Retailers still haven’t solved last mile challenges for fresh foods

Discussion
Amazon Prime Now staging area at Whole Foods - Photo: RetailWire
Apr 08, 2019
Ron Margulis

Retailers, suppliers and third party service vendors continue to face significant challenges for the delivery of temperature-sensitive food to homes, keeping profitability elusive.

Consumers are inflexible in terms of both quality and timing expectations. Unordered product quickly goes to waste at the point of dispatch, whether that’s at the store, commissary or distribution center. At the same time, supply chains are no longer linear but are multi-dimensional, meaning that products are often distributed from different dispatch points, causing another layer of complexity.

“You need to be as close to perfect as possible to make a customer profitable,” explained Nimish Dixit, senior director of Operations Innovation at FreshDirect, the online grocer operating throughout the Mid-Atlantic states. “One failure is likely to lead to the customer to shop elsewhere. This is likely to happen before the customer is profitable due to high acquisition costs.”

Mr. Dixit spoke last week at Home Delivery World in Philadelphia, attended by about 3,000 logistics, retail, manufacturer and processing professionals to work on these and related issues. The good news is that progress is being made on several fronts.

On the technology side, data analytics is helping to better match supply and demand, so the time it takes to get fresh foods from the producer to consumer is being dramatically reduced. Adam Kalikow, senior director of operations at HelloFresh, the meal kit company, said the typical fresh foods supply chain takes 10 days with a 23 percent waste rate to get to the customer, while his company has worked that down to two to three days and much less waste.

“Data is the answer. Our subscription model that optimizes product selection through forecasting algorithms gives us a much more efficient online food supply chain,” he reported. Still, HelloFresh, which started in Europe and entered the North American market about five years ago, has yet to post a profit.

On the physical distribution side, the conference wasn’t overwhelmed with talk of new shiny objects like autonomous delivery vehicles and drones, although vendors of both conveyances were on the show floor and speaking at sessions. Retailers and suppliers seem to understand the current limitations of these efforts and are looking for last mile delivery service strategy solutions that will have an impact today.

Lowes Foods, a supermarket chain operating in North Carolina, South Carolina and Virginia, has made its ecommerce operation work through a combination of marketing, resource allocation, training and setting customer expectations. The current program is largely buy online, pickup in store, but the retailer is preparing for a dramatic move to home delivery over the next few years and is focusing on cost management versus customer expectation to ensure its success.

“We have a culture of belief and support to grow e-commerce and extend additional offerings to customers. We also foster the innovation needed to create the right environment and push home delivery in the right direction,” said Lee Lambeth, director of eCommerce at Lowes Foods.

DISCUSSION QUESTIONS: What are the pain points retailers and suppliers need to address immediately to make home delivery programs profitable? Where do you see opportunities for further gains in the future?

Please practice The RetailWire Golden Rule when submitting your comments.
Braintrust
"It’ll be a challenge to hire and train employees in charge of last-mile delivery, as for many businesses it’s a fairly new part of their operations."
"A key challenge has got to be reducing delivery costs and increasing drop density is a key way to address this."
"The juice is not worth the squeeze for consumers. According to CapGemini, only 1 percent are willing to pay the full cost of delivery."

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12 Comments on "Retailers still haven’t solved last mile challenges for fresh foods"


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Keith Anderson
BrainTrust

Maintaining a cold chain along with the labor and fuel costs are the largest barriers to sustainable economics. Automation and improvements in packaging (including reusable packaging) are making progress on each of these fronts.

Min-Jee Hwang
Guest

It’ll be a challenge to hire and train employees in charge of last-mile delivery, as for many businesses it’s a fairly new part of their operations. In addition, packaging will also be a challenge to ensure that food stays fresh as it’s delivered and left on customers’ steps.

Bob Phibbs
BrainTrust

“Consumers are inflexible in terms of both quality and timing expectations.” People order fries through Grubhub. I’d say the consumer is pretty flexible in many last-mile delivery options.

David Weinand
BrainTrust

Reusable packaging that can lengthen the window of delivery while also maintaining freshness is a must. An Indian food delivery service out of Atlanta, Subziwalla, has developed such packaging and they are seeing improved margins as such.

Ryan Mathews
BrainTrust

I’m not sure we are looking at this quite right. As Uber Eats, Grubhub, and Jimmy John’s, etc., et alia prove — you can deliver an acceptable fresh product at a variety of temperatures. The real issue is that the customer has to be in place, expecting it, and willing to recognize that the linguini carbonara coming out of a plastic box being delivered by a minimum wage driver may lack some of the qualities generally associated with dining in a white table cloth Italian restaurant. But when it comes to ice cream, produce, etc. I suspect that most people don’t want to wait around for yet another delivery person and may, in fact, demand a higher than store quality product if they do. It’s easy to forgive yourself for ice cream that got soft in your trunk en route to home in July, but almost impossible to extend the same consideration to a commercial firm.

Dan Frechtling
BrainTrust

The juice is not worth the squeeze for consumers. According to CapGemini, only 1 percent are willing to pay the full cost of delivery. As a result, supermarkets only recoup 80 cents for every $1 they spend on delivery.

How do they get past this? They may:

  • Reduce the cost of ordering using apps and websites;
  • Reduce the cost of delivery using third parties like UberEats, GrubHub and Instacart;
  • Focus operations on densely populated areas.
Oliver Guy
BrainTrust

A key challenge has got to be reducing delivery costs and increasing drop density is a key way to address this. Addressing this is difficult without making it less convenient for the consumer. There are some examples where it has been increased – Picnic in the Netherlands for example where they have a “milkround” type approach – but this means consumers are highly restricted as to when product is delivered.

David Naumann
BrainTrust

The last mile for home delivery of fresh foods is, and will continue to be, the biggest challenge for customers satisfaction and retail profitability. Consumers are not willing to pay what it costs for home delivery, as most consumers expect everything for free.

Home delivery is complex and costly and many retailers are experimenting with several options to find the right method (employees, third party services and crowd-sourcing). While keeping the delivery in-house helps ensure quality control, it is often more expensive to maintain. Retailers lose control and have to hope for the best with third-party services, but it may be the most economical choice.

Doug Garnett
BrainTrust

I have yet to understand why so much corporate investment goes into what seems like a non-starter from the beginning. The premium needed for (a) last mile while (b) hot and fresh is considerable. It works well for pizza because it’s a single food and plannable. But dinners?

One of my concerns around innovation is how often we fall prey to a lot of people saying it “should” happen without really evaluating the fundamentals.

Key fundamental here is that the last mile is always expensive. For brick and mortar the consumer pays that cost. Delivery seems to always demand a significant premium to be profitable which also limits it to a narrow niche except in the largest cities.

John Karolefski
BrainTrust

Selecting produce and delivering it is an issue that may never be solved without consumers lowering their expectations and standard of satisfaction. People are picky.

One’s opinion about the quality and appearance of produce items will rarely match that of the in-store selector.

Ricardo Belmar
BrainTrust
Let’s call out the elephant in the room when it comes to last-mile delivery of grocery — it just won’t be profitable by itself anytime soon. Neither in the short-term nor the near-to-midterm. Long term — who knows, anything is possible! The real discussion needs to move to how delivery plays into overall customer acquisition and more importantly, retention. Delivery is a convenience factor for consumers, and consumers have been trained to expect this for free or almost free (too small a fee to cover the real expense for the grocer). Why offer it? To deepen the relationship with the customer and retain them long-term, increasing lifetime customer value. This must be factored into how the store should be restructured to serve the needs of a customer who may seek delivery 60% of the time, use curbside pickup 25% of the time, and then enter the store only 15% of the time. Of course, that’s only one possibility, there may be other mixes to this equation based on customer demographics in a particular area, but… Read more »
John McIndoe
BrainTrust

Our friends in the telecommunications sector went through a similar “last mile” issue about 10 years ago, as fiber optic cable became a viable upgrade to copper wire. However, carriers quickly learned that the cost of extending fiber to rural areas and even “to the home” in suburban areas was punishingly expensive.

Food and beverage retailers attempting to deliver fresh have added challenges: the consumer must be on premise or the food quickly spoils, the configuration of multi-unit buildings complicates delivery, and only a small percentage of shoppers are willing to pay for home delivery – to name just three. Solutions for the future will require new levels of innovation or technologies not yet on the market, such as Walmart’s testing of a self-driving car shuttle service that brings online shoppers to pick up grocery orders.

wpDiscuz
Braintrust
"It’ll be a challenge to hire and train employees in charge of last-mile delivery, as for many businesses it’s a fairly new part of their operations."
"A key challenge has got to be reducing delivery costs and increasing drop density is a key way to address this."
"The juice is not worth the squeeze for consumers. According to CapGemini, only 1 percent are willing to pay the full cost of delivery."

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