Going the Last Mile: How Grocers Can Up their Home Delivery Game

Home delivery is one of the most controversial aspects of e-grocery fulfillment. It's the final step of the majority of online orders, and it’s customers’ favorite form of fulfillment - yet most online shoppers are dissatisfied with it.

On top of that, many grocers would rather invest in click-and-collect (also known as BOPUS - buy online, pick-up in-store), because of the better margins. Yet data indicates that customers favor home delivery, though they don’t want to pay extra for it - which means grocers will need to find a balance between customer demand and margin improvement.

So how can grocers find a solution to the challenges of that all-important, last-mile hand off?

First, let's look at what customers are unhappy about in regards to home delivery. According to CapGemini Research Institute's 2019 report, survey respondents said:

  • Fees are too high (59% of respondents)

  • Same-day fulfillment of certain products is not available (47%)

  • The order has been delivered late in the past (45%)

Experts say that a grocer's ability to remedy these complaints could make or break their success. "Retailers' net profit could fall 26% in the next three years if last-mile solutions fail to radically improve," warns the Capgemini report, while predicting that grocers who "provide a superior last-mile experience will gain a competitive edge over their peers."

Brick Meet Click, an Illinois-based strategic advisory firm, wrote that grocers who offer competitive home delivery "stand to grow sales 25% to 30%." The company also predicts that home delivery will keep growing in 2019, from being accessible to 81% of Americans to a projected 90%.

The demand is clear: customers want cheap, reliable, fast home delivery - and they often don’t want to pay for it. Yet it falls on grocers to supply this service if they want to compete.

Here are ways some grocers are rising to the challenge:

  • Kroger launched delivery via unmanned vehicle in December 2018, the first of its kind available to the public. Operating out of a Kroger-owned Fry's Food supermarket in Scottsdale, Arizona, a custom-made Nuro car delivers to customers' homes in a two-mile radius with no minimum order for a flat fee of $5.95.

  • Walmart gave in to the demand in early 2018 because of stiff competition from Amazon and Target. The industry giant announced a partnership with Uber, and will also use Parcel, which Walmart acquired in 2017, to deliver same-day groceries in New  York City.

  • Walmart is also conducting tests in Chandler, Arizona, wherein self-driving vehicles pick up customers at their homes and bring them to the store to pick up their orders.

  • Stop'n'Shop, partnering with the California-based start-up Robomart, announced it will launch a "grocery store on wheels" later this spring (2019). Technically, this isn't home delivery, because it's not fulfilling orders. Instead, customers flag down the truck via an app, then buy groceries from it, like an ice cream truck without the driver (or the catchy tunes).

  • Dozens of grocers, including Safeway, Wegmans, Costco, Publix, and ALDI, all offer same-day delivery through the third party Instacart. Giant Food Stores and Martin’s have partnered with Peapod; others, such as Publix, Target, and Winn-Dixie, use Shipt to provide same-day delivery.

  • This month (January 2019), Amazon unveiled its in-house product, Amazon Scout – an autonomous, cooler-sized vehicle that will deliver groceries as well as products.

Recently, Amazon escalated the competition by announcing its move to provide free, one-day or same-day shipping in select areas. But what’s most shocking is that Amazon’s two biggest competitors, Walmart and Target, weren’t shocked at all - in fact, they’d been expecting it. Responding by tweet, Walmart hinted at imminent plans to offer one-day shipping sans membership, which would put them a step ahead of Amazon Prime, which costs members $119/year. Target already offers free one-day shipping (with a minimum purchase) to its REDcard holders (who pay no membership fee) via the retailer’s partnership with Shipt.

It may surprise some that Amazon doesn't corner the market when it comes to home delivery. Despite that they're responsible for raising customer expectations (as the originators of the once-revolutionary free two-day shipping), the eCommerce giant is not leading the industry in this regard – brick-and-mortar stores are.

Why? They provide a broader range of products, says Brick Meets Click, and so are getting more orders for pick-up or home delivery. On average, households place 1.9 orders a month with brick and mortar stores, and 1.6 with Amazon. It's not just about frequency – sales are higher, too. An average grocery order for pick-up or delivery is $105, versus $46 on Amazon.

So how can grocers create an effective system to deliver groceries, and thus keep – and grow – their customer base?

They need to prioritize:

  • Speed. "55% [of survey respondents] report they would be more loyal to a retailer offering two-hour delivery, yet less than 20% of retailers offer that timeframe," according to Capgemini Research Institute.

  • Reliability. Orders must be on-time and accurate in order to keep customers loyal.

  • Options. Shoppers want to feel they have a variety to choose from, so grocers who offer the widest array of options – from fresh produce to prepared meals to household essentials – will be the most poised for success.

One way grocers might go above and beyond is to offer subscription services. 96% of consumer product firms view subscription models as an effective way to offer more convenience and value to customers. Many shoppers want to set up automated recurring purchases, and a subscription service may be the most efficient way to do that, says Capgemini.

And yet, despite these trends and surveys, not all grocers find it necessary to go the extra (or last) mile.

On January 31, 2019, Trader Joe's announced that starting in March, it would no longer offer home delivery in Manhattan. Being the most popular grocery store in the country might give Trader Joe's some freedom to, since it's their products and private brands that keep shoppers returning, not their digital services. (Trader Joe's stores in other locations are still partnered with third parties, such as Postmates and Envoy, to provide delivery services. The store cited "cost and wide availability of other delivery services" as a reason for the decision.)

The bottom line is this: grocers must decide how they will address the last-mile considerations posed in their area, for their customer base. To learn how locai can partner with your business to provide industry-leading services in fulfillment, visit us here.