Retailers still haven’t solved last mile challenges for fresh foods
Retailers, suppliers and third party service vendors continue to face significant challenges for the delivery of temperature-sensitive food to homes, keeping profitability elusive.
Consumers are inflexible in terms of both quality and timing expectations. Unordered product quickly goes to waste at the point of dispatch, whether that’s at the store, commissary or distribution center. At the same time, supply chains are no longer linear but are multi-dimensional, meaning that products are often distributed from different dispatch points, causing another layer of complexity.
“You need to be as close to perfect as possible to make a customer profitable,” explained Nimish Dixit, senior director of Operations Innovation at FreshDirect, the online grocer operating throughout the Mid-Atlantic states. “One failure is likely to lead to the customer to shop elsewhere. This is likely to happen before the customer is profitable due to high acquisition costs.”
Mr. Dixit spoke last week at Home Delivery World in Philadelphia, attended by about 3,000 logistics, retail, manufacturer and processing professionals to work on these and related issues. The good news is that progress is being made on several fronts.
On the technology side, data analytics is helping to better match supply and demand, so the time it takes to get fresh foods from the producer to consumer is being dramatically reduced. Adam Kalikow, senior director of operations at HelloFresh, the meal kit company, said the typical fresh foods supply chain takes 10 days with a 23 percent waste rate to get to the customer, while his company has worked that down to two to three days and much less waste.
“Data is the answer. Our subscription model that optimizes product selection through forecasting algorithms gives us a much more efficient online food supply chain,” he reported. Still, HelloFresh, which started in Europe and entered the North American market about five years ago, has yet to post a profit.
On the physical distribution side, the conference wasn’t overwhelmed with talk of new shiny objects like autonomous delivery vehicles and drones, although vendors of both conveyances were on the show floor and speaking at sessions. Retailers and suppliers seem to understand the current limitations of these efforts and are looking for last mile delivery service strategy solutions that will have an impact today.
Lowes Foods, a supermarket chain operating in North Carolina, South Carolina and Virginia, has made its ecommerce operation work through a combination of marketing, resource allocation, training and setting customer expectations. The current program is largely buy online, pickup in store, but the retailer is preparing for a dramatic move to home delivery over the next few years and is focusing on cost management versus customer expectation to ensure its success.
“We have a culture of belief and support to grow e-commerce and extend additional offerings to customers. We also foster the innovation needed to create the right environment and push home delivery in the right direction,” said Lee Lambeth, director of eCommerce at Lowes Foods.
DISCUSSION QUESTIONS: What are the pain points retailers and suppliers need to address immediately to make home delivery programs profitable? Where do you see opportunities for further gains in the future?