Cities are the new battleground for food retailers. In the following years, traditional food service channels, such as the hotel and catering industry, will face fierce competition from supermarkets, city stores, and micro markets in cities that focus on the needs of the growing number of consumers, workers, students, and visitors. While a 1-3% net profit margin is typical for most retailers, convenience stores in cities tend to perform a little better, up to a 5-10% net profit margin.
However, delivering food to traditional and convenience stores in cities has several supply chain challenges that, if not addressed, might erode profit margins. The investment in assets, the cost to serve, and the margins are very different for the different retail channels.
1. Quick Response Requirements
- Just-in-time deliveries will lead to peaks in transport demand over the weekdays and during the day; flexibility is required.
- City stores (convenience stores) receive smaller volumes than traditional retail stores, often with smaller quantities per SKU, requiring more handling upstream and downstream in the supply chain.
- The need for local (micro) hubs might increase assets and costs and create additional complexity.
- Errors in execution become immediately apparent to consumers visiting the stores; deliveries should be OTIFNE.
- Store ownership based on franchise formulas might lead to less control over orders and deliveries.
2. Traffic Congestion and Urban Mobility
- Urban areas often have heavy traffic, which can delay delivery schedules. Rush hour can significantly slow down trucks and vans.
- Driving and delivery times are less predictable. Dynamic planning without slack is pivotal.
- Efficient deliveries rely on public infrastructure and involve multiple stakeholders (local authorities, urban planners, and environmental agencies).
- Planning routes and trips is more complicated for deliveries in cities. Using real-time local traffic data is pivotal.
- Some cities even move towards car-free city centers.
3. Parking and Loading Restrictions
- Limited parking and loading zones make it difficult to drop off goods.
- Many cities have strict delivery time windows, restricting when vans and trucks can stop.
- Competition for space with other service suppliers and HoReCa suppliers.
- Distance from parking and loading might be significant, leading to idle time for vans and trucks.
4. Last-Mile Delivery Complexity
- Narrow streets, bikes on the roads, and pedestrian areas can restrict van or truck access.
- Some stores may lack dedicated loading docks, requiring manual handling.
- Hybrid models (store delivery, home delivery, and store collect), all with different cost-to-serve, offer potential for synergy in delivery operations.
- The return flow of products, rolling containers, deposits, and packaging is significant, which impacts transport and handling.
5. Perishable Goods Management
- City stores (convenience) offer more fresh products than traditional stores.
- Fresh and frozen food require temperature-controlled transportation.
- Delays can lead to increased waste and costs.
- Perishable items like meat, vegetables, bread, and ready-made meals have high supply chain costs.
6. Regulatory Compliance
- Food safety laws require proper handling, storage, and documentation.
- Emissions, road safety, vehicle, and noise regulations may limit vehicle options and routes.
7. Less predictable Demand and Stockouts
- Sudden surges in demand, such as during holidays, promotions, or weekends, can pressure supply chains.
- Frequent changes in assortment and localized assortment strategies.
- Inaccurate forecasting may lead to overstock or understock situations.
8. Labor Shortages
- A shortage of drivers and warehouse workers can slow down deliveries.
- There is a need to balance transport labor with in-store handling labor.
- High turnover in the industry adds to recruitment challenges.
- Low scalability due to high labor dependency
9. Rising Fuel and Delivery Costs
- Urban deliveries often require more stops on one trip, increasing fuel (or energy) consumption.
- The use of smaller vehicles leads to a smaller scale of transport operations.
- Inflation and supply chain disruptions can raise costs further.
- Electric vehicles require a significant investment in vehicles and charging infrastructure.
- Greater diversity in the fleet is necessary, not a one-size-fits-all.
10. Aligning with Other Delivery Services
- Local e-commerce and service deliveries (Amazon, Instacart, etc.) also congest city roads.
- Stores may struggle to coordinate multiple delivery schedules.
- Dependence on multiple independent resources (subcontractors, crowdsourced labor, third-party platforms) raises challenges.
- City stores might also offer parcel services, laundry services, and return services adding complexity in deliveries
11. Weather and Seasonal Challenges
- Snow, rain, and extreme temperatures can delay or damage food shipments.
- Seasonal variations affect road conditions and delivery efficiency.
Walther Ploos van Amstel.
Also, check out: Research – improving nano store supply chains