Retailers must ‘go the extra mile’ to overcome inefficient and unprofitable delivery models

“The Last-Mile Delivery Challenge: Giving retail and consumer product customers a superior delivery experience without impacting profitability,” study surveyed over 2,870 consumers in addition to 500 supply chain executives, and entrepreneurs and industry leaders.

The key insights from the report include:

·        Profitable opportunities lie in getting the last-mile experience right through automation: With warehouse and product sorting representing one-third of supply chain costs, there is a significant opportunity in automation. Recognizing this opportunity, 89% of organizations are investing in the mechanization and automation of store back-rooms to expedite fulfillment and deliveries.

·        40% of customers currently order groceries online at least once a week: This number is expected to reach 55% by 2021. Forty percent of customers class delivery services as a “must have” when purchasing food and grocery products, with 1 in 5 (20%) prepared to switch retailers if this is not provided. Evolving consumer behavior is also fueling greater immediacy in purchasing: 59% of customers purchase products online when they need them, rather than wait until the weekend to buy in-store.

·        Fast and effective last-mile delivery increases customer spend and loyalty: Encouragingly, 74% of satisfied customers intend to increase spend by as much as 12% with retailers they frequently purchase from. The majority (82%) of customers have shared positive experiences with friends and family, and just over half (53%) would even be willing to purchase a paid membership for a good delivery service. However, despite 55% of customers expressing that offering 2-hour deliveries would increase loyalty, only 19% of firms currently provide this compared to 59% of firms that offer a delivery time frame of over 3 days.

·        65% of customers use alternative grocery delivery services – such as Google Express, Instacart or Ocado – for better services than from traditional retailers: The report finds that consumers are not satisfied with the current state of last-mile delivery with high prices (59%), non-availability of same day delivery (47%), and late deliveries (45%) being the driving factors of ‘delivery dissatisfaction’. Nearly half (48%) of dissatisfied customers would stop purchasing from the offending retailer if unsatisfied with delivery, and those who would continue would reduce their spend by 45%.

By comparing and contrasting attitudes between retailers and customers, the report identified the following trends:

Organizations are currently charging customers only 80% of the overall delivery cost, and deliveries are now the most expensive part of the supply chain: The report found that 97% of organizations believe that current last-mile delivery models are not sustainable for full scale implementation across all locations. As such, they must be viewed as a key investment for 2019, with only 1% of customers willing to absorb the total cost incurred for last mile deliveries.

Despite low delivery costs being the top priority for half of all customers, only 30% of organizations considered it a top priority for themselves. Similarly, almost three quarters (73%) of consumers expressed that having convenient time slots available was more important than receiving deliveries quickly, yet only 19% of firms rate this ability as a priority.

The report did, however, find that customers are open to experimenting with ‘crowdsourced’ style delivery options: for an incentive (the most popular being monetary), 55% were willing to deliver products to neighbors in their vicinity, with 64% indifferent if a delivery were made by a retail store employee, private individuals, or third-party couriers. In fact, 79% of customers are willing to deliver these groceries at a price that is less than the current cost incurred by retailers to deliver it themselves.

The report closes with the following recommendations for last-mile delivery success:

·        Optimize fulfillment locations: Increasing store-based deliveries by 50% could potentially lead profit margins to soar by as much as 9%. Dark stores - retail outposts with store-like layouts intended only to fulfil online orders - can also process high delivery volumes and are 23% cheaper than conventional stores for same day deliveries. Additionally, if 30% of deliveries and returns are routed through parcel locker collection arrangements, organizations could expect an 8% increase in profit margins.

·        Automate delivery options: The report finds that back-room automation could increase profits by up to 14% by reducing the cost of click-and-collect orders and deliveries from store. Furthermore, automation offers a range of benefits including reduction of fulfillment errors, and managing returns (which forms 26% of the delivery cost).