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Grocery home deliveries examined

08 May 2017

Grocery home deliveries are expected to increase from the current 75 million per year to around 179m by 2020, with this taking the number of delivery vans on the road from around 13,000 to some 20,000.

The figures were unveiled at the recent U-turn Project event, organised by Cranfield University School of Management and LCP Consulting.

The project being carried is examining how industry may increase food logistics efficiency in the urban setting, with a focus on collaboration and tools.

This is important because retailers, led by consumers, are moving to a more convenience-led model that is not as efficient as the traditional, hub to store model, with users then taking care of transport to home.

The project is analysing logistics flows in London, Milan and Athens.

By 2020 grocery home delivery is expected to be a £1.5bn industry but is still beset with issues and inconsistencies. Customer experience is generally not great, and grocery has the lowest penetration of any type of eCommerce, but the highest purchase frequency among those that are on-board.

At the moment, the break-even cost is between £70-80 per order, while the average order trails at £40.

“The key retailer goal is customer retention and a major short term goal is minimising costs,” explains Professor Alan Braithwaite of LCP Consulting. “Retailers use dynamic pricing to nudge people into less popular slots. There are only so many slots and demand clusters at times that are most convenient for customers.”

The online grocery market – a story of huge growth driven by customer preferences – at present delivers poor economics from a retailer perceptive, and a constrained experience for consumers. This implies something must change.

Braithwaite continues: “We forecast growth in grocery Click & Collect, which is cheaper and more convenient in terms of arranging a window, notwithstanding strong preference for home delivery from consumers. The most obvious answer is collaboration and shared networks but retailers are reluctant to collaborate.

“Retailers are very protective of brand experience and it will take big savings in money and big improvements in customer experience to move them. That’s what we are attempting to ascertain.”

The U-turn Project is examining new delivery models. These are being studied at the moment and the team is expected to reach its conclusions in the coming years.

In London, the project is focusing on three potential solutions:

• Use of micro hubs and delivery networks - Reduced stem mileage to delivery areas and on-demand delivery scheduling.

• Dynamic route scheduling - To optimise network for customer orders – reduces inter-drop distances and relaxes 1 hour delivery windows. 

• Click and collect - To increase customer flexibility and reduce effective drop times by consolidating deliveries at C&C points that would be shared by multiple retailers.

One such micro hub trial is taking place at Barking Riverside, which is backed by the Council. The trial is looking at operational costs, societal impact, and the Click & Collect option.

Collaboration

Alan Hayes, from the Institute of Grocery Distribution said there was reluctance on the part of consumers to go for home deliveries of fresh food, and asked if there was an opportunity there for industry? 

“This could be driven by freshness guarantees, but we must ask if collaboration may be needed to deliver. This would mean equal power sharing, even if it is not necessarily on a 50-50 basis; with transparent agreement up-front, and seamless exchange of data.

“However, at the moment, the individual retailer tends to want to control the last mile.”

New models

Convibo presented a new business model that may allow some food deliveries to bypass this issue. The company offers a personal shopping experience, with online order through its website (with access to products from a number of High Street grocers) and delivery within an hour.

The company has no vans, no assets and no inventory and relies on IT to manage deliveries, as well as self employed shoppers and couriers. The average basket size is £60 and the firm charges £4.99 per delivery.

Former MP Lembit Opik, now with Starship Technologies, presented his firm’s grocery delivering robots at the event. The low-cost autonomous robots are designed to deliver goods locally in 15-30 minutes within a 2 mile radius. The robots drive autonomously but are monitored by humans who can take over control at any time. The technology has seen significant roll-out in Europe and is envisaged as a useful tool to reach mobility-impaired people.

 
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