By Robert Bauer and Ben Hoster

A food order en route to a customer. When assessing future last-mile delivery models, retailers and restaurateurs must factor in longer-term trends that are likely to unfold in a post-pandemic world.

Once regarded more as a “nice to have” capability, rather than an essential aspect to strategy for capturing market share, last-mile delivery is now a “must have” component of almost all business plans.

Before the COVID-19 outbreak, most customers were willing to pay a 12% premium for the convenience of last-mile delivery. Today, bringing orders right up the customer’s doorstep is the only way for many retailers and restaurateurs to compete and satisfy demand.  

Drivers Accelerating Last-Mile Delivery

Consumer expectations are shifting. Pre-pandemic “I want it now” expectations of same-day and same-hour delivery are evolving into minimum basic services. Previously, 56% of online shoppers between the ages of 18 and 34 expected same-day delivery, while 61% of consumers were prepared to pay an additional charge for the convenience of same-day service. This trend will only accelerate in light of the COVID-19 outbreak, as customers perceive door-to-door delivery options to be a safer alternative.

We have also seen rapid progress in delivery technologies, such as drones and artificial intelligence (AI)-enabled autonomous delivery vehicles, is driving down labor costs, reducing dependency on worker availability and enabling round-the-clock delivery. The market for autonomous delivery vehicles alone is estimated to reach $45 billion by 2027. Furthermore, delivery network carriers (DNCs) are constantly improving their logistics to perform the most deliveries in the fewest number of miles. 

And finally, new talent models are emerging. The sharing economy is also providing answers to some of the inherent inefficiencies of last-mile delivery. As the novel coronavirus has demonstrated, scaling up capabilities fast is easier said than done: hiring drivers, purchasing vehicles and building a delivery fleet represent a significant financial burden. DNCs can reduce the burden, but at a cost.

Retailers and restaurateurs are two sectors whose business models are enhanced by an effective last-mile delivery strategy. The convergence of trends and rise in last-mile options have created an opportunity to differentiate customer experience, streamline operations, capture value from insurance expenditures and gain market share.

However, participants in both sectors must carefully assess and balance their investments in specific delivery models and technologies, without misallocating precious capital. While these unprecedented times create significant challenges, opportunities exist for those able to deploy a successful last-mile delivery strategy. 

Tailoring Delivery Models

Across this ecosystem, different delivery models will suit different types of companies — generalists, specialists and underdogs. In addition to the company’s business strategy and scale considerations, each model must be evaluated across key workforce and risk-related dimensions.

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When assessing future last-mile delivery models, organizations must factor in longer-term trends that are likely to unfold in a post-pandemic world.

pure-play owned and operated fleet model is a traditional approach that represents a high degree of risk and cost for retailers and restaurants. Many of the Generalists will deploy this model, as they often have a strategic eye to the longer-term reward.

The ability to fully own the customer experience, while using robust analytics capabilities to leverage key data (such as purchasing patterns, consumer sentiment and demographic data), ultimately enables them to grow their business.

However, the costs associated with a driver’s compensation, training and benefits are the responsibility of the organization. Moreover, delivery drivers have limited career options if operating in a pure delivery capacity. That being the case, the business must deal with employee churn and recruiting costs. Lastly, the organization is more exposed to the risks of auto accident, workplace injury and food-borne illness liabilities.

A delivery network carrier (DNC) model, on the other hand, enables retailers and restaurateurs to transfer a portion of the risks to one or more DNC providers. Employees of DNC providers often adopt a “gig” mindset, with the desire to engage in a transactional fashion, allowing on-demand, surge capacity at a fraction of the cost of owning a delivery fleet

As a result, a DNC model is often a more practical choice for the Specialists and the Underdogs. A DNC can also help these participants access commissary kitchens, whereby dishes from multiple brands can be prepared under one roof and deliveries can be fulfilled. This allows asset-light model operators to break into new geographies/markets without the overhead of owning or leasing a brick-and-mortar location and owning a delivery fleet.

That said, retailers and restaurateurs leveraging a DNC model will likely give up their ability to access and analyze valuable customer behavior data about how their products are ordered and received, potentially putting them at risk of being disintermediated by the DNC. Who ultimately “owns” the customer if a new intermediary that controls that experience is introduced?

Retailers and restaurateurs often deploy a “portfolio approach” to last-mile delivery options, ultimately settling somewhere along the spectrum of these models. Companies with the scale and ability to harness insights from data are likely to in-source and invest substantively in their own last-mile solutions, while smaller organizations will be more likely to partner with DNCs to handle delivery.

Mergers-and-acquisitions (M&A) activity is also an option for large corporations to obtain last-mile delivery capacity. A prime example of this is the retail giant Target’s purchase of Shipt, and Uber recently announced a $2.65 million acquisition of Postmates, a local delivery service.

There are also instances where large delivery operations may purchase a retailer, as happened when Amazon acquired Whole Foods Market. These opportunities are increasingly likely to emerge as the current pandemic progresses.

Internal and External Considerations

When assessing future last-mile delivery models, organizations must factor in longer-term trends that are likely to unfold in a post-pandemic world — evolving workforce and regulatory considerations heightening potential cost pressures, a migration to autonomous mobility modes and the impacts of climate change.

The blending of these models also requires retailers and restaurateurs to evaluate internal considerations, including how demand patterns could change over time, especially after the pandemic; how to create differentiated experiences for customers through last-mile delivery services; how to achieve more efficient production; and how to determine the value of anonymized order-preference data along with the cost of using this data.

Liability and/or workers’ compensation issues unique to the current and future operating environment also need consideration. Organizations may explore the kinds of loss controls that should be in place and what health considerations will be required to protect their workforce and customers following COVID-19.

Delivery model choices may seem obvious. However, given the evolving business landscape — market uncertainty created by the COVID-19 pandemic, rapidly maturing technologies and increasing customer expectations — a seemingly appropriate solution today may not be the right choice tomorrow.

Link: https://www.brinknews.com/last-mile-delivery-retail-restaurants-food-delivery/

Source: https://www.brinknews.com