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