How to create the best last mile delivery model in eCommerce (Capgemini, 2019).

A new study from the Capgemini Research Institute shows that investing in the last mile o urban logistics -the last link in the distribution chain from the product to the final customer in the online purchasing process-. is critical for retailers to identify and exploit new revenue streams. The report states that 97% of companies believe that current last-mile delivery models are not sustainable if deployed on a large geographic scale and that the policy of free shipping cannot be sustained unless delivery costs are reduced through automation.
For the study, entitled
The Last-Mile Delivery Challenge: Giving retail and consumer product customers a superior delivery experience without hurting profitability
The study, entitled The Last-Mile Delivery Challenge: Giving retail and consumer product customers a superior delivery experience without hurting profitability, surveyed more than 2,870 consumers and 500 supply chain executives from retail and FMCG companies. In-depth interviews were also conducted with leading industry experts and entrepreneurs.

These are the main findings of the report:

Profitability opportunities through urban logistics automation

Storage and sorting of products account for one-third of costs of the The automation of processes is therefore a significant opportunity. Eighty-nine percent of companies recognize this opportunity and are investing in mechanization and automation of their warehouses to streamline order picking and delivery.

40% of consumers do their grocery shopping online at least once a week

This number is expected to reach 55% by 2021. 40% of consumers consider home delivery service is a must when buying food and household products, and 1 in 5 (20%) would be willing to change stores or retailers if this service were not offered. The evolution of consumer behavior is also fostering a greater immediacy in the purchase pattern: 59% buy products online when they need them instead of waiting until the weekend to go to a physical store.

Fast and efficient delivery service can increase customer spending and brand loyalty.

Thus, 74% of satisfied consumers expect toincrease their spending in their usual stores by up to 12%. Similarly, the majority (82%) have shared their positive experiences with friends and family and just over half (53%) are even willing to pay a regular fee to enjoy a good delivery service.

However, despite the fact that 55% of consumers surveyed said that they enjoy a The two-hour delivery service would increase their loyalty, Only 19% of companies currently offer this service, compared to 59% that have a delivery service with a delivery time of more than three days.

65% of consumers use alternative delivery services to enjoy better service than traditional retailers

According to the report, consumers are generally dissatisfied with the current delivery service, with the main reasons being their high price (59%), the impossibility of receiving the products the same day (47%) and the delay in delivery (45%). Nearly half (48%) of dissatisfied consumers would stop shopping at their usual store if they remain dissatisfied with the delivery service and, those who would continue shopping, consider that they would reduce their spending by 45%.

Companies currently charge customers only 80% of the total cost of shipping and delivery is the most expensive part of the supply chain.

As mentioned above, the report reveals that 97% of organizations believe that current urban logistics models are not sustainable for large-scale deployment in all locations where they operate. Therefore, investment in these processes is key for 2019, taking into account, in addition, that only 1% of customers are willing to absorb the full cost of shipping.

Despite the fact that more than half of consumers consider low shipping costs a priority, only 30% of companies consider it a priority.

Similarly, nearly three-quarters (73%) of consumers say that they are able to enjoy a time slot that is truly convenient to them is more important than receiving shipments quickly, yet only 19% of companies consider it a priority to offer this option.

On the other hand, the report also notes that consumers are open to trying crowdsourcing delivery options: in exchange for an incentive (mainly financial), 55% are willing to deliver products to their neighbors. Meanwhile, 64% of consumers are indifferent to whether the delivery is made by an employee of the retailer, a private individual or an external courier company. In fact, 79% of consumers are willing to deliver products at a price that is lower than the cost incurred by the retailer in its own delivery.

How to create the best last mile delivery model

The study concludes with a list of recommendations for establishing a good last mile delivery model, such as:

Optimize order picking centers

Increasing in-store product deliveries by 50% could increase profit margin by up to 9%. In addition, so-called dark stores (operating warehouses set up exclusively for the preparation and shipment of orders arriving from the online store) can process large volumes of shipments and are 23% cheaper than conventional stores for same-day delivery. In addition, if 30% of the shipments and returns are channeled throughlocker systems or points of convenience, organizations could increase their profit margin by 8%.

Shipment automation

According to the study, automating logistics could increase profits by up to 14%. by reducing the cost ofclick-and-collect electronic ordering and in-store shipping. Automation also offers a number of other benefits, such as reducing errors in order processing and returns management (which accounts for 26% of shipping costs).

Tim Bridges, global head of Capgemini’s Consumer Products, Retail and Distribution sectors explains:

“Currently, customers are not satisfied with the quality of delivery or delivery services, but they are also not willing to bear the full cost of shipping. Therefore, the challenge facing retailers is to offer delivery services that customers value without hurting their own profitability..

If done right, and the shipping service experience they provide achieves customer satisfaction, retailers can increase customer loyalty, increase purchase value and frequency, and at the same time mitigate the risk of eroding profitability by using automation and optimization of order management centers.”