Jan. 22, 202112 min read
Authors: Agnieszka Twardosz - Content Marketing Specialist
The COVID-19 pandemic dealt a major blow to numerous industries. Brick-and-mortar stores worldwide suffered a considerable decline in footfall due to either government-imposed lockdowns, customers fearing for their health, or both. Their loss, however, translated into remarkable gains for e-commerce.
The industry has seen unprecedented growth as consumer preferences all over the world have shifted towards purchasing goods and services over the internet. Previously, the e-commerce share of total retail sales had grown slowly, yet steadily, since its inception in the early 1990s, thus allowing businesses to evolve at a comfortable pace. Then, 2020 changed the rules of the game.
Companies in the retail industry may now be forced to either adapt to the new circumstances or perish, probably after a period of becoming less and less relevant. Dealing with change is never easy, but tech startups are already looking for ways to tackle the challenges of running an efficient e-commerce business.
Until about 2010, the e-commerce share of total retail sales grew by about 0.1 percentage point each quarter. Between 2011 and the end of 2019, it picked up the pace to 0.2 pp per quarter. However, the growth between Q1 and Q2 of 2020 was a stunning 4.3 pp or more than 20 times the usual increment. In the UK, online grocery sales doubled; in the US, they saw a 17-percentage-point increase despite a 15% decrease in overall consumption – and that change is projected to endure.
Q3 of 2020 saw the share of e-commerce in total retail sales decrease for the first time in history: from 16.1% to 14.3%. However, data suggests that the growth experienced in 2020 will not be a mere blip on the graph, and further significant falls are not to be expected. American consumers report a near 40% increase in intent to spend money online, even post-COVID. Surveyed individuals in nine countries, including the US and the UK, expect to continue making at least some online purchases post-COVID in nearly all categories. For food and household goods, the online customer base has grown by more than 30%.
New and low-frequency users are expected to increase their online purchases by an average of 169%, which goes up to 200% in the food for cooking at home category. In the US, 51% growth has been noted in the number of consumers planning to shop for groceries almost completely online. It seems safe to say that unless we experience another unexpected, life-changing event such as the COVID-19 pandemic, the importance of e-commerce is bound to keep increasing worldwide.
We have placed our trust in e-commerce businesses and allowed them to supply an increasing proportion of the goods and services that we consume in our everyday lives – but that trust comes with strings attached. Technological improvements and the sheer amount of available options have caused us to become rather fickle. Meanwhile, multinational corporations that enjoy immense economies of scale in their operations have spoiled us with lightning-fast deliveries and reliable shipping time predictions.
Our love for convenience is easily demonstrated through data. For 75% of consumers, free expedited shipping would be enough to convince them to switch to another retailer. 46% have abandoned a shopping cart because the shipping time was too long or not provided, while 35% have decided against purchasing an item online due to an excessive shipping time. After all the chaos of 2020, one thing seems certain – for an e-commerce business to succeed, its delivery game has to be on point.
There are multiple dimensions to the challenges posed by last-mile delivery logistics. The increasing demand for various types of shipping has put e-commerce businesses into overdrive, making it even more important than before to reduce costs, improve infrastructure, and develop data-driven fulfillment strategies.
16% of Americans now use home delivery services more than they did before the pandemic, with 10% admitting that they started using them recently and 55% intending to keep using them post-COVID. However, home delivery is not the superstar of the 2020 e-commerce boom – that would be BOPIS, or “buy online, pick up in-store.” BOPIS usage surged in August, with 59% growth from July and 259% growth year-on-year. 19% of Americans use this delivery mode more than before, 9% have just started using it, and 65% intend to continue post-COVID.
It seems that adapting to these new customer preferences will be quite a challenge for e-commerce businesses, as 30% of online consumers state that they prefer using BOPIS or curbside pickup over home delivery. For some, having to go out to pick up their package may be discouraging, but a significant portion of people appreciate that, thanks to click-and-collect solutions, they do not have to be at home at the precise moment when a courier arrives.
Retailers may want to choose between curbside and in-store delivery based on more than only what their customers have to say. 35% of shoppers who pick up an online order in a shop versus curbside will buy something else as well, which may push retailers to implement BOPIS as a way to encourage additional purchases.
Delivery costs are yet another issue that needs to be addressed. The models currently in use are simply not profitable – US retailers absorb part of the costs of last-mile delivery. They cost organizations an average of $10.10, only $8.08 of which is covered by the customer. A typical online order that requires shipping is 19% less profitable than an equivalent in-store order.
The problem of last-mile delivery persists even within the field of transportation. 78% of transportation and logistics companies in Canada and 59% in the US perceive last-mile delivery as the least efficient part of the supply chain. As the demand for delivery services increases, the associated costs are bound to skyrocket – unless businesses take steps to identify new strategies and invest in the right infrastructure.
Finding a cost-effective solution is a challenge in its own right, but companies also need to consider customer demands. Right now, 50% of consumers see low delivery costs as their main priority, but only 30% of companies share that opinion. Likewise, 73% of consumers say that receiving their package at a convenient time matters more than receiving it quickly, but only 19% of firms see this as a top priority. It seems that a significant shift in mindset is needed if businesses and their customers are to develop a shared view of deliveries.
As companies are trying to improve their shipping capabilities, they also need to decide what types of infrastructure to develop. Given the increasing popularity of BOPIS, numerous businesses have already enabled their customers to pick up their orders in-store. Data suggests that it may also be a good idea to equip store premises with delivery capabilities. Last-mile deliveries from a store have been found to be 16% cheaper than from a warehouse.
Local omnichannel retailers are trying to outdo larger companies by retrofitting stores to double as e-fulfillment centers. While firms like Amazon may enjoy economies of scale, their centralized warehouses are usually located at a significant distance from urban clusters, making them less responsive than local providers. Small businesses are moving inventories closer to the final customer and enabling faster same-day deliveries to expose that weakness. Delivery trips of less than 50 miles are now growing by 25% each year.
Dark stores are another promising type of infrastructure. Their layout is similar to that of regular stores, but they only serve fulfillment purposes. That way, customers who want to pick up an order do not disturb those who come to make purchases in-store. For same-day delivery, the costs are 23% lower for dark stores compared to regular stores.
For some retailers, responding to market trends by developing in-house technological solutions may be too much of a challenge. Fortunately, each year brings more innovations that serve to optimize fulfillment and delivery. Let’s have a look at some of the most promising ideas for hardware and software that may increase in importance over the next decade.
For some retailers, classic delivery services are not an acceptable option, but developing an in-house fleet is not possible either. Less than a decade ago, such organizations might have been forced to stick with a brick and mortar business model. However, outsourcing same-day or even 1-hour deliveries has now become straightforward. Platforms such as UberEats, Glovo, and InstaCart are among the most popular solutions for groceries and takeout in urban settings. Some other companies like Roadie, Lalamove, and Ninjavan ship all kinds of items on longer routes.
The on-demand format allows businesses to only pay a per-order rate or a commission without having to worry about fixed costs or upfront investments. Delivery outsourcing is thus an appropriate choice for some small-scale retailers. For larger companies, external delivery platforms are more of a starting point for pilot digitization programs than a viable long-term solution. To begin with, courier availability is not guaranteed, which may make it harder to complete orders, especially in times of increased demand. Outsourcing companies also tend not to disclose detailed customer information, which turns them into data analytics black holes. You can find out more in our article about the importance of data management.
Some businesses have the products, the vehicles, and the drivers, but they fail to make it all tick. They set up a makeshift delivery system and call it a day, which forces them to deal with low efficiency and high costs. It is hard to blame them if they lack the right tools. Coordinating the efforts of numerous employees and contractors is not easy, but luckily there are specialized software solutions on the market that can optimize the delivery process.
One of them is provided by Bringg, an Israeli startup that recently raised $30 million for its logistics platform. They aim to digitize fulfillment and make the whole process easier to manage, allowing smaller companies to compete with the likes of Amazon. Bringg connects the client’s supply chain to a set of backend and frontend applications that make it possible to manage the entire supply chain in real time. It optimizes delivery routes and displays real-time data on inventory, orders, customers, stores, warehouses, and fleet. The system also supports in-house, third-party, and crowdsourced fleets, which means that the business is free to make all sorts of strategic decisions on shipping.
Solutions such as that invented by Bringg have been integrated into the supply chains of large firms like McDonald’s, Burger King, and Carrefour. Some other platforms that have already earned the trust of major brands are Tookan by JungleWorks and Urbantz. Delivery management SaaS is no plaything. Sooner rather than later it may become the norm for organizations to improve their fulfillment efficiency with software.
Opting for a SaaS solution is more resource-intensive than outsourcing the entire delivery process. However, it allows businesses to retain control of customer data and develop reliable in-house fulfillment procedures that will serve them in the long term, regardless of external courier availability.
On top of the click-and-collect delivery model being cheaper than regular home deliveries, it turns out there is one more thing that can be done to drive the costs down. Who said that customers must be met by a fellow human when they collect their package?
Automated parcel lockers or terminals, such as those provided by ParcelHive and InPost, allow shoppers to pick up orders at their convenience. In Poland and Lithuania, parcel lockers saw a significant usage spike during the COVID-19 pandemic, which may be attributed to consumers preferring this contactless mode of delivery over more traditional options. In some countries, parcel terminals are seen as an essential element of urban development. The Austrian Chamber of Commerce is looking to deal with the increasing volume of shipments in Vienna by introducing an obligation to install lockers in new buildings.
While regular parcel lockers are only suitable for non-perishables, innovative solutions such as Arctan by Retail Robotics are now making it possible for grocery retailers to serve their customers with convenient, contactless deliveries. Their machines support different load sizes and so-called climate zones, which allows them to store various types of products, including frozen food. Several customers may interact with Arctan simultaneously with only a QR code needed to identify their order. According to Retail Robotics, their solution reduces costs by 70% in comparison to standard home delivery.
Founded in 2016, TakeOff Technologies went several steps further than parcel locker providers. They came up with a solution that allows retailers to reduce the need for human workers throughout the fulfillment process. Their Micro-fulfillment Centers are equipped with machines that can pick the right products to fill an order much faster than regular employees. Thanks to their small size and scalability, these centers can be integrated into existing stores of different sizes, allowing retailers to dispatch grocery orders from locations that are close to where their customers live.
In 2020, TakeOff Technologies were recognized by the World Economic Forum as a Technology Pioneer. Their system is already being used by some large retailers like Albertsons and Woolworths. With the market for micro-fulfillment centers predicted to reach $10B by 2026, now may be the perfect time to start following this trending technology.
By all means, Takeoff is not the only available option. Alphabot by Alert Innovation has been successfully deployed to a Walmart Supercenter and is now scheduled to go operational in additional locations. Meanwhile, Exotec has recently raised $90 million to develop their easily scalable semi-automated warehouses based on Skypods, which are tiny robots that support human workers by collecting products and replenishing bins. As the number of available options increases, retailers may need to put some serious thought into which particular technology best suits their business needs.
At first glance, the vision of a drone dropping off a package to your average Joe may seem far-fetched. Nonetheless, it has already been done, and at an impressive scale. In Rwanda, drones supplied by the Californian startup Zipline have been delivering blood across the country for almost five years without any notable setbacks. The pandemic has propelled the technology to gain some new applications. Drones are now also being used to transport COVID-19 tests across Ghana.
A pilot program with a similar goal was launched in the US by Walmart. Patients from two small areas near Las Vegas and Buffalo had self-collection COVID-19 test kits delivered directly to their backyards or driveways by DroneUp devices. Meanwhile, Zipline drones supplied personal protective gear and medical equipment to healthcare workers in North Carolina.
According to Gartner, the operational costs of drone deliveries are at least 70% lower than van deliveries, which makes the technology a promising avenue to consider for retailers. There are still numerous challenges that need to be addressed before drone delivery can become commonplace, such as weather impact, battery capacity, and visual detection of minuscule obstacles like power lines. Still, the global drone delivery market is expected to grow at a compound annual rate of 42% between 2020 and 2027, reaching more than $6B by 2026.
Let’s get back down to Earth and consider autonomous vehicles that operate without leaving the ground. According to Capgemini, taking the driver out of the equation could increase profit margins by up to 14%. The autonomous last-mile delivery market is now valued at $11.9B and is expected to grow to almost $85B by 2030.
Driverless cars are deservedly associated with numerous safety concerns that still need to be overcome. After all, they are supposed to transport human beings and actively participate in road traffic. However, the issue of autonomous delivery vehicles seems significantly less problematic. For one, they carry no passengers, which means that they can always prioritize the well-being of pedestrians or other vehicles that may have people on board.
That is precisely how the engineers at Nuro approached the issue of safety. The American startup has designed driverless delivery vehicles that operate exclusively at low speeds, are half as narrow and much nimbler than regular cars, and have the ability to self-sacrifice in case of an unavoidable collision. Nuro completed successful trials delivering goods for Domino’s Pizza, Kroger, and Walmart. Now, it has become the first company to receive a permit to start driverless delivery operations in California. This milestone may turn out to be an important step for the whole industry, including competitors like the Neolix vans that have already begun delivering medical supplies throughout China.
While Nuro and Neolix were working on a solution that resembles a typical shipping experience but without the driver, Starship Technologies came up with a less impressive yet equally ambitious method to tackle driverless urban delivery. Their autonomous robots weigh about 25 kilograms, move at pedestrian speeds, and carry flagpoles for visibility. They can also operate in rain or snow, which means they may be worthy opponents for drones, especially in areas with frequent rainfall.
Although Starship’s range of 6 kilometers and capacity of 10 kilograms may seem less than impressive, the vehicles are perfectly suited for serving college campuses and densely populated urban areas. After successful deployments at numerous US universities, the little robots are now delivering groceries in two UK cities for Co-op. The retailer is looking to keep expanding the network throughout 2021.
We cannot be sure which technologies will become a staple and which will be remembered as fads that never took off. However, it seems likely that as the last-mile delivery industry develops, 2020 will be seen as the year that changed everything and, hopefully, made way for innovative solutions that will make our lives more comfortable in the years to come.