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Drone Technology Edging Closer to Mass Adoption
Contributed Research

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Increasing drone deployments promise to streamline supply chains and non-retail services as major companies adopt their use, writes McAlinden Research Partners.

Companies including Kroger, eBay, Alphabet and Amazon continue to work toward integrating drones within their supply chains. Drone usage is expected to proliferate in non-retail industries as well, such as farming and emergency services.

The drone package delivery market is expected to reach $39 billion by 2030, as public perception and regulatory authorities become more comfortable with the future of UAV technologies.

Related Stocks: Walmart Inc. (WMT), United Parcel Service, Inc. (UPS), Alphabet Inc. (GOOG), Inc, (AMZN), Kroger Co. (KR), Draganfly Inc. (DFLYF)

Drone Delivery Projected to Grow by Leaps and Bounds

According to Research and Markets, the global drone industry was valued at $18.1 billion in 2018 and that figure could rise to nearly $89 billion by 2027. A recent report from MarketsAndMarkets showed the drone package delivery market alone could be worth $39 billion by 2030.

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A 2020 survey conducted by U.S. flight service provider DroneDeploy discovered that 90% of respondents plan to increase or maintain their spending on drones, also known as unmanned aerial vehicles (UAVs), and drone software. By 2026, more than a million drones globally could be carrying out retail deliveries, up from 20,000 today, according to Gartner.

MRP has repeatedly highlighted the acceleration of drone delivery tests and Federal Aviation Administration (FAA) approvals for companies including Walmart and UPS this year. Until recently, regulations required the drones to be within the line of sight of the operator, making drones useless for a retail delivery service. As arstechnica writes, only in the last year or so that the FAA has begun approving commercial use of drones that fly beyond the operator's line of sight.

New Delivery Deployments on Deck

Positive public reception from drone delivery trials has pushed the technology closer to nationwide adoption.

eMarketer reports U.S. retail e-commerce sales grew 33.6% in 2020 and that figure is expected to grow another 15.7% in 2021 to about $909 billion. Walmart expects the shift towards e-commerce to stick, and will continue to expand its drone-delivery pilot programs to capitalize on the trend. MRP previously noted that Walmart's partnership with drone delivery operator Zipline and the duo's drone delivery program is forecast to begin this summer.

Further, dominant e-commerce retailers such as eBay and Amazon are exploring new drone delivery ideas to maintain an edge over the competition.

Last month, eBay filed a patent for an innovative drone delivery concept: utilizing public transportation and infrastructure to conserve drone battery life and minimize delivery costs.

At the same time, SupplyChainDive reports Amazon is automating its packaging process to avoid preformed packages and reduce transportation costs, a change that would make the transition to automated drone delivery much simpler.

Kroger, the largest U.S. grocery chain operator, recently initiated a drone delivery pilot by announcing its partnership with Drone Express. This summer, the company will be using drones to deliver certain products to consumers' doorsteps in as little as 15 minutes across Centerville, Ohio. However, Kroger is aiming even higher. The new venture will aim to deliver products to the customer directly utilizing their smartphone location, highlighting the flexibility and rapidity drone technology has to offer.

The drones will be able to deliver up to 5 pounds of groceries, which puts the focus on small orders. To simplify the process, Kroger will curate product bundles meeting the weight limit with options like a "S'mores bundle" with graham crackers, marshmallows and chocolate, and a child wellness bundle with over-the-counter medication and fluids.

Additionally, Google has continued development of Wing, its own drone delivery service, since October 2019. The program has been operating in Christiansburg, Virginia, which has a population of a little over 20,000, and the results have been promising.

A recent survey of 800 individuals in Christiansburg, conducted by the Virginia Tech Mid-Atlantic Aviation Partnership (MAAP), found that out 89% of respondents said they would continue to use the service. Roughly 87% said they liked the concept of drone delivery, while 56% said their opinion of drone delivery improved over the course of the pandemic.

Throughout Wing's trials in four cities across three continents, the company found that deliveries in 2020 increased by 500%. In markets where there are few restrictions, such as Australia, the use of Wing's service has continued to increase, marking greater than 5X growth in the first three months of 2021 compared to the same period a year ago.

As drone technology advances and additional tests are implemented, the public perception of drone delivery should only continue to improve.

UAVs Go Beyond Package Delivery

The future of drone delivery and technology is not solely limited to retail usage either.

Rantizo, founded in 2018, is a company developing drone spraying technology to help automate the farming industry. Not only would drone spraying technology make agriculture more efficient, farmers would save on costs as the price of labor has been steadily rising in the industry.

Using that same kind of technology, New York-based EagleHawk, which usually does large-scale facilities inspections with drones, pivoted their business model toward UAV-based disinfecting services for sports stadiums and arenas as a way to make their facilities safe for fans, players and workers returning from a COVID-induced halt to events.

As MRP highlighted last year, Mercedes-Benz Stadium, home of the Atlanta Falcons, partnered with Charlotte-based Lucid Drone Technologies for similar sanitizing services using disinfecting drones.

UAV tech is also likely to be deployed for emergency services. The city of Austin, Texas, began purchasing drones in the fall of 2020 and is planning to implement them to respond to 911 calls faster than first responders in the next three to five years.

MRP has touched on the possibilities of drone technology in the medical field as well. Just last year, UPS and CVS teamed up to deliver prescriptions to communities in Florida. Now, as the Washington Post reports, drone operators like Draganfly will begin delivering vaccines to rural parts of the U.S. as early as next month.

The applications for UAVs outside of package delivery are quickly advancing, as farming, emergency services and the medical industry continue to plan the implementation of additional drone technology.

Drone shares

Originally published May 20, 2021.

 McAlinden Research Partners McAlinden Research Partners (MRP) provides independent investment strategy research to investors worldwide. The firm's mission is to identify alpha-generating investment themes early in their unfolding and bring them to its clients' attention. MRP's research process reflects founder Joe McAlinden's 50 years of experience on Wall Street. The methodologies he developed as chief investment officer of Morgan Stanley Investment Management, where he oversaw more than $400 billion in assets, provide the foundation for the strategy research MRP now brings to hedge funds, pension funds, sovereign wealth funds and other asset managers around the globe.

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