Retailers must 'go the extra mile' to overcome inefficient and unprofitable delivery models

PARIS, Jan. 10, 2019 /PRNewswire/ -- A new study from the Capgemini Research Institute has highlighted that retailer investment in "last mile" delivery - the final leg of the online purchase journey before a product lands in the customer's hands - is needed in order to uncover new revenue streams. The report found that 97 percent of organizations believe that current last-mile delivery models are not sustainable for full scale implementation across all locations, and that free shipping costs cannot be maintained unless delivery costs are reduced through automation.

"The Last-Mile Delivery Challenge: Giving retail and consumer product customers a superior delivery experience without impacting profitability," study surveyed over 2,870 consumers in addition to 500 supply chain executives, and entrepreneurs and industry leaders.

The key insights from the report include:

    --  Profitable opportunities lie in getting the last-mile experience right
        through automation: With warehouse and product sorting representing
        one-third of supply chain costs, there is a significant opportunity in
        automation. Recognizing this opportunity, 89 percent of organizations
        are investing in the mechanization and automation of store back-rooms to
        expedite fulfillment and deliveries.
    --  40 percent of customers currently order groceries online at least once a
        week: This number is expected to reach 55 percent by 2021. Forty percent
        of customers classify delivery services as a "must have" when purchasing
        food and grocery products, with one in five (20 percent) prepared to
        switch retailers if this is not provided. Evolving consumer behavior is
        also fueling greater immediacy in purchasing: 59 percent of customers
        purchase products online when they need them, rather than wait until the
        weekend to buy in-store.
    --  Fast and effective last-mile delivery increases customer spend and
        loyalty: Encouragingly, 74 percent of satisfied customers intend to
        increase spend by as much as 12 percent with retailers they frequently
        purchase from. The majority (82 percent) of customers have shared
        positive experiences with friends and family, and just over half (53
        percent) would even be willing to purchase a paid membership for a good
        delivery service. However, despite 55 percent of customers expressing
        that offering two-hour deliveries would increase loyalty, only 19
        percent of firms currently provide this compared to 59 percent of firms
        that offer a delivery time frame of more than three days.
    --  65 percent of customers use alternative grocery delivery services - such
        as Google Express, Instacart or Ocado - for better services than from
        traditional retailers: The report finds that consumers are not satisfied
        with the current state of last-mile delivery with high prices (59
        percent), non-availability of same day delivery (47 percent), and late
        deliveries (45 percent) being the driving factors of 'delivery
        dissatisfaction.' Nearly half (48 percent) of dissatisfied customers
        would stop purchasing from the offending retailer if unsatisfied with
        delivery, and those who would continue would reduce their spend by 45
        percent.

By comparing and contrasting attitudes between retailers and customers, the report identified the following trends:

Organizations are currently charging customers only 80 percent of the overall delivery cost, and deliveries are now the most expensive part of the supply chain: The report found that 97 percent of organizations believe that current last-mile delivery models are not sustainable for full scale implementation across all locations. As such, they must be viewed as a key investment for 2019, with only one percent of customers willing to absorb the total cost incurred for last mile deliveries.

Despite low delivery costs being the top priority for half of all customers, only 30 percent of organizations considered it a top priority for themselves. Similarly, almost three quarters (73 percent) of consumers expressed that having convenient time slots available was more important than receiving deliveries quickly, yet only 19 percent of firms rate this ability as a priority.

The report did, however, find that customers are open to experimenting with 'crowdsourced' style delivery options: for an incentive (the most popular being monetary), 55 percent were willing to deliver products to neighbors in their vicinity, with 64 percent indifferent if a delivery were made by a retail store employee, private individuals or third-party couriers. In fact, 79 percent of customers are willing to deliver these groceries at a price that is less than the current cost incurred by retailers to deliver it themselves.

The report closes with the following recommendations for last-mile delivery success:

    --  Optimize fulfillment locations: Increasing store-based deliveries by 50
        percent could potentially lead profit margins to soar by as much as nine
        percent. Dark stores - retail outposts with store-like layouts intended
        only to fulfil online orders - can also process high delivery volumes
        and are 23 percent cheaper than conventional stores for same day
        deliveries. Additionally, if 30 percent of deliveries and returns are
        routed through parcel locker collection arrangements, organizations
        could expect an eight percent increase in profit margins.
    --  Automate delivery options: The report finds that back-room automation
        could increase profits by up to 14 percent by reducing the cost of
        click-and-collect orders and deliveries from store. Furthermore,
        automation offers a range of benefits including reduction of fulfillment
        errors and managing returns (which forms 26 percent of the delivery
        cost).

Tim Bridges, Global Sector Leader, Consumer Products, Retail and Distribution, at Capgemini said, "Today customers are neither satisfied with the quality of delivery services, nor willing to bear the total cost of last-mile delivery. Therefore, the dilemma facing retailers is to provide last-mile delivery services that customers value, without damaging their own profitability. If done right, and their last-mile experience can win over customer satisfaction, retailers stand to gain loyalty, increased purchase value and frequency, while mitigating profitability risk through automation and optimization of fulfillment locations."

A copy of the report can be downloaded here.

Research Methodology
The Capgemini Research Institute conducted a primary consumer survey of 2,874 consumers across 5 countries in Europe and North America in October 2018. Executives from 500 grocery retailers and consumer product firms were also surveyed. Capgemini then conducted interviews with industry leaders and leading entrepreneurs, examining the impact of last mile delivery on cost, loyalty and profitability.

About Capgemini
A global leader in consulting, technology services and digital transformation, Capgemini is at the forefront of innovation to address the entire breadth of clients' opportunities in the evolving world of cloud, digital and platforms. Building on its strong 50-year heritage and deep industry-specific expertise, Capgemini enables organizations to realize their business ambitions through an array of services from strategy to operations. Capgemini is driven by the conviction that the business value of technology comes from and through people. It is a multicultural company of 200,000 team members in over 40 countries. The Group reported 2017 global revenues of EUR 12.8 billion.
Visit us at www.capgemini.com. People matter, results count.

About the Capgemini Research Institute
The Capgemini Research Institute is Capgemini's in-house think-tank on all things digital. The Institute publishes research on the impact of digital technologies on large traditional businesses. The team draws on the worldwide network of Capgemini experts and works closely with academic and technology partners. The Institute has dedicated research centers in India, the United Kingdom and the United States. It was recently ranked #1 in the world for the quality of its research by independent analysts.
Visit us at https://www.capgemini.com/researchinstitute/

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SOURCE Capgemini