As I commented in the previous post, the increase in online shopping for supermarkets during the period of social isolation was notable. And, as you'd expect, this increase brought a number of logistical challenges as the move happened virtually overnight.
Supermarket delivery, which was previously used by a few and delivered on the same day or the next day, began to disclose to customers, at the beginning of the pandemic, deadlines of a week or even more! Considering that food items are products that customers want quickly, the delays caused by the logistical imbalance of the big players, which were already in the online market (such as GPA and Carrefour), made customers choose to buy in local supermarkets, even paying more.
In this way, the digitization of the segment and the challenges of this change also reached the small markets, which developed, in a hurry, the use of whatsap, email and telephone to take orders.
The way it is being done today in Brazil, the online service has high costs for the company. In most cases, customers want fast delivery and opt for delivery apps (Rappi, iFood, Cornershop, James…) or WhatsApp, which promise same-day delivery. In this case, order processing has been manual and takes place within the supermarket itself, involving a picking professional who walks through the aisles together with other customers. In addition, during order processing, the employee has a lot of interaction with the user, with message exchanges throughout the purchase to replace items that are not available, making the process slow.
Then, the delivery is carried out to the final customer, usually a single delivery trip, made by an employee or a delivery partner. Although most platforms charge a cost for shipping, the costs and time involved in a single purchase are high for the average ticket and the activity has small margins. Profit, therefore, will depend on good performance in picking and transport activities, which were previously not the responsibility of the company.
As an commented on in a previous post by the executive partner of ILOS, Maria Fernanda, Last Mile transport has become an essential service with the growth of e-commerce and companies need to restructure to adapt to the new reality. Thus, here are some alternatives to improve performance for e-grocery.
1) DELIVERY: Different from the e-commerce of durable goods, the customer is not prepared for long waits to purchase food, since he was used to buying directly in the store with immediate availability. E-grocery logistics must be fast, as in the case of deliveries of ready-to-eat meals. Some alternatives presented are:
Click and Collect and Drive Thru
This service was already offered by some supermarkets, but during the pandemic it was presented as an alternative to avoid crowding inside the store and guarantee the product delivered without relying on long waits, given the overload of logistical structures during the pandemic.
Partnerships with delivery companies
This collaboration solution has been widely used. When hiring specialized companies to carry out the work, there is no need to develop, in the short term, new activities that are not the company's core business.
Bringing Inventory to the Consumer
This action reduces Last Mile times, since the journeys covered will be shorter, and can even be done by motorcycles and bicycles, without the need to consolidate cargo in a large vehicle. This approximation can be done by using the store with a dual function (online and offline) or by exploring use of dark stores, as mentioned in a post by consultant Fernanda Monteiro.
2) PICKING: In addition to the agility to process orders, this aspect also includes the item of product quality, especially perishables, since the customer wants to receive products fresh and in good condition. Some alternatives presented are:
dedicated CDs
An exclusive distribution center for the online service allows for an increase in productivity, as the picking environment will not have to be shared with store customers and there is the possibility of incorporating more automation.
However, this option may end up increasing the delivery time, as the DCs are usually positioned outside cities or distant points, requiring delivery scheduling. Anyway, to minimize this impact, route optimization and load consolidation for better vehicle utilization are essential.
dark stores
In addition to bringing the stock closer to the end customer, as they are only intended for delivery, the picking process is facilitated by eliminating some steps, such as passing items through the cash register, and because there are no customers passing through. In addition, it is possible to apply some technologies to optimize the process.
As we can see, the challenges for e-grocery are enormous and the alternatives identified, despite improving performance, may not be sufficient for the profitability of the activity. according to a study conducted by Bain e featured in Fernanda Monteiro's post, process automation is necessary, regardless of whether picking takes place in the store or at the DC. In addition, the study completes that part of these costs must be passed on to the consumer for a better financial performance.
Figure: E-grocery margins for different service models (without considering interest and taxes). Source: Adapted from Bain
Everything indicates that the digital transformation for supermarkets is a path of no return, in view of the acceleration of changes in the consumer profile during the COVID-19 pandemic. This growth perspective forces companies to leave the survival mode of online sales practiced during the pandemic, to structure themselves properly in order to deliver quality products, with short deadlines and still be profitable in the business in a new reality.
If you want to learn more about digital changes in retail, stay tuned to 26th ILOS Supply Chain Forum, which will take place from October 13 to 15, 2020, and will have the theme “E-commerce and Retail Transformation” as one of the main topics of the program.
