

On the other hand, this does not mean that every single online shopper is willing to accept just any delivery terms. The same McKinsey study also found that nearly 25% of consumers were willing to pay significant premiums for same-day or instant delivery. Only 2%, however, said they would pay sufficiently more to make instant delivery viable.

For basically any e-commerce company, the “last mile” has become a make-it-or-break-it issue. And because it’s so important for the industry, any company that either solves the issue or provides help in solving it will reap the benefits. That goes for investors, too.

How We Plan To Profit From ‘The Last Mile’

Fortunately, my subscribers and I already have such two companies in our Game-Changing Stocks portfolios.

I can’t reveal their names to you out of fairness to my premium readers, but I’ll tell you a little about them so you’ll see what I mean.

One company offers an online food ordering platform for local restaurants. Simply pull up the app on your phone, order, and the food arrives to your door in minutes.

Not only does the company match up the best delivery person with every specific order, but it also allows customers see the delivery progress. This improves both the cost profile of the “last mile” delivery and the customer satisfaction with it. And unlike Uber, whose technology also allows for the matching up of the closest driver with the closest customer, this company is profitable. (That’s a big reason why we’re sitting on a quick 14% gain with the stock.)

Our other holding helps retailers perfect their online game, including delivery. For a traditional retailer, the location of its warehouse largely determines what speed and at what cost it can ship to other regions of the country. Some of these can be cost- or time-prohibitive without this company’s help.

One strategy that many of its customers are taking is to partner with Amazon and use the fulfillment by Amazon (FBA) services. This company helps further: It can manage the quantities of goods for sale, routing the orders to different distribution centers based on the customized fulfillment strategy, improving both cost and speed of delivery.

For the record, I like both of these stocks at their current levels. Amazon or not, there is plenty of business for these two companies to deliver upon. And while I couldn’t reveal their names to you in this article, hopefully this gives you an idea of what I’m talking about when I say there is money to be made for investors in this space.

Click here to get the names of these picks, as well as the full list of stocks in my Game-Changing Stocks portfolio. If you don’t, you’ll be missing out on a list that has recently seen gains like 50% in five months and 35% in just two.

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