The e-commerce delivery arms race is as heated as ever, but it’s reached a new low in terms of speed. Ohi, a next-generation instant commerce platform that enables brands to meet their customers’ expectations of rapid delivery – its expanded offerings will include a rush service in under 20 minutes – today announced the completion of a $20 million Series A funding round.
The round was led by Palm Drive Capital, a New York–based venture capital and growth equity fund, with participation from JAM Fund, a Los Angeles–based venture capital firm led by internet entrepreneur Justin Mateen.
Ohi, which operates in New York City, Brooklyn, Chicago, San Francisco and Los Angeles, will use the investment to expand throughout the U.S., with a near-term goal of offering its service in 25 cities by the end of 2022.
“We hear from brands, ‘How do we get more distribution,’” Ben Jones, founder and CEO of Ohi told me. “The mission is to enable every consumer to get [rapid service] and we need to scale the network. We look for the concentration of e-commerce demand and use that to position our network. It’s all driven by data.”
Some of the next markets will include Seattle, Portland, Washington, D.C., Philadelphia, Boston and Miami, followed by Austin, Dallas and other Texas cities as well as more markets in the midwest.
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The company will also use the capital infusion to offer a delivery option of under 20 minutes to two hours. Jones said this “instant” service is the future of commerce, adding that Covid-19 accelerated a shift in consumers’ expectations of immediacy to the point where many now view two-day delivery as unacceptably slow.
Amazon is obviously responsible for raising consumers’ expectations for ever faster delivery. Jones boldly said he doesn’t see the digital giant as a threat because many brands don’t want to hand all of their data over to the 900-pound gorilla in the room.
“Brands are saying, ‘We can’t compete with Amazon,’” said Nick Hsu, partner at Palm Drive Capital. “It really comes down to the rise of these brands. DTC brands are the fastest-growing segment of e-commerce, and the Shopifying of everything. It enables entrepreneurs to set up shop online. They have more control of the post-purchase experience, which wouldn’t be the case if they were selling through a big platform.”
“As Amazon and other marketplaces have been enabling same-day delivery, it moves the expectation from a consumer standpoint,” Jones said. “Without people like Ohi, every brand would be left behind.
“We saw the trend when Amazon launched two-day delivery and everybody had to catch up,” he added. “That’s really the problem we’re solving for brands, it’s this level of convenience. If they don’t offer it, they’ll lose out to the marketplaces.”
Ohi is a platform model, a technology layer, if you will, that enables the delivery experience to exist. Brands pay a flat fee on a monthly basis and a fee per order, which covers warehousing and delivery. Ohi has a network of microwarehouses, and a growing network of microfulfillment centers.
“We don’t own any delivery assets. We’re not a delivery company, so we partner with a range of last mile providers, people like Postmates, Uber
Most of Ohi’s delivery is done by bicycle couriers or people on foot, so getting stuck in vehicular traffic isn’t a problem, Jones said. However, the gig economy experience is by nature variable. “It depends on the individual. We’ve had to put in a lot of processes and manpower in place to ensure that everything runs smoothly.
“Lots of it is the technology and we have a live ops team that’s basically quality control agents on the delivery side,” Jones said. “They watch for triggers. If they see something happening, that shouldn’t be happening, we can call up the courier and say, ‘Hey what’s happening with this order it looks like something’s wrong with it. That’s what helps us ensure this high quality experience.”
Health-Ade, SolaWave and Untuckit are among the beverage, CPG, beauty and DTC brands using Ohi’s platform. There are over 50 brands using the platform. “We’ll be working with hopefully hundreds of retailers across the U.S. by the end of next year,” Jones said. “Generally the range of products is pretty broad, but centered on products or categories you might find in a CVS: beverages, alcohol, pet supplies, baby and beauty. These are things consumers want very quickly.”
Jones said brands that partnered with Ohi realized significant return-on-investment via improved customer satisfaction, and cited average increases in conversion rates of 28% and increases of up to 120% in repeat purchase rates.
“Ordering with Ohi translates to higher lifetime value customers,” he said. “They stay loyal longer. Their lifetime value can be 35% higher than brands that use UPS or FedEx shipping options.”
Ohi has other service levels, including same day, with the option for consumers to schedule a window for their order delivery. Jones said this works well for subscription or replenishment orders because it allows flexibility. The last service level is next day, which allows Ohi to cover a broader range of suburbs surrounding the existing five markets.
“Brands generally make the shipping service free to the end consumer,” Jones said. “The consumer is really not willing to pay for delivery. Amazon has trained customers to expect free shipping, no matter how fast it is.
“What some brands will do is offer free two-day delivery for a higher basket value,” Jones said. “If the normal basket value is $35, delivery is free if you spend $50. It’s funny, consumers won’t pay a $5 fee on a $35 basket, but they’re happy to add another $15 in product to get free delivery.”
Supply chain issues are plaguing some of Ohi’s brands, which have restrictions in terms of their stock and are having trouble resupplying. But Jones said “it doesn’t necessarily [affect] us. The reason a brand works with Ohi is because it helps them grow their business. Traditionally, logistics, shipping and warehousing has been seen as a cost base for brands. What we’re doing is flipping it on its head and it’s becoming a revenue driver for brands.”
Sustainability is another aspect of Ohi’s mission. “We recognize that when you order something and you’re getting it next day or even two-day delivery, often that package will go on a plane and then on a truck before being delivered to you. That’s obviously incredibly damaging to the environment. We looked a way to enable an even better experience while making it sustainable.
“It’s really a win win for everyone,” Jones said. “The consumer gets this amazing experience for free, the brand sells more product and creates loyal customers, and we obviously, make a profit.”