With increased time pressures and expectations for same-day, next-day and one- or two-hour delivery windows, the final leg of reaching customers has created an increasingly cluttered last-mile landscape with multiple solutions.
“There are going to be some implications and, quite frankly, some significant opportunities for our industry,” said Lori Buss Stillman, NACS vice president of research, during the virtual 2020 NACS State of the Industry Summit this past April. “Last-mile fulfillment is the future, and it is what retailers are using to continue operations at a time when retail is being shut down and social distancing becomes a norm,” she said.
As the last mile ecosystem continues to evolve, Stillman noted that when retailers look at the value proposition through the lens of the shopper, there are some finite ways in which they are defining what last mile looks like for them, and how new technologies and an increasingly digital market are serving shopper needs.
Not So Science Fiction
Delivery by drone may sound futuristic, but 7-Eleven actually made the first commercial delivery by drone in July 2016 when it teamed up with Flirtey to deliver Slurpee drinks, hot coffee, a chicken sandwich, donuts and candy to a home in Reno, Nevada. Additional drone delivery tests followed that November.
Amazon began testing drones in 2013, and in 2016 the company announced Prime Air to deliver packages up to five pounds in 30 minutes or less using small drones. Amazon received approval from the Federal Aviation Administration (FAA) in August 2020 to operate its fleet of Prime Air delivery drones.
“This certification is an important step forward for Prime Air and indicates the FAA’s confidence in Amazon’s operating and safety procedures for an autonomous drone delivery service that will one day deliver packages to our customers around the world,” David Carbon, vice president of Prime Air, said in a statement.
Although Prime Air is not yet delivering packages at scale, the company is actively testing the technology. UPS, which also has FAA approval, teamed up with CVS Health Corporation in 2020 to use drones to deliver prescription medicines from a local CVS pharmacy to more than 135,000 residents in The Villages in central Florida, the largest retirement community in the United States.
Logistical issues, regulatory roadblocks and cost considerations need to be ironed out before drone deliveries could go mainstream in the U.S., but they are on the horizon to bridge the gap between convenience stores and consumers’ homes.
Long-term, which technologies and solutions are truly facilitating growth in the last-mile landscape? And near-term, how much will the coronavirus pandemic continue to have an impact on these services within the convenience retail industry? In mid-2020, NACS Research surveyed convenience retailers globally to answer these questions and collect insights for creating or enhancing a last-mile fulfillment strategy.
In October 2020, NACS Research released the resulting global benchmarking study, “Last Mile Fulfillment in Convenience Retail,” which delves into four key areas:
- How readily convenience retailers are adopting last-mile fulfillment
- Current and anticipated use of delivery services
- Retailer options for accepting orders
- Difficulties retailers face with adopting last-mile services
In terms of adoption, more than half of all of convenience retailers (57%) currently offer some form of last-mile fulfillment.
Patrick Loftus, NACS survey research manager, noted that three-quarters of the retailers surveyed are North American-based, and that roughly 68% mentioned that they did begin offering these services in response to COVID-19. “Clearly it’s top of mind for a lot of retailers right now, who are looking at last-mile fulfillment in any way to increase traffic as much as possible,” he said in a Convenience Matters podcast, “Winning the Last Mile.”
Across the globe, however, retailers approach last-mile fulfillment in different ways. “The story in Europe and in Australia is somewhat different, where we are seeing a higher level of last-mile adoption,” said Loftus, noting that these retailers are higher adopters of third-party lockers, while North American retailers are more apt to offer curbside pickup.
Where’s the Party?
Convenience retailers generally use two models when it comes to delivery: third-party providers like DoorDash, Grubhub, Postmates and UberEats, or in-house delivery. Each has advantages, like business growth and lower overhead costs. However, one of the more significant challenges with third-party services is access to some important user data, like ZIP code and customer location.
Providers like Uber Eats don’t hide the fact that they’re going to keep some customer information, said Loftus, noting that they maintain that these data are their intellectual property. “I think one of the alternatives to [sharing data], and we’re seeing this uptick quite a bit with North American operators, is retailers using their own staff” for delivery, he said.
Interestingly, among the convenience retailers who participated in the last-mile survey, most (61%) were not satisfied with their last-mile fulfillment partners, and they cited four main reasons why:
- Drivers pick up orders late.
- Drivers pressure store staff to hurry when they arrive too early.
- The fees associated with delivery are too high.
- The data sharing and processing are not as expected.
Third-party provider delivery fees have been a point of contention among restaurants, QSRs and fast-casuals, although some operators say these services have helped them keep their doors open throughout the pandemic. Hagop Giragossian, CEO of Pasadena-based Dog Haus, said the outlook for the restaurant industry could have been much worse had it not been for third-party delivery services. “I actually think they saved it,” he said during a QSR magazine webinar in May 2020. “They’re not just delivering our food; they’re generating interest in our concepts. They’re driving sales to our businesses. … Even if we did our own delivery, we’re not going to capture as many guests without those partners.”
Even though some food retailers may consider the fees a cost of doing business, cities such as Chicago, Jersey City, Los Angeles, New York, San Francisco and Seattle have capped the fees at 15% or less of the order that third-party providers can charge restaurants, which can run from 20% to 30% per order.
Meanwhile, some newer companies are reinventing the third-party business model. In August 2020, Tryp Technologies Inc., a rideshare company, entered 36 U.S. markets with its TripDelivers service for restaurant and grocery delivery. The company says its policies separate it from the competition: Restaurants receive direct payment of monies earned, get paid faster and there’s no menu price markup.
Convenience retailers unhappy with their third-party providers also cited food integrity as a point of frustration. After food leaves the store and travels to the customer, taste and texture can change. There are very real and serious food safety considerations as well, such as temperature and allergen control, cross contamination and safe food-handling procedures.
“As a customer, who do you blame? The retailer or the delivery provider? What we hear is that the blame is often shifted to the retailer, with the delivery company saying all they do is deliver the food,” said Stillman, in a NACS Crack the Code spotlight session, “Essential Analytics for Essential Businesses.”
Stillman noted that retailers and restaurants can negotiate contracts with third parties that build in food quality and integrity during the delivery process, as well as ensure their provider is following food safety protocols. She anticipates that packaging innovations will help maintain product quality, but she cautions that retailers may need to consider which menu times are available for delivery versus in-store only. “The reality is that some foodservice items may not travel well, and quality is best maintained when they’re available in-store or grab-and-go,” Stillman said.
Where to Start
Among the convenience retailers surveyed by NACS who were not offering some form of last-mile fulfillment, they cited several concerns: cost, technology constraints (app, ordering and payment processing) and adequate staffing to fulfill orders.
These retailers may be missing potential sales, but those jumping on board should be aware of potential pitfalls. Here are recommendations to help retailers develop their strategies:
- Conduct a cost-benefit analysis of partnering with any third-party provider and determine if offering last-mile fulfillment through store staff is a better option.
- Ensure data captured through last-mile fulfillment orders are accessible and can be analyzed to understand the benefits/limitations for your store.
- Confirm that ownership of customer data is clearly retained in any third-party service agreements.
- Understand whether the benefit of extending the reach of your product availability through last-mile fulfillment outweighs the potential burden for store staff.
- Ensure your store can match already-established consumer expectations for order processing visibility, payment acceptance and low wait times for in-store and curbside pickup.
What’s on the horizon for convenience retailers as the world continues to move forward through the pandemic? A last-mile landscape that provides an industry, which prides itself on offering customers ample choices, just that: a choice in what they want, when they want it and how they want to receive it.
Third-Party Watch Outs
Pervez Pir, COO of Loop Neighborhood Marketplace stores in Northern and Southern California, shared what his company learned when embarking on its last-mile journey with third-party ordering and delivery during the NACS Crack the Code Experience session “Driven to Delivery.”
As a personal user of DoorDash, Pir researched how the service could fit into Loop’s business model and serve as a differentiator in the tech-industry-heavy Bay Area market. “For two years we just couldn’t pull the trigger” due to a handful of roadblocks. “The No. 1 issue was the margin they take,” said Pir, citing how the already-low margins on cigarettes and alcohol made partnering with a third-party provider a nonstarter. Citing other cons for partnering with DoorDash, he said that Loop “didn’t need them—but hindsight is 20/20.”
In 2019, Loop began developing its own mobile ordering app and tested pizza ordering via the Loop website. The company also fielded advice from peers that launched third-party delivery to capture their learnings, which included pitfalls like employees not having orders ready, missing items or pulling the wrong items.
Fast-forward to 2020, and Pir said the coronavirus pandemic impacted Loop’s customer base overnight, as the tech firms all shifted to working from home. “We had to quickly respond and figure out how to bring customers into our stores and how to increase basket size.” In response to losing customer traffic, Loop paused testing its mobile ordering app and partnered with DoorDash, UberEats and Postmates within a six-month span.
There were some initial challenges, said Pir, as many food retail companies were quickly moving to takeout and delivery, which created backlogs in obtaining tablets for accepting third-party orders.
“It took upwards of three days to set up accounts with the menu assortment and pricing, scheduling and updating product images—which had to be completed for each store,” he said. But once the program was ready for prime time, Pir said one positive commonality among DoorDash, UberEats and Postmates was the ease of reporting and data that helped Loop determine which products were selling, how often and the basket size.
“There’s a lot you need to think through when considering a third-party provider,” advised Pir. “First, know the dominant player in your market and start there. They have the brand equity and members to put you on the map quickly. Second is the fees, which you can negotiate. Don’t believe the first amount. We’re a tight margin business, so every point you save is a point to the bottom line.”
An additional benefit Pir noted was attracting new customers through the platforms and exposing them to the Loop brand. He also advised retailers to pay attention to the ratings: “I can’t emphasize enough how important this is for your business,” noting that younger customers are more apt to use the rating to determine whether to engage with your brand via DoorDash. “If you drop below 4.5 [out of five], you will see a drop in transactions and frequency,” he said.