Article by: Asst. Prof. Suwan Juntiwasarakij, Ph.D., Senior Editor & MEGA Tech
Last-mile delivery includes getting a product from the closest hub or warehouse to the customer. Last-mile delivery services remain one of the most expensive parts of retail logistics but have the most visible impact on the customer journey and consumer satisfaction. However, as consumers turn to e-commerce for more and more of their shopping needs, last-mile delivery causes more trouble in urban areas around the globe. Increasing parcel volumes means an increase in delivery vans entering cities, adding to an already staggering array of logistical and environmental nightmares.
If given faster delivery options, consumers will be more loyal. According to Capgemini’s survey, 55% say a two-hour delivery option would increase their loyalty, and 61% say the same for same-day delivery. But when delivery moves out to three days or more, only 30% say this will increase their loyalty. This likely reflects that consumers see this as a commoditized mainstream option that most players offer. Despite the loyalty opportunity, only 19% of firms offer two-hour or faster delivery. Making speedier delivery options available is a significant opportunity for leading firms to differentiate themselves from their competitors and meet consumer expectations, hence satisfaction.
The survey found that consumers happy with the home delivery services have higher average monthly grocery spend. Across all categories, especially fresh food, consumers will spend more when offered the option to have their purchases delivered, and those deliveries are executed with quality. Satisfied customers are more likely to purchase at a higher frequency. According to the survey, 35% of consumers expect to use home delivery at least weekly. However, this figure is higher for satisfied consumers: 37% expect home delivery every week. The survey also found that 51% expect to receive deliveries multiple times a week, which drops to 16% for unhappy urban consumers.
Shopping for groceries online has yet to catch up with other product categories, mainly because consumers are concerned about the freshness of their food and the need for a tactile experience. In fact, 61% of consumers who take advantage of the option to buy online and pick up in-store primarily focus on ordering non-fresh categories and then personally select fresh items when they pick up their order. However, with the increasing prevalence of home delivery options, 66% of consumers are willing to give up personally selecting fresh items in exchange for the convenience of having their groceries delivered. Ensuring consumers are comfortable with having someone else select their fresh items represents a significant opportunity for retailers and brands
Today, last-mile deliveries erode profits as sellers typically charge less than what it costs them to fulfill the orders. A last-mile costs the seller an average of USD 10.1, but the customer only pays an average USD 8.08. And, consumers are unwilling to absorb the entire cost – the survey found that only 1% would be willing to pay the total cost incurred. Nearly all supply chain executives (97%) see last-mile delivery as a critical differentiator to drive revenues. The delivery and supply chain costs are much higher for online deliveries, leading to lower profitability.
Today, consumers increasingly want and expect faster and more frequent deliveries. For those companies that get it right, this offers a significant opportunity. However, at the moment, meeting that rising demand does not play out in terms of margin. It simply costs too much for retailers to meet this need. Companies need a holistic strategy to seize the significant top-line opportunity while managing margin risk. Such a strategy requires the right smart technologies, the right operating model for delivery, innovative approaches to manpower, and a willingness to collaborate with consumers.