Solving the last-mile could prove all-important for grocery chains

Whether it was a baby-faced Ron Howard singing about the Wells Fargo wagon in The Music Man, or Pee Wee’s excitement at seeing Reba the Mail Lady (played by a baby-faced S. Epatha Merkerson), we’ve always been excited at the prospect of something delivered to our front door.

While we’re not going to hold our breath for any songs about the Amazon Prime Now bike, it’s become increasingly clear that delivery of groceries, healthcare items, and more has become the magic bullet for many retailers.

Consumers today expect as little friction in their purchases as possible — whether they’re buying a car or doing their weekly food shop. Establishing a trusted delivery channel with customers is crucial for grocery stores that want eliminate those hurdles and see the benefits of Relationship Commerce — customer loyalty, subscription sales, and data-driven insights into their consumer base.

Establishing a trusted delivery channel with customers is crucial for grocery stores that want eliminate those hurdles

Grocery delivery is also a highly effective means for retailers to convert customers from episodic purchasers to loyal, predictable customers. After all, what could better embrace the virtuous cycles of Relationship Commerce than having food regularly delivered to your front door?

Grocery Chains Are Making Moves

For major grocery chains the stakes are enormous — online grocery shopping is expected to become a $100 billion industry by 2025, which means last-mile delivery has become must-have. And if retailers don’t lock-in subscriber loyalty now, they will increasingly get lost among the delivery arms race.

“I don’t think five years ago we would have said delivery was critical,” Yael Cosset, Kroger’s chief digital officer, told The Wall Street Journal.

Clearly that has changed.

On August 1, Kroger — the largest grocery chain in the U.S. — announced the launch of a new delivery service. Kroger Ship offers 50,000 shelf-stable products delivered free with any purchase of $35 or more, along with 5% discounts for subscription purchases.

They’re not stopping there — only two weeks later, Kroger launched a self-driving grocery delivery pilot in Scottsdale, Arizona. The fleet of autonomous vehicles will be provided by Nuro.

Markets have clearly embraced the moves — after suffering through much of last year, Kroger stock has jumped more than 50% from its 2017 low.

But Kroger is hardly an outlier. Walmart’s 2016 purchase of Jet.com helped expand their delivery possibilities, and this year they partnered with DoorDash to expand grocery delivery to more than 100 markets by the end of this year.

Kroger stock has jumped more than 50% from its 2017 low.

Earlier this month, the company also announced a partnership with Alphabet’s driverless car startup Waymo for grocery delivery. (Although the plan is decidedly odd — a Waymo vehicle picks the customer up at her house and drives her to the store to pick it up, before driving her back home.)

Target’s December acquisition of Shipt has given them the ability to provide same day delivery of grocery products in six midwestern states, in a program launched in May. And of course Amazon’s purchase of Whole Foods Market is the elephant in the room.

All these things have helped drive strong performance from retail stocks.

It’s Not As Simple As It Appears

Of course, grocery delivery comes with some serious technical hurdles that other retailers don’t face when it comes to the last mile. Aside from the technical infrastructure required to manage delivery, grocers must also deal with highly perishable goods. That pint of Ben and Jerry’s isn’t going to be able to sit in the back of a UPS truck all day.

And perishability isn’t the only complication. From inventory management, to ecommerce integration, to using data to plan more efficient delivery routes, last mile delivery is a hugely challenging undertaking. This has led to many of the biggest grocers opting for the asset-light business model, outsourcing their needs to companies like DoorDash rather than investing in their own fleet of delivery vehicles and tech solutions.

For those that have managed to make it work, the benefits of an integrated solution are starting to show up on the bottom line.

But for those that have managed to make it work, the benefits of an integrated solution are starting to show up on the bottom line. More personalized shopping experiences, as well as a heavier reliance on subscription based retail, create a virtuous cycle that mitigates many of the initial challenges — as well as driving incremental revenue and customer loyalty.  Being better able to predict and anticipate customer needs can ultimately prove a boon to consumer and retailer alike, which is ultimately what Relationship Commerce is all about.