Winning the last mile in online delivery

Last mile deliveryI’m not a very good bridesmaid. After being given the very specific request to purchase gold, strappy shoes to match other bridesmaids, I got to the wedding day shoeless. However in 2017, this is not a problem. Thanks to The Iconic, $10 and three hours later, I had shoes to wear. Amazingly, this same-day delivery experience is likely to become the norm for many online retailers. Those retailers, who are ahead of the game and innovating in ‘the last mile’ logistics, are well positioned for future growth.

Customers want the world and they want it now

In 2015, a Deloitte survey of US online customers showed that 63 per cent of them thought that fast shipping meant being delivered in two days or more. In 2016, in the same survey, 96 per cent of customers now said that fast shipping meant receiving your parcel on the same day. Five years ago, retailers gawked (and some still do) at the idea of offering free shipping, but now the landscape has moved to instant gratification.

However at least this time, customers are showing a willingness to pay for the service – in a survey conducted by Mckinsey in 2016, it found that 20 to 25 per cent of US customers would happily pay a significant premium to access same-day delivery. And while Australia is yet to realise the full potential of same-day delivery, the US example sets a clear tone for what customers are increasingly going to expect.

Retailers are not quite going the distance in Australia

Defined as the last step before a product reaches the hands of the purchaser, the last mile is a significant factor to gaining customer loyalty. While price remains a priority, offering superior last mile service can often generate repeat purchases. However while customer expectations have been rising, traditional logistics providers in Australia such as StarTrack, DHL and FedEx have been held to task for not developing enough last mile capability. In turn, this has left many retailers in the lurch looking for other options.

Companies such as Australian based, Zoom2U, Sendle and Sherpa are stepping in to fulfil ‘the last mile’ requests. These companies allow private drivers/cyclists to become couriers and thus have an incredible network to make point-to-point deliveries. And with an easy to use interface, an offer of $11 same day delivery (and three hours in metropolitan regions), these start-up couriers are disrupting the last mile market for the benefit of online retailers. Uber is also venturing into the space with UberRUSH – effectively utitlising their network of Uber drivers to act as couriers for retailers.

Despite the number of companies offering the delivery logistics, Australian retail has been slow to offer same-day delivery. Particularly in grocery, if supermarket chains are investing in an online presence, an effective last-mile delivery option is a must to guarantee grocery freshness. Currently the independently owned Harris Farms, is the only supermarket offering same-day delivery – a significant opportunity for Coles or Woolworths to grab online grocery market share.

Innovating ‘the last mile’

The last mile has been a focus for logistics teams in Amazon, Alibaba and JD.com. These companies have recognised the importance of having this capability and as such have made investments into in-sourcing its development. Amazon already supports free same-day delivery through its Amazon Prime subscription, and in 2014 launched Amazon PrimeNow in the US for selected cities which offers free two-hour delivery. The innovation continued and in December 2016, Amazon launched its first ‘Prime Air’ delivery – a delivery system designed to get packages to customers using drones in 30 minutes or less. Under 30 minutes! A remarkable feat and one that would literally leave even innovative couriers stuck in traffic, hours behind. However the drones are some time from a full-fledged assault on the same-day delivery market – particularly since the solution has to navigate airspace regulations. Regardless, it’s an interesting proposition.

Investing in their ‘last mile’ offering is not necessarily the message that retailers want to hear, but it will be inevitable the more players such as Amazon and Alibaba aggressively pursue these strategies. As traditional Australian retailers realise that their customers expect same-day delivery yet have not invested into this space, they should look to the Zoom2U or Sendle to manage this part of their logistics offering. They will need to partner and invest to help these players improve their offer to compete with the likes of Amazon’s drones. Working together and adopting same-day delivery as a standard option (especially for grocery), will drive innovation and hopefully drive costs down.

Arani Satgunaseelan is a principal consultant at ADP & Co, a management consultancy specialising in strategy and analytics for the retail sector. Arani can be contacted at [email protected].

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