Capgemini: food last-mile delivery options not sustainable for retailers

A study by Capgemini’s in-house digital think tank has revealed that 97% of retailers believe that existing methods of last-mile delivery options are not sustainable. Companies in the food and grocery segment have to catch up with consumer demand for better and faster last-mile delivery services while at the same time mitigating associated profitability risks.

The research shows that close to three-fourths of consumers are willing to reward retailers who get the last-mile experience right with increased spend and loyalty while 40% consider delivery service a “must-have” feature for food and grocery products. But, last-mile delivery is the most expensive part of the supply chain.

Key insights

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 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%.

The report also shows that customers are open to crowdsourced last-mile delivery options such as neighbour-to-neighbour style deliveries (55%) when combined with a monetary incentive. And 79% of customers are willing to deliver groceries at a price cheaper than the current costs required from retailer’s last-mile delivery options.

Automation and technology solutions

According to the findings, automation and technology solutions could help retailers improve profitability while meeting customers’ delivery expectations. These include processing last-mile delivery options and returns via parcel locker collections, which could offer an 8% increase in profit margins, and increasing store-based deliveries by 50%, which could lead to 9% profit margin growth. Implementing more back-room automation would reduce the cost of click-and-collect services and from-store deliveries, driving profits up by 14%.

Capgemini global sector leader of consumer products, retail and distribution Tim Bridges said: “Today customers are neither satisfied with the quality of delivery services, nor willing to bear the total cost of last-mile delivery. If done right, retailers stand to gain loyalty, increased purchase value and frequency, while mitigating profitability risk through automation and optimization of fulfilment locations.”

Source: Capgemini

Comments 1

  • The one who comes up with true “unattended delivery” first, will monopolize the industry. The most expensive and highest risk element to the entire equation is managing the customer driven delivery window. Customers demand a delivery window for groceries because they feel the need to be home to receive their perishable items. They are also placing partial orders to be delivered by one grocery store (ninperishable items) and running into another grocery store for their perishable items.
    Having a temperature controlled, smart container secured to the customers porch will eliminate the need to be home to receive grocery and other perishable orders (medication, electronics, restaurant delivered food). It will encourage customers to order all of their groceries from one place, now including perishable items, which will increase basket size, and they will increase frequency of orders because they won’t be running into another store for their produce. Ease of use, creating habit, increases loyalty.
    Coming to market this year.

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