Is Grocery Home Delivery the Wave of the Future? Insights from Gartner’s Mike Griswold

Don’t expect to have your groceries delivered by drones anytime soon according to Mike Griswold, research VP at Gartner. As part of our Expert Insights series, Supply Chain Nation asked Griswold about the potential for home delivery in the grocery business. Here are his comments.

SCN:      There has been a lot of press lately about Amazon, Kroger, Walmart and others offering home delivery of groceries in certain test markets in the U.S. Is this something the public really wants or is it just competitive positioning in the same-day delivery wars?

Griswold:  I think it is a little bit of both. If you look at our research, there is a lot of testing going on of online shopping and collect at the store or home delivery.

I think the answer is slightly different in different parts of the world. If you look at the UK and Europe, home delivery has a lot more traction than here in the US. Even in some of our research on the European side, there is less focus on home delivery and more focus on remote pick-up locations, whether that’s lockers, places at tube stops, or UK retailer House of Fraser is putting pick-ups at Caffe Nero coffee shops. So in Europe, which is already ahead of us, there is a de-emphasis on home delivery and more of an emphasis on remote locations.

Here in the states we will continue to see some folks do home delivery, but the US market is not asking for home delivery. The focus right now should be in click-and-collect, order online and pick up in-store. In the US market, we need to find a way to offer the convenience of remote locations. Walmart is piloting an order online, pick-up at a remote location in Bentonville. To me that is where the emphasis should be and what the customer is ultimately looking for—the ability to easily pick up at the store. If we fast-forward 18-24 months, they want a place they can pick up that is convenient to them based on their schedule, and that may not be the store.

SCN:      Even in concentrated areas like major urban environments, is this ever going to be economically feasible without significant delivery fees? Would the public accept those fees?

Griswold:  I think Amazon has done a pretty good job of positioning us to recognize that we as the consumer need to make the trade-off between speed and cost. If we want it next day, then from an Amazon perspective, we become Prime members and that will guarantee us next-day, or pretty close to next-day for product that is Prime eligible. So Amazon has conditioned us to fees.

The challenge for retailers, particularly in the food space, is do they ever get to the point where there is enough critical mass that their deliveries can be at least somewhat comparable to what Amazon has. We might see a skewing of home delivery in urban areas with higher concentrations and density, but I think even that could lend itself to remote pick-ups. The delivery fee is going to be one component of that.

Delivery flexibility is going to be a more important consideration. If we can get to the point in the food space where we are not like the cable guy, which is a four-hour time block, then I think we might have an opportunity to entice people to do home delivery. But aside from the inconvenient, I think folks don’t want to be tied to the home at all. That’s why I think we’re seeing this growth in remote locations. People are out and about anyway and they would much rather stop someplace on the way home and pick it up at their convenience. Our research shows that the remote location strategy is one that is probably going to be more pervasive over the next 24 months.

SCN:      Do crowd-sourced delivery options such as Uber or Deliv change the equation enough to make home delivery viable?

Griswold:  That a really good question. I think on paper they probably do. The challenge is that the consumer holds the retailer accountable for the entire process from the time they click purchase until the time the product shows up, wherever it’s meant to show up. The challenge becomes how reliable is the transportation mode you pick out of the crowd-sourcing pool. If you pick some guy who has two trucks, or in a city, if you are picking some bike messenger, if they don’t show up on time, or they show up and something has happened to the product, the messenger service is not the one that is going to be held accountable, rightly or wrongly it is going to be the retailer. Retailers need to think long and hard about those crowd-sourcing alternatives—is that going to deliver for them a reliable pool of folks that can go that last mile?

If we rewind to the holidays last year, while there may have been some issues with Fed Ex and UPS, the consumer was not screaming about Fed EX and UPS, they were screaming about the retailer. The same thing is going to happen with crowd-sourcing. If you pick the wrong partner because they portray to you that they can get your deliveries done, they better get it done or you’re going to be the one that is going to feel the wrath of the consumer.

SCN:      Outside of the major urban areas, will home delivery ever be economically feasible in the suburbs, small towns or rural areas?

Griswold:  I find that doubtful. There isn’t going to be enough critical mass. If you think about the delivery cost model and the amount of volume you would need to make those relatively small loads break even, I just don’t see it. With the existing distribution infrastructure, the only way retailers could do that is if they ship from store, and even then we are talking a whole new infrastructure in terms of things going outbound from a store to the customer. We’re talking a significant investment in technology to be able to route those orders from stores to homes, and adding a shipping operation. At least if you are doing click-and-collect, you have kind of outsourced the pick-up responsibility to the customer. They are now bearing the transportation cost. I think retailers are going to be much more inclined to find ways to induce that so they don’t have to figure out how to economically deliver around their store location. With balance on-hand and inventory integrity issues, can they even fulfill a customer’s order out of one store?

I do not see a home delivery market here in the states. I don’t hear the customers asking for it, and I don’t think we have the infrastructure to do that unless we ship from store, and most retailers are not in a position to support delivery from store.

  3 Comments   Comment

  1. To make the fast delivery viable, there has to be economy of scale, hence the urban areas with a fairly large population and concentration of people. From the perspective of businesses, they seize the opportunity that more people would like to pay a reasonable mark up for convenience. Businesses like WalMart and Amazon have been playing with their supply chain to make sure they profit, or at least, don’t lose money on extra service. However, from the perspective of sustainability, one has to doubt where this game is heading for. One-day delivery instead of the traditional 7 days or more will surely result in more waste of resources. Delivery of grocery to door just sounds too much for the majority of population who are already living on wheels. For many people, the only chance for them to move around might be shopping in big marts. When big companies are seemingly so committed in CSR, they may slow down in this business plan, and consider what they can really do for the long-term benefit of the society

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  2. I agree that the grocery home delivery system needs masses to work. This system currently exists in India as many local shop owners hire cheap labor to deliver for free. The shop owners pay out of their pockets for the extra labor. While this is a successful model there because of the cheap labor, it can also be argued that the model induces greater sales because of the free home delivery from that certain store, allowing the store to still profit despite delivering at no charge. In the US, however, it is unlikely that such a model might be followed. Even in urban areas, delivery companies will always charge the consumer for the delivery unless a similar model arises where stores pay a fee to the delivery company to deliver goods to consumers for free. Yet how could that compare to existing shipping methods that do require a higher price for same or next day shipping? These shipping methods are for national/international goods shipping, while groceries are for local deliveries within a certain mile radius – a lot cheaper and faster. While I do agree that the US market might ask for pickup from remote locations, I am also doubtful. In this case if they already have to drive somewhere to pick the things up, then why not just drive to the grocery store during store hours and choose fresh groceries themselves and look around for what more they might have missed to put on the list. Supermarkets like Walmart and HEB are usually open 24 hours and widely spread across the nation, then why would time be an inconvenience factor?

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