The views expressed here are solely those of the author and do not necessarily represent the views of FreightWaves or its affiliates.
The promise of home delivery in just 15 minutes is the latest bid to win the “grocery wars,” according to recent industry trade press. There is the occasional need for speedy delivery. Just how speedy is necessary, how frequently is it needed, and how much are consumers willing to pay for it?
The competition to win more grocery customers with fast home delivery shares a strange resemblance to the game show “Name That Tune” famous for contestants bidding on identifying a tune in the fewest number of notes, for instance, 5-notes, and even more improbable, only 1-note. How often do you need to name a tune in one note?
How often do you need groceries delivered in 15 minutes?
The Post Office, then UPS, and later FedEx have offered a range of possibilities and delivery prices. The base option (and least expensive) is “it will get there when it gets there.” For many years that was just fine for most mail and packages, just as long as, the delivery eventually arrived.
The pace of life has quickened for everyone. With improvements in the speed of travel and logistics, 3–5-day delivery became possible. When FedEx came on the scene, 2-day, overnight, and first-thing overnight options became common, and consumers were willing to pay for it.
Amazon set a new standard for the delivery of consumer hard goods purchased online by offering 2-day, next day and 2-hour delivery. This “need for speed,” has spilled over into the grocery wars for home delivery.
“Name That Tune”-type home delivery, i.e. in 15 minutes instead of 2-day, next day, or same day is becoming a weapon of the grocery wars.
The profit margin on groceries is typically 2-5%, meaning there is no room for the product price to absorb a loss on home delivery. Fighting the grocery war with subsidized home delivery, as they do today, is unsustainable over time. At some point stockholders and investors will tire of covering the loses.
Are consumers willing to pay for the full cost of “shipping” hard goods and to pay for the real cost of grocery “delivery”? No, not today. Grocers are losing money on home delivery. The faster the delivery, the higher the cost and the greater the loss.
The profit margin on groceries is typically 2-5%, meaning there is no room for the product price to absorb a loss on home delivery. Fighting the grocery war with subsidized home delivery, as they do today, is unsustainable over time. At some point stockholders and investors will tire of covering the loses.
So, what’s the solution.
Grocers are investing hundreds of millions of dollars in automation to pick and pack online orders faster and to reduce labor costs. That helps but will not produce enough savings to make up for the losses on of point-to-point delivery to customer homes.
An enormous investment in autonomous delivery vehicles and drone technology is also being made. But THE BIG QUESTION is “How will this technology transfer the groceries from the road or air to the home porch?” Retrieving deliveries from the road or the yard rather than the porch is a much worse experience for the customer.
The problem is on the porch. There needs to be a way for consumers to accept home delivery of perishable groceries anytime of the day or night without answering the door.
Intelligently routed, 24/7, unattended home delivery would rationalize the process and the price. On occasions when customers need speedy delivery, they will pay for it; otherwise customers will pay lower prices for next-day, 2-day, or once-weekly replenishment deliveries. Only then will grocers and their couriers and customers align on cost and delivery experience.
I would bet consumers are willing to provide a safe, refrigerated receptacle, if properly incentivized by retailers.
About the author:
John Simms is CEO and founder of HomeValet. The company is developing temperature-controlled smart boxes that can be placed outside a home to securely store groceries or other items delivered in a contact-free way. HomeValet is conducting a test of the system with Walmart in Bentonville, Arkansas.
