The last mile – a focus on delivery models

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Blog series part 4 The last mile – a focus on delivery models

Published on 27.10.22 by Dr. Matthias Schu, e-food expert and author

In addition to costs for order picking, delivery costs also have a significant impact on the e-food sector. And the last mile is generally regarded as a critical success factor. This article examines the most common delivery options on the Swiss market for groceries ordered online.

Last mile logistics – complexity and main cost drivers in e-food

In online grocery retail, logistics for the last mile is generally considered a critical success factor. Since even before the quick commerce wave of 2020, there has been an increasing desire among customers for speedy and prompt delivery. 

But this has complex and expensive consequences: in the value chain of e-food providers, it is not the customer who picks the goods, as in traditional high-street retail, but the retailer’s employees. This is reflected in the contribution margin and EBIT for each shopping cart. It’s also not the customer, but an employee of the retailer or a logistics partner who transports the goods to the customer’s door, impacting costs accordingly. As early as 2019, management consultancy Capgemini calculated that the costs of the last mile account for around 48 percent of the total costs of the supply chain in online food retail. This is followed by order picking at around 18 percent, and packing for delivery at around 15 percent of total costs. Food storage costs account for 12 percent of total costs, while other costs within the supply chain add up to around 7 percent of total costs. 

Consequently, it is clear that fulfilment costs and especially delivery costs in the last mile represent the most significant obstacle for e-food retailers when it comes to achieving profitability. 

So providers’ willingness to experiment on the last mile is far from surprising. The main models for the Swiss market are explored in more detail below.

Figure 1: Overview of possible models for the last mile

Delivery using CEP service providers, such as Swiss Post

From a procedural perspective, delivery of orders using parcel and logistics service providers is the simplest way of getting the goods to be delivered to end consumers. The main advantage of “outsourcing” the delivery service to a service provider is that this variant can be implemented quickly and without further capital commitment or additional employees. 

This also makes it possible to serve a large delivery area quickly and ensures rapid scalability. These service providers also have well-established processes and can usually ensure high-quality delivery. The logistics partner is fully responsible for the delivery process. From pick-up at the online shop ramp, they handle all the subsequent steps. However, outsourcing delivery can lead to less flexibility and more interfaces. It also means that the last step of the customer journey is no longer in your own hands. With this delivery model, it isn’t possible to stand out from the competition with personal contact upon delivery or additional on-site services.

Customer collection at the pick-up/drive-in station

With this delivery option (also called the Click & Collect model), the customer collects their order at a pick-up station on a delivery date selected by them. A pick-up station can be, for example, your own shop, the shop of a partner company or a (refrigerated) pick-up box in which the goods are deposited. 

The provider only has to ensure timely provision of the goods to the collection point and to notify the customer that their order is ready for pick-up. Delivery to the customer’s home address is carried out by customers themselves. 

However, the Click&Collect option is often only offered in combination with another delivery method and is therefore better suited to multichannel or omnichannel retailers. So while it creates another option for customers to receive ordered goods, it also generates additional complexity for the retailer.

In Switzerland it has been shown that Click&Collect options in retail do not meet customer needs. In most cases, Swiss customers prefer home delivery. Testing at various locations by the country’s two largest retailers has been discontinued in the past.

Delivery using the company’s own fleet

With this option, the company uses its own fleet of vehicles and staff to deliver orders to the customer. The main benefit of this delivery solution is greater flexibility, as well as the maximum achievable combination of additional services that can be offered, such as taking back PET recyclables, empties or reusable transport packaging. It is possible to provide delivery times that are accurate down to the hour (or down to the minute for quick commerce). This minimizes the time customers have to wait for their order. In addition, your own delivery fleet or staff can still be used as free advertising space. This helps to create a consistent user experience (UX) to an otherwise unachievable extent. This rounds off the shopping experience for the customer and creates something that is otherwise seen as extremely lacking in e-commerce – personal customer contact. However, all these advantages are offset by one major disadvantage: increased costs for personnel and capital tied up in your own fleet that cannot be used for other investments.

Mixed forms

In addition to the delivery models described above, mixed forms are also possible and found in practice. These combine different delivery models, providing customers with greater choice while offering the shop operator cost or efficiency gains in the best case scenario. 

Probably the most popular mixed forms are the combination of self-delivery and the use of CEP service providers, as well as offering Click&Collect solutions. With the former, CEP service providers can be used to cover peaks in demand, which would not be possible using self-delivery without a significant expansion in resources. Delivery areas can also be opened up that would not be efficiently served with self-delivery (e.g. due to the distance to the warehouse). 

Click&Collect, which is particularly popular in France, creates added value, especially when combined with a multi-channel approach and a company’s own stores. The customer can be offered extended pick-up times with no commitment to a specific, narrowly-defined delivery window. This allows for spontaneity. The main disadvantage of combining different delivery models is increased complexity, greater coordination effort and the risk that an order could theoretically end up in the wrong channel.

Figure 2: Pros and cons of different delivery models

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