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Last mile delivery landscape in the grocery sector

Evolving consumer delivery behaviour is positively impacting last mile logistics. Last mile delivery proficiency has become the key for a positive customer experience in today’s e-commerce world and the COVID pandemic has further accelerated its relevance across geographies and product categories.

During COVID , both mature and nascent product categories observed growth in on-demand delivery requests, with grocery being one of the key nascent categories with rapid increase in last mile support need. Observing the growing adoption, declining consumer reluctance to opt for at-home grocery delivery, and improving consistency in consumer buying patterns many last mile logistics players are now prioritising grocery delivery.

In the long-term online grocery delivery is expected maintain an upward growth trend with an estimated CAGR of 29% during 2020-2024. However, the growth trajectory of last mile grocery industry is likely to differ across geographies depending on the maturity level of last mile change enablers such as infrastructure, technology, regulations and scope of industry collaborations.

Factors driving profitability:

  • Larger order values
  • Limited cost increases
  • Stronger adoption among early tech adopters
  • Increasing customer’s willingness to pay a premium for same-day delivery

Additionally, in the current consumer landscape, ease of purchase and post-purchase experience, enhanced by advance digital solutions, is impacting the shopping journey significantly.
Many grocery retailers are thus prioritising investment in last mile delivery to improve delivery speed and flexibility.

Key sector trends

With last mile becoming more crucial than ever to both customers and retailers – in relation to the grocery category – changes in storage and distributions strategies of retailers, buying preferences of customers, and investment priorities of new and existing service providers are witnessing an influx

Shifting tactics – evolving channel strategies and business models

  • Proliferation of hybrid channel strategies along with acceleration of buy online pick in-store (BOPIS) and direct-to-customer (DTC) services.
  • B2C delivery platforms expanding beyond concentration in restaurant & grocery, to include general e-commerce, prescription delivery, white glove and intracity point-to-point shipping.

Need convenience delivered – customer’s new mantra

  • Consumers looking for fast delivery solutions but receiving the delivery, particularly perishable items/grocery, in a convenient time slot is becoming more important than receiving it quickly.

Future of Last Mile increasingly a story of better software and connectivity

  • Investment in last mile delivery solutions such as autonomous delivery, pick up and drop networks, crowdsourced delivery platforms on a rise.

Grocery retailers optimising last mile delivery

Three key factors impacting growth of last mile in grocery include:

  • Transparency
  • Flexibility
  • Delivery price-point.

  1. Cost inefficiency
  2. High logistics ecosystem complexity
  3. Ineffective customer engagement and visibility
  4. Urban congestion resulting in delays and poor-insight generation support
  1. Adopting an integrated network model
  2. Increasing delivery-network partnerships
  3. Partnering with technology companies and smart-solution providers or investing in technology innovation
  4. Implementing real-time analytics solutions and launching subscription models
  1. Considerable drop in shipping and handling costs, resulting in delivery price-point optimisation and improvement
  2. Provides support in implementing agile and efficient new models and solutions Last Mile logistics, and tackle risks related to loss due to spoilage, reach and coordination
  3. Improves access to access to smart solutions to manage dynamic routing, track & trace, enabling them to provide enhanced transparency and flexibility to the customer
  4. Enhances order predictability and delivery map optimisation to improve customer handling, provide better delivery-slot management and streamline decision making

Growth traction by geographic region

According to the recent Deloitte Consumer Tracker results, delivery intentions for nascent categories like grocery are slightly higher in the Americas compared to Europe, but lower compared to Asia Pacific.

Strategic initiatives by industry players

Many last-mile service providers, start-ups and large grocery retailers are now aggressively pursuing grocery delivery business. Some recent strategic initiatives by players include:

A large big-box retailer

  • Focus: Expand network with focus on one-day delivery capability.
  • Initiative: Extended grocery delivery to 2100 stores in the US with the extensive network coverage bringing in synergies for last mile.
  • Impact: Was able to expand same-day delivery to ~800 stores, matching customer demand and enhancing the customer experience level.

A grocery-delivery and pickup service provider

  • Focus: Grow market penetration and accelerate geographic expansion.
  • Initiative: Entered a new on-demand delivery partnership with a leading international chain of convenience stores and plans to leverage its current same-day delivery expertise to cater requests of the store’s customers.
  • Impact: Was able to bring the leading international chain of convenience stores 7,000 locations nationally onto the platform, enabling over 750 of their stores to launch hyper/same-day delivery.

A leading logistics-technology player

  • Focus: Improve the grocery delivery model and increase market penetration.
  • Initiative:
    • Food-delivery arm of a logistics-technology firm has conducted several ‘grocery delivery’ experiments with over 9,500 merchants across 30 countries and established a core team for delivery.
    • Acquired an on-demand grocery delivery platform that operates in Latin America, Canada, and soon in the US.
  • Impact:
    • Was able to identify key markets and gain access to a large customer base. Singular focussed team for delivery helped in targeting growth and profitability separate from the main business.
    • Was able to improve driver utilisation and efficiencies. Additionally, achieved stronger unit economics in the segment driven by larger basket sizes and improving take-rates continued to support the company’s targets for profitability.

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