For retailers, ensuring a smooth and satisfactory “last-mile” delivery – the final leg of the journey where a product lands in a consumer’s hands – is now more significant than ever. A superior last-mile experience engages and retains consumers, with the research showing that three-quarters are willing to spend more if they are satisfied with the delivery services.
While this is good news for retailers’ top line, today’s delivery models are not proving to be profitable, with retailers absorbing a part of the cost of last-mile delivery. As more consumers shift to online ordering and expect frequent deliveries, the research shows that meeting demand and service-level expectations will hurt retailers’ profitability.
In a recent interaction with Franchise India, Aashish Chandorkar, Head of Capgemini Invent in India, elaborates the role of last-mile delivery in the Indian retail market. Read on to know more...
Indian Retail Market in Coming Years
Ashish writes, “Executives in India expect revenues from online grocery orders to increase by 50% over the next three years with the largest growth expected in shelf-stable food and pet care categories with close to 60% increase in revenues from online orders over the next three years. Given the rapid growth of online retail, coupled with recent announcements of entry of global players such as 7-Eleven, and increasing interest of large Indian groups, and growing appetite of the Indian consumer, I do believe the Indian retail market is set for a strong period of growth in coming years.”
Future of Last-mile Delivery
Ashish mentions, “Last-mile delivery accounts for the largest portion (41%) of supply chain costs globally, more than twice the size of warehousing, sorting, parceling, or other remaining supply chain costs. Most of the costs incurred for last-mile delivery are variable, meaning that an online grocery delivery volumes increase, so will the costs for last-mile services, thereby increasing the proportion of supply chain costs going toward last-mile delivery. If retailers don't optimize their last-mile delivery cost, they could see a potential drop in net profit as online order volume grows.”
Ashish points out what options can retailers explore to manage their costs and improve margin
Where do Indian Retailer Market stand when it comes to Last-mile Delivery
He adds, “In terms of the cost incurred in last-mile delivery, India follows the global trend, with last-mile delivery the biggest cost driver in the supply chain at 40% of overall supply chain cost. Globally, this figure is 41%. However, in India, the warehousing costs are lower at 9% of supply chain cost compared to 13% globally. Also, India follows the global trend when it comes to delivery within 1-3 days. However, this number varies for faster delivery speed such as 2-hour delivery. 11% of executives in India said their organizations provide 2-hour delivery compared to 19% globally.”
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