Tracking the origins of OOH and looking at where it stands
The idea of OOH was reignited in the 2000s, among others by DHL Deutsche Post. It began building up its PuDo (pick-up/drop-off) network together with a parcel locker manufacturer. As early as 200 3, they were able to roll out parcel lockers, also called automated parcel machines or APMs. Since then, the out-of-home delivery concept evolved across two key shifts:
From drop-off to delivery: Convenient parcel drop-offs appeared to be the main use case of parcel lockers and PuDos (typically parcel shops). However, direct deliveries to lockers and PuDos instead of consumers’ homes are on the rise with Poland and many parts of Eastern Europe leading the change. Now, new economic models such as marketplaces for vintage clothing are also focusing on this type of delivery given its lower cost.
From innovator to incumbent: While DHL – a classic incumbent – led network development in Germany, most countries saw innovative start-ups in the lead. For example, Poland’s InPost – founded in 2006 – has now reached a market share of almost 50 percent . In recent years, however, postal incumbents have begun investing in compelling out-of-home value propositions, given decreasing mail volumes and rising costs for home delivery.
Scandinavia and Eastern Europe – the first movers toward active OOH delivery markets with particular success stories in Eastern Europe – have lit a fire in Western European markets: The different degrees of development can best be understood by looking at the number of OOH points per 10,000 residents. This is still indeed much higher in Eastern Europe and Scandinavia (around 15 in Poland and the Czech Republic; around 16 in Finland) than in Western European countries (around 8 in Germany and around 9 France), but growth is ubiquitous. Based on customer surveys conducted by McKinsey , the aggregated OOH volume in Germany, France, Poland, and Italy is expected to grow by 1.3 billion parcels up to 2027, while home deliveries are expected to grow by only 200 million parcels over the same period. This would translate to around EUR 9 billion in OOH revenues, 70 percent higher than today (15 percent p.a.). At the same time, substantially slower growth is expected for home delivery at around EUR 17 billion in revenues. Consequently, European parcel providers might consider the importance of OOH for a successful B2C play.
This topic likely transcends boarders as being top-of-mind for executives, since substantial growth is expected in the coming years with massive implications for network design and cost competitiveness. The time has thus come to discuss and debunk some myths that have emerged.
Debunking current myths surrounding OOH
The growth of OOH seems to have given rise to certain myths. This article aims to refute some of these and put others into perspective, then provide data and analysis for support.
Myth #1: “Lets do exactly what that company did” – or: OOH works the same in every market. Reality: OOH is not a one-size-fits-all concept. The recipe for success includes multiple ingredients from digital savviness among consumers to urbanization and dwelling structures all the way to available space and infrastructure. OOH success and impact also depends on the delivery networks serving outlets. OOH offers pure parcel networks much higher potential than joint delivery networks – at least today. The main economic driver for OOH is consolidating deliveries into fewer delivery stops and addresses visited. As long as mail remains a product delivered to the doorstep, joint delivery networks see almost no benefit from reducing stops by moving parcels to lockers. An example: one European player operating two networks (one for pure parcel, one for mail and parcel) showed substantial differences in the savings potential. Under optimal conditions – meaning full utilization of asset-heavy lockers – the pure parcel network achieved around 20 percent savings versus around 10 percent savings for joint mail and parcel delivery. This gap, however, is closing since letter volumes are expected to decline at approximately 6 percent p.a. on average , moving savings potential and overall impact closer together.
Myth 2: “We want to focus on lockers only” – or: OOH networks will look the same throughout a country. Reality: The economics of OOH delivery dictate completely different approaches for urban, suburban, and rural areas. OOH networks are most attractive in urban areas with high population densities that make it possible to cover numerous consumers within an OOH access point radius (i.e., 500 to 1000 meters). Such high densities also enable the economical deployment of fixed-capacity lockers, since utilization is likely, if not guaranteed. Suburban areas have substantially lower population densities, driving OOH access point utilization down unless consumers show greater willingness to travel longer distances to these points. This decreases the viability of fixed-capacity, high-capex lockers, mandating a shift towards a more PuDo-oriented network setup. Finally, rural areas are so sparsely populated that home delivery will likely remain dominant, since lockers will not see sufficient utilization for economic benefit and PuDo partners are often much harder to find.
Myth #3: “All these customers care about is price” – or: OOH is entirely a cost play. Reality: Yes, the ability to reduce cost is a key driver of OOH attractiveness, especially for shipping customers. But in many markets, consumers pay either limited or no delivery costs, making this argument irrelevant for them. This is why we view success in OOH as the result of optimizing three dimensions of the offering: lower delivery costs thus prices than for home delivery; convenience in terms of proximity, delivery speed, and both digital and physical interfaces for lockers and PuDos; and finally safety and security regarding both APM locations and parcel safekeeping.
Myth #4: “Just trust me, our investment will pay off in no time” – or: an OOH automated parcel machine network is less expensive than home delivery. Reality: While it is true that a well-utilized locker network will easily recover investments made to build it up, the problem for many players is in generating utilization in a way that really saves costs elsewhere. As McKinsey analysis shows, the last mile in a home delivery network generates 60 to 70 percent of overall parcel delivery costs. Increasing the average number of parcels delivered per stop from 1 (typical for home delivery) to 5 (i.e., dropping 5 parcels at once into a locker or PuDo) drives down delivery costs (labor and vehicles) by more than 50 percent. Achieving this drop-factor cost reduction with OOH, however, requires high OOH network utilization. Without high utilization, there is only the added cost of operating an underutilized OOH network, where a single APM can easily cost EUR 10,000.
Establishing a cost-effective network also means achieving the right balance between APMs and PuDos, where APMs form the “core” delivery points and cover base load demand with over 30 percent utilization throughout the year. PuDos absorb demand peaks. Lack of available volume in a coverage area, suboptimal location choice, the simple absence of a “direct-to-locker” market, lack of price differentiation versus home delivery, or inconvenient customer interfaces are just some of the key reasons why a significant share of locker investments does not pay off as intended. To mitigate this risk, an OOH business case needs to factor in more than delivery cost savings. Considerations could include opportunities to access new markets such as locker-to-locker shipping for C2C marketplaces or save on costs by shifting services (e.g., eliminating free doorstep pickup or automatically redelivering to a locker instead of the home). Apart from the pure delivery system, revenue streams from renting out capacity to other players or enabling new usage models such as reserving capacity for SME drop-offs can round out a much more robust and diversified business case.
Myth #5: “This will make us the most sustainable parcel company ever” – or: OOH is always the most sustainable delivery option. Reality: Our analysis indicates that OOH delivery reduces CO2 emissions if less than 60 to 65 percent of customers pick up their parcels with ICE-powered cars – typically true for dense, urban areas with dense OOH networks. For suburban and rural areas, however, the equation changes, emphasizing the need for a different approach and resulting impact of OOH for these areas. For reference: According to Norwegian Institute of Transport Economics, around 25 percent of customers were picking up parcels by car. Fostering micromobility environments and accessibility can reduce this figure, which would really turn OOH into a sustainability impact driver.
Myth #6: “We need to have lockers almost inside the buildings” – or: small, decentralized locker units are the way to go. Reality: Surveys of course show that consumer willingness to use an access point decreases with the distance they need to cover from their home or daily routine to access it. Aiming for maximum proximity, however, will result in a network of numerous rather small sites (e.g., 15 to 25 lockers per APM), which entails considerable disadvantages in APM costs (e.g., display screens, installation, and other fixed items). This results from drop density being the main driver of unit economics coupled with the risk of lockers already being full – a key driver behind customer churn. Choosing the right locker size involves balancing these trade-offs rather than optimizing for just one variable. Experience from European countries with advanced OOH networks indicates that APMs with 60 to 90 compartments typically manage these factors well, particularly reducing churn risk from overfilling.
Examining the course of OOH into the future
The journey of OOH is far from over and despite the many developments in recent years, we expect further innovation and changes in how OOH develops going forward:
From nice-to-have to must-not-lose: Postal incumbents are starting to invest in their out-of-home proposition. Still, they remain cautious due to their strong home delivery proposition and the lower cost savings generated in shared mail/parcel networks. However, the risk of low-cost pure parcel players winning this field and further increasing strategic distance in unit cost has made postal incumbents rethink their stance and invest to defend their leadership. Going forward, further mail volume decline will also benefit the economics of OOH delivery for integrated post and parcel players.
From one-to-one to one-stop-shop: As real estate availability for parcel lockers continues to tighten, there is a growing trend towards shared facilities that allow for parcel deliveries from multiple entities. Municipalities are favoring this concept of “white lockers,” allowing access for multiple players to reduce the number of lockers being set up in an area and to use capacity more efficiently. In some countries, this model also exists for PuDos where players have actively brought together a network of PuDos and now act as intermediaries between them and delivery companies.
From few to fewer: In several countries, public, partially privatized post offices still constitute a sizeable share of out-of-home access points for postal incumbents. However, declining mail volumes coupled with the rise of private-sector PuDo partnerships and APM networks constitute a threat to this model. These factors require post office players to rethink their role in the overall delivery ecosystem of the future – for example, by moving from exclusive partnerships with the incumbent to providing a broader offer to multiple players or expanding their service portfolio towards other sectors.
From retailer to consumer power: According to McKinsey analysis , markets such as Poland, France, and parts of Scandinavia are seeing a decoupling of home and out-of-home delivery markets in online store checkouts. This represents increased consumer power when it comes to provider selection for out-of-home delivery. This might also become the case in other markets as out-of-home delivery systems mature . When consumers make the final OOH provider decision , convenient digital interfaces, proximity, and consumer recognition all become more important. While e-tailers often decide on the parcel delivery provider in Germany, the situation is slowly evolving away from this as well, as our analysis of the checkout processes in Germany’s top 100 online stores showed.
From reactive to predictive: Leveraging data and analytics in OOH delivery is becoming increasingly important. The shift from a reactive approach in which the real utilization of an APM is only known at point of delivery to a predictive one which actively forecasts utilization and links up the operative network ideally with the checkout will be a competitive edge. This capability could inform consumers during checkout when a locker is likely to be full, allowing them to choose an alternative OOH point without the negative surprise of a reroute.
From stationary to mobile: In the medium term, autonomous guided vehicles (AGVs) could give rise to further cost improvements in delivery by combining a parcel locker with an AGV to streamline delivery infrastructure.
Act now – and make the right choices
Just as OOH delivery’s evolution can present opportunities, it can also entail challenges. OOH network success requires a nuanced approach, balancing parcel lockers and pickup/drop-off points, while differentiating service levels based on population densities to maintain both cost efficiency and consumer convenience. As the landscape shifts – with postal incumbents as well as new market entrants investing more in OOH and shared locker networks becoming more common – staying competitive calls for adaptability and innovation:
Recognize the impact: The OOH trend is too significant to ignore, given its potential to transform competition. We have already seen young OOH market entrants outmaneuvering even strong incumbents with a compelling, stand-alone OOH proposition. Emerging cost-conscious shippers such as B2C players from China could fuel the trend further.
Prioritize strategy over tactics: Before delving into network and location planning, it is essential to address key strategic questions. These include whether to even enter the OOH market, whether to be frontrunner or follower, whether to partner in establishing a network, whether to open a network to competitors at least temporarily, and whether to choose an APM-based, a PuDo-based, or a mixed approach. All of these questions are critical and come before the more tactical stage of detailed network design.
Build the right network and harness geospatial capabilities: Detailed network planning with geospatial assessment capabilities at its core is crucial for success in today’s OOH sector. The right mix between APMs and PuDos is just as important as the right distribution of access points to really benefit from the network investment.
Consider cash implications: Depending on network type, player portfolio, and ramp-up aggressiveness, OOH activities will require substantial initial investment and time to achieve profitability. Scenario-based business and network case modeling is crucial to effectively navigate this phase and understand cashflow implications.
Combine local efforts with scaled partnerships and rent with build: Creating a compelling OOH proposition means blending local efforts to secure individual locations for PuDos and lockers coupled with top-down management of scaled partners such as grocery retailers and gas stations. It can also mean complementing activities to build up proprietary sites by renting capacity in existing networks to quickly develop a compelling customer proposition.