Fulfilling Final Mile Delivery: Top 6 Trends Every Grocer Should Have on its Radar
More online sales coupled with higher customer expectations is a double whammy for grocers when it comes to fulfilling the final mile. Learn the top 6 trends - from smart lockers to drones - that grocers are implementing to optimize final mile delivery fulfillment.
Consumer demands for fast delivery have been growing for years, but the global pandemic catapulted these expectations — along with online sales — to new heights.
The impact on the grocery industry is palpable. U.S. e-commerce grocery sales reached $9.3 billion in January, according to Brick Meet Click/Mercatus. And L.E.K reported that approximately 35% of U.S. households now go online to buy groceries.
More sales coupled with higher customer expectations is a double whammy for grocers. And customers are unforgiving.
In a recent study by Capgemini:
- One-fifth of respondents (20%) said they have or will switch retailers if delivery services aren’t available.
- More than half (55%) said they will switch to a competitor if that retailer or brand offers faster delivery.
- And 40% said delivery services are a “must-have” in the food and grocery category.
But offering delivery — and more importantly fast delivery — is hard. In fact, only 19% of retailers offer delivery services within two hours.
So, why is it so difficult?
At Egen, we’ve seen retailers struggle with outdated technology, inefficient routing, and lack of delivery infrastructure.
And therein lies the opportunity. Grocers that innovate quickly to get fast delivery services up and running now will outpace competitors and capture more of that increasingly growing online grocery market share.
The struggle for speed
While the online sales boom is great news for grocers, it comes with the immense challenge of getting orders to doors in a short window of time — in most cases, two hours or less.
Let’s explore the primary challenges grocers face when trying to provide final mile delivery:
- Customers want fast delivery. It wasn’t too long ago that scheduled grocery delivery — days or longer in advance — was good enough for most online grocery shoppers. But, thanks to COVID-19, those days are over.
To better compete with Amazon and other large grocers during the pandemic, many stores started offering same-day delivery services — pushing the bar higher for faster delivery. But without a third-party delivery platform like Instacart or Shipt to handle shopping and delivery (more on this later), this is hard to pull off. And trying to manage it entirely on your own requires huge investments in transportation and technology, as well as highly trained and/or experienced staff, which can be both time-consuming and costly.
- Location is everything. The closer a fulfillment center is to a customer, the faster and cheaper it is to deliver to that customer. To meet the two-hour or even same-day demand, customers’ delivery addresses almost certainly need to be located within only a few miles of fulfillment centers — for grocers, that means your stores.
But this can quickly go awry unless grocers have real-time visibility into accurate inventory data. You need to know that customers are placing orders for products that are in stock, in the stores closest to their delivery locations and that those items can get picked, packed, shipped, and delivered in only a matter of hours. Without excellent inventory management capabilities, this won’t work.
- Owning the experience. As grocers experienced spikes in e-commerce sales during the past two years, many understandably turned to third-party delivery platforms, such as Instacart and Shipt. They served as a great quick fix in meeting their customers’ new delivery demands and allowed them to scale their business. But they’re far from the best long-term solution.
Grocers make lots of sacrifices when outsourcing final mile delivery to these platforms. Not only do you lose control of the customer experience, but you also miss an opportunity to deliver an end-to-end branded experience. And, more importantly, you don’t own the customer data obtained through those transactions — the third-party delivery platform does. That means any insights gleaned about the customer during a transaction — important insight that can help inform important decision making and predict customer behavior — is completely lost to you.
6 trends to optimize final mile delivery
The challenges around final mile delivery fulfillment are daunting — there’s no question about that. But the benefits of overcoming them could mean a windfall.
Capgemini reported that 55% of consumers it surveyed said that a two-hour delivery option would increase their loyalty to that retailer. And 75% said they would buy more of a retailer’s products if they’re satisfied with its delivery service.
Thanks to emerging innovations in fulfillment and technology, grocers have quite a few options for tackling final mile challenges and delivering faster while keeping costs in check.
- Rapid order fulfillment. Partnering with a third-party logistics provider (3PL) like ShipBob, Bringg or Navar lets retailers optimize the last mile to fulfill orders faster. These platforms provide the technology and delivery capabilities so grocers can streamline the fulfillment process while keeping costs in check.
Walmart is taking the progressive step of launching Spark Delivery, its own, in-house crowd-sourced delivery platform. Customers place orders on the Spark app, and Walmart’s personal shoppers pick and pack them, while independent drivers who sign up on the app collect the orders and deliver them to Walmart customers. By bringing this final mile delivery function in-house but optimizing the process with crowd-sourced drivers, Walmart has taken full control over the end-to-end customer experience. And it also owns all the customer data associated with those transactions.
Smart routing is another option for rapid order fulfillment. Drivers need visibility into the entire route, including parcels per order, time to next stop, and the ability to chat live with customers. Automated rerouting, re-delivery, and geofencing alerts let retailers optimize delivery routes — resulting in faster service, better resource utilization, and higher productivity at optimized costs.
Buy online, pickup in-store – BOPIS – and buy online, pickup at curbside – BOPAC – are also low-hanging fruit for retailers to fulfill orders quickly and increase customer convenience. The beauty of these fulfillment options is that you can provide an overall great shopping experience for customers, and you own all the data associated with that customer and transaction.
- Smart lockers expand throughput. Smart lockers are emerging as a popular fulfillment trend among retailers of all types — including grocery chains. Temperature-controlled lockers let grocers store customers’ orders for a pickup time that is convenient for them. And the pickup method is contactless, which most customers have come to prefer — if not expect — during the pandemic.
Grocers can utilize innovative pickup zones such as airports, gas stations, gated communities, and apartment complexes, for example, to expand the business into new geographies and generate new revenue streams. Smart lockers also save grocers on labor costs as they don’t need to hire staff to make deliveries. In fact, one of Egen’s grocery clients improved site efficiency and increased throughput by 100% per week, per locker.
- Hyper-local micro-fulfillment centers. The pandemic plummeted commercial real estate into a crisis, but the e-commerce explosion is turning crisis into opportunity. According to Prologis, the largest U.S. owner of industrial real estate, space utilization in May 2021 reached close to 85%, and vacancy rates were at 4.7%, close to a record low. Companies like Amazon, Walmart, Target, and The Home Depot need more space, especially to manage fulfillment for their growing marketplaces of third-party sellers.
The pandemic-forced closures of offices, shopping malls, and even gyms present an opportunity for e-commerce businesses to repurpose these spaces as “micro-fulfillment centers.” MFCs are more compact spaces that operate as flexible logistics hubs designed to speed up and augment deliveries. They are especially ideal for grocers dealing with perishable food items where the need for rapid fulfillment is even greater.
- Robots running warehouses. Once out of reach for most retailers, recent advances in robotics technologies mean they’re much more accessible and cost-effective than ever before. With labor costs rising, along with labor shortages, grocers can leverage robotics technologies to expand storage without moving out of their existing space. According to Progressive Grocer, grocers can increase fulfillment performance 10 times over by using robotics technologies and artificial intelligence without bringing on any additional staff.
Even Instacart, known for helping to launch the "gig worker" economy, is betting on robots. According to a recent Bloomberg article, the company is planning a departure from its model, which proved to be far more expensive and unsustainable (delivery fees, price markups, and tips can add 25% to an order). Automation will help Instacart cut costs and lower the fees and markups.
- Drones – utility or futility? Commercial delivery drones are rising in popularity as a way for retailers to expedite deliveries faster, more flexibly, and cost-effectively. Amazon initiated the pilot-less aerial vehicles with Prime Air, which is designed to safely get packages to customers in 30 minutes or less. Kroger has followed suit, recently announcing a partnership with Drone Express, to deliver products not only to a street address but to an “on the spot” location, like to a picnic in the park or to the beach.
Yet, the reality of millions of drone flights every day across the skies is still up for debate. Most devices are designed to carry a single payload, whereas a rider on an electric scooter or an autonomous vehicle could carry more items across a city and get to locations almost as quickly. There is also the challenge of multi-floor, multitenant buildings, where the concept of having to find your package and untether it is far less convenient than a courier knocking on your door. Advances in this technology will continue, though, so it’s important to keep an eye on the retail behemoths and their experiments.
- Autonomous vehicles take to the streets. Autonomous — or self-driving — vehicles may soon be another option for grocers to consider expediting final mile delivery. These vehicles deliver orders to customers without the need for a driver and provide the benefit of contactless delivery so many consumers have recently embraced. Kroger, Walmart, and CVS were the first to test the technology with robo-startups Nuro, Starship Technologies, and Refraction AI.
More recently, Ford, Walmart, and Argo AI partnered up to test this concept in Miami, Austin, Texas, and Washington, D.C. The Ford vehicles will be equipped with Argo’s self-driving technology and will deliver orders to Walmart customers.
Taking fulfillment the final mile
As grocers implement plans to tackle final mile delivery and fulfillment, they should consider these important trends. Technology is at the center of it all. Investing in modern fulfillment approaches is paramount for any grocer looking to beat competitors and delight consumers.
Need help prioritizing your final mile delivery fulfillment options? Our new CIO Playbook details 3 proven strategies to help you successfully complete the customer journey.
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