Morrisons deliveries

Investment in last-mile grocery delivery is crucial for retailers to unlock new revenue, according to a survey.

Three out of four customers would increase spending and be more willing to try new offerings in return for better delivery service, the survey by business consultants Gapgemini showed.

Forty per cent classed a delivery service as a ‘must have’ and 55% said they would be more loyal to retailers able to deliver in under two hours.

Capgemini surveyed 2,874 consumers and 500 supply chain executives, entrepreneurs and industry leaders across Europe and the US.

Forty-seven per cent of consumers were unsatisfied with not being to place orders for delivery the same day, and 45% with late deliveries.

But the study also found current last-mile delivery costs were eating into profit margins and leading to a mismatch between the priorities of retailers and consumers. The last mile accounted for 41% of overall supply chain costs and retailers were only passing on 80% of the cost in delivery charges. Yet just of 1% of customers were willing to pay the full delivery cost, despite many saying they would spend more if delivery was better.

Opportunity lay in automation, including in the warehouse, where product sorting accounted for one third of supply chain costs, the report said. Most businesses recognised the potential, with 89% investing in back-room automisation for fulfilment.

‘Dark stores’ intended only to fulfil online orders would be 23% cheaper than conventional stores for same-day deliveries, the report said, while routing 30% of deliveries and returns through parcel lockers could increase profit margins by 8%.

“Today, customers are neither satisfied with the quality of delivery services, nor willing to bear the total cost of last-mile delivery,” said Tim Bridges, Capgemini’s global sector leader, consumer products, retail and distribution.

“Therefore, the dilemma facing retailers is to provide last-mile delivery services that customers value without damaging their own profitability. If done right, and their last-mile experience can win over customer satisfaction, retailers stand to gain loyalty, increased purchase value and frequency, while mitigating profitability risk through automation and optimisation of fulfilment locations.”