28 January, 2019 BeOn

The Last Mile challenge

The recent acquisition of James Delivery by the Pao de Acucar Group in Brasil -around a month ago- is a new evidence of the importance that last mile logistics have for retails and that it is essential for them to provide more and better alternatives for online shopping. This was not an isolated case: Walmart Chile bought Cornershop during September 2018 and multiple agreements were signed between independent Last Milers such as Rappi, Glovo and Mercadoni with traditional supermarket chains. With a different approach but the same goal, retailers such as Jumbo Chile or Casino in Colombia are trying to develop their own solutions. No matter which path they choose, it is clear that last mile logistics represent a challenge worth be taken care of not only by retails but also the industry as a whole. The shopping experience and satisfaction of consumers depends largely on this.

 

FMCG online sales growth is accelerating. According to Kantar World Panel, it already represents almost 6% of global sales. There are categories such as Beauty where the development is even more pronounced, and sales are 10% of turnovers. While it is true that in Latin-America FMCG sales represent a small portion of the total for eCommerce, its growth rate is huge and their prospects, even more.

 

Opportunities reside in delivery

The general purchase experience is a key aspect for the development of eCommerce in Latin America. Infrastructure problems and logistic costs make delivery a bigger challenge. During last year, many companies known as Last Milers emerged, with a new proposal: to process online orders themselves throughout their sites or apps and to make the last mile delivery (from stores to homes) in one hour or less. Initially, these apps were focused on restaurants or kiosks, but now they have expanded exponentially not only geographically but also to other segments, such as FMCG industry. The consumer is always looking for convenience, time efficiency, more payment options and a good purchase experience. Last Milers seem to be an efficient solution. Nonetheless, for retails they still represent a challenge.

 

Alliance challenges

In the first place, to make an alliance with a Last Miler allows retails to enhance their delivery service and, eventually, expand their consumer’s base. It also enables more payment options -like cash- and to improve the overall purchase experience since delivery time is considerably reduced. However, there is a potential conflict with this alliance that can be summarized in 3 main points. On one hand, the competition for advertisement budget between brands. This is an important source of the revenue model for any retail and the fact that those funds end up in their allies’ hands can mean a threat. On the other hand, there is a risk associated to the quality of the service. When the purchase is made by a retail employee, he or she has been trained to meet certain quality standards. But when it is made by a Last Mile worker, the goal instead is to enter and exit the store as quickly as possible to accomplish their productivity requirements and maximize their income. Consequently, the quality of the service and the products delivered could be affected, damaging the image of the retails and brands, and thus consumers’ trust on them. Finally, and perhaps most important, there is an issue regarding the control of information.  When the purchase is done through the Last Miler, the retailer stops being in control of the relationship with the customer and also loses control of all the relevant insights about basket, ticket, way of shopping, demographic data, etc. The relationship with the client and purchase information is a fundamental active for companies and it is hard to think that they are willing to give it away.

 

Despite the challenge, movements within the industry are constantly happening

During last year, the industry has experimented many changes. Last Milers expanded their services to new countries and cities as well as covering new categories, particularly FMCG ones. Retails found value in Last Milers proposals, which translated into new acquisitions: Walmart bought Cornershop for USD 225M and Pao de Acucar acquired James Delivery in Brazil. Glovo, Rappi and Mercadoni already had alliances with the main retailers of the region, providing services to Walmart, Cencosud, Chedraui and Día. The number of supermarkets, wholesalers and pharmacies where you can order your products online grows daily.

Other retails like Cencosud are developing their own solutions for last mile delivery. The multinational retail company worked internally on Jumbo Ahora, an app that announces a 90 minutes delivery in Chile. While they are currently testing the service, their goal is to have a massive expansion during the next months.

 

At the end, it all comes to the shoppers and their needs. Nowadays, consumers are looking for convenience and good prices, since their schedules and budgets are tighter. The Last milers’ presence is helping to catalyze growth of online sales, which also expands the base of consumers that may purchase online and increases the volume of sales. Still, retailers should include these alliances in their integral digital strategy and work side by side with other actors of the industry. The trend is clear and is omnichannel: to be where and when the shopper wants to buy. Without a doubt, it is quite a challenge!

 

Sources

Forbes

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