This morning ShopRunner sent a promotional email encouraging customers to shop at its e-commerce partners’ site. ShopRunner is a service that requires an annual membership fee to get unlimited free two-day shipping from its many retail partners. Free two-day shipping has worked as a disruptor in the e-commerce space ever since Amazon introduced Amazon Prime in 2005. But here in 2016, two-day shipping model alone might not be competitive for long term growth as customers are demanding faster delivery. Shopping online is close to meaning receiving the order as soon as it is placed.
The shift in consumer behavior is not just within the expectation on delivery speed. Recent movements of traditional brick-and-mortar stores doubling down on e-commerce as well as pure e-commerce sites building physical stores suggested that integration of offline and online may be the future of retail and that the wave of “Offline 2.0” reflects changing consumer trends.
An integrated offline and online channel for the retail and grocery industry can prove to be a “win-win” situation for consumers who are struggling to find the right balance between convenience of shopping online and hand picking fresh items such as fruits and vegetables. There is much at stake for traditional retailers and supermarkets, which have seen an increasing demand for online shopping and fast home delivery.
The new norm for online shopping will be to receive orders the same day. According to the Business Insider report, as many as 25% of shoppers said that they would consider abandoning an online shopping cart if same-day delivery was not an option, and 40% of US shoppers said they would use same-day delivery if they did not have time to go to the store. Yet, close to 50% of North America retailers have no plans to implement same-day delivery. This reluctance gives a strong edge to Amazon to build up its customer loyalty.
Variable Profitability of Last-Mile Delivery
As for retailers who are ready to offer a same-day delivery option, they face a range of concerns. Smaller retailers are mainly concerned with high delivery rates, as they often lack the bargaining power that allows larger competitors to offer cheap and faster delivery. The last mile delivery cost could reach to 50% or more of the total parcel delivery cost.
Meanwhile, a top priority for larger retailers is to meet varied customer expectations. To achieve that, they often offer multiple shipping options or annual membership program for discounted faster shipping. Still, many stores do not offer same-day delivery or store pickup, which are valued by consumers.
Outsourcing Last-Mile Delivery?
Fortunately, the emergence of technological innovations opens the door for new business model to allow retailers to offer same-day delivery while minimizing risks.
On-demand companies such as Uber and Deliv leverage crowdsourcing apps to help retailers eliminate the costs of building an in-house delivery fleet. Other marketplace deliveries such as Instacart, UberEats, and Google Express offer a website or app for customers to order goods from various merchants and deliver them at a scheduled time, enabling more same-day deliveries while helping retailers avoid labor costs of in-store fulfillment.
Saving cost and enhancing efficiency are crucial aspects of determining the success of last-mile delivery. Many retailers do not realize that they have several courier options and do not necessarily need to partner with one courier company exclusively to achieve lower delivery cost. Advanced algorithms and analytics can help optimize delivery operations, match right couriers to delivery tasks, route deliveries, and better address consumers’ expectations for speed, flexibility, and/or lower delivery costs.
Using Advanced Software for a Successful Last-Mile Delivery
Critical algorithms and analytics based software companies such as Pathover have enabled last-mile delivery to become more affordable. Pathover software in particular uses artificial intelligence to optimize the combination of courier options for the cheapest delivery cost per order and delivery route planning. Courier options include traditional carriers and crowd-sourcing couriers, and in the future driverless vehicles, drones, etc.
Advanced software such as Pathover that specializes in this space can help merchants automatically select and dispatch the best courier for each order, based on price, time of delivery, and store’s proximity to customer addresses. This type of software enables stores to manage deliveries well, and stores will be capable of enjoying immense profits.
To achieve this manually, a store is likely to have a difficult time combing through millions of combinations of courier and pricing options. To choose from one of them, a store would have to identify types of delivering goods, couriers’ space and weight capacity, the density of locale and the delivery time consumers ask for, etc. Regarding the delivery route planning, a dispatcher would have to be able to keep the track of the delivery location proximity, traffic condition, and so on. Stores may already perceive the complexity of the last-mile delivery pricing and planning.
Using the advanced software tools, stores can access the last-mile delivery market quickly, often with relatively low upfront investment and low operating costs. This is especially true for retailers who want to avoid operating their own fleet of delivery vehicles and employing full-time drivers, or dealing with third-party store shoppers (such as Instacart / Google Express). As an example, Pathover software charges only $0.75 per order and can guarantee an average of 71% saving in delivery costs.
A recent actual customer delivery that involved same-day delivery of 6.4 mile would have cost $18 using Postmates courier option, however, Pathover software automatically found and dispatched a cheaper alternative: a local courier company who made the delivery at $6.25 per package.
Software that offers optimization algorithms makes it easier for merchants to have the best delivery method for each order based on multiple criteria (e.g., cost, speed, volume) to better meet their customer expectations. Stores stand to benefit on lower delivery fees from the fierce competition among traditional and “on-demand” delivery companies.
With rising customer interest in same-day delivery but also rising delivery fees, stores need to consider the right software and company to partner with to build a robust system to make a seamless and efficient last-mile delivery. By owning the customers data and realizing consumers’ needs and analyzing the business capability, stores can offer customers flexible and attractive delivery options to maximize their satisfaction. Thanks to emerging technologies, last-mile delivery can be done automatically, seamlessly, efficiently (reducing delivery time by 5~15%) and cost-effectively. Same-day delivery will rise to become the norm for online shopping – protecting and potentially expanding customer markets.
Pathover helps automate all the manual processes to save time and cost so that any supermarket in the nation can offer its own online grocery shopping and free delivery to its consumers from its own website. Stores maintain their strong store brand while being able to use similar technologies as what Amazon or Walmart have built.