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Online grocery: the potential to cut costs on the return trip

A new Retail Bulletin/ResearchFarm report, “Online grocery retailing in the EU 2012: Beyond m-commerce and click & collect; future models and six innovation ideas” finds that multichannel grocers have one revenue generating and cost cutting source.

GENERAL MERCHANDISE

Online grocery: the potential to cut costs on the return trip

The opportunity to cut costs is the return trip, on which the multitude of delivery vans of the leading grocers just ship air back to their Distribution Centres.

The Background
Whilst growth for total grocery in the EU was 2.5% last year, achieved against considerable headwinds, online outpaced the sector, advancing by 22.1% in 2011. Accounting for just under 1.5% of total grocery spend in the EU right now, further strong growth is predicted for the online channel, as the leading multichannel operators and pureplays such as Amazon continue to roll out their services across the EU. However currently, very few best practice methods and benchmarks for FMCG players and retailers have been established, so there is still all left to play for in the online space. ResearchFarm predicts strong growth rates for the channel and this will throw up considerable new challenges for multi-channel grocers.

The opportunity
Significant opportunities to maximise loads, improve flows and bring down costs still exist. Many retailers have organised their fulfillment of stores via central warehouses. On the return trip from the stores their fleets can pick up orders from suppliers, bringing down supply chain costs. In effect ResearchFarm would advise retailers to adopt lessons learnt in the back end (the supply chain to their stores), to the front end and make the deliveries to consumers more cost and fuel efficient.

By now most of the leading EU grocers have online capabilities, mostly offering their non-food proposition (electricals and clothing etc) online but increasingly also launching online grocery services. If they offer both, most are organisationally set up in silos due to legacy issues. Grouping the deliveries together could make sense and raise synergies – not as a general rule but on a case by case basis.

A big incentive should be reducing empty van runs. Regional suppliers could make their shipments ready for an empty van, on the route back from delivering to online shoppers’ homes to the depot, to deliver to a convenience store on the way. For the likes of Wal-Mart, Carrefour or Tesco there is also the potential to pick up marketplace orders from third party vendors for example. Especially the bigger multi-channel retailers such as Tesco or Casino in France operate enough stores per postcodes or geographies to make this a viable option.

Daniel Lucht, Research Director at ResearchFarm comments,“Multi-channel grocers could cooperate with non competing retailers or players from other sectors such as healthcare for example to use trucks and vans returning from their deliveries to the end consumer more efficiently.”

By renting out the unused transport capacity to others, the economics of the main cost driver for online grocery services, delivering on the crucial last mile, can be transformed. Moreover overall carbon footprints would also be reduced, as the overall number of runs would decrease.

Naturally this solution would presuppose high trust levels between partners and fair gain sharing between the associated businesses. The businesses need to be chosen with the right strategic fit to reach enough synergy potential as well and finally clear entry and exit rules for any cooperation need to be set up.

Daniel adds,"What is obvious to us is that online orders will continue to grow – often at the expense of traditional retail, so players who sort out this stage of the process will gain a huge cost advantage. Naturally this makes most sense for the big players, who have the necessary capabilities to make such a service work.”

If you would like to find out more about the report, please download the brochure here.

You can order the report here  and claim an exclusive 10% discount to Retail Bulletin readers, by entering the code ‘bulletin’ on the check-out page.

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