When Delivery Becomes the Store’s Business

The COVID-19 pandemic created a major spike in outsourced delivery services as restaurants, grocery stores and retailers rushed to adapt to an overnight shift in consumer behavior. Months later it has become clear that the home delivery shift is here to stay, and the high fees and unpredictability of outsourced services are no longer tenable.

Outsourcing logistics made sense when retailers sold 80 percent in the store and 20 percent at the door. Typically, retailers would retain in-house delivery capacity with their own employees to service fixed demand and outsource the spikes. With shelter-in-place orders shifting sales to zero-store-100-door, the natural first response was to outsource the spike. It’s just temporary, right?

Wrong.

It’s a spike when it goes up and then comes back down. This was more like a steep climb. Nine months into it, door remains a higher share than store for many retail categories. The permanence of this change has sunk in.

Just as retailers invested in technologies to drive in-store sales over the last few years, they're now planning commensurate investments in technologies that drive their home delivery business. The proportion of investment needs to match the future of where business happens, and those who get this right sooner will enjoy sustained competitive advantage in the years to come.

Retailers with multiple stores will consider pooling vehicles and delivery resources by region. This will require a revisit of store-based P&L allocation models. Monthly costs of personnel and vehicles will roll up to a per order cost that stores agree to.

Regional distribution centers will consider becoming dark stores and transform into fulfillment centers. This will lead to an interesting shift in the power dynamic between stores and warehouses. The store will need training in warehouse processes to pick, pack and dispatch, and the warehouse will need to train on single order dispatch with an eye for end customer experience.

Single stores and franchisees will consider a change in floor plan to optimize packaging and dispatch. The journey from order screen to picking aisle to parking lot might become more relevant than the journey from main street to shopping aisle to checkout. The emphasis will shift from store locations to loading zone capacity, from shelf placement to order experience, and from point-of-sale checkout to packaging efficiency.

Many leading third-party logistics providers already have their own consumer apps — or aspire to. This shifts the consumer experience from shopping the retailer’s menu to shopping an aggregated assortment of retailers and brands. Some retailers will acquiesce to list their products on these sites, while others will opt out from doing so at the risk of losing customers to partners who own the all-important delivery touchpoint at the door. Customer experience “ownership” will become a hotly contested grey area.

In 2021, retailers will limit their exposure to outsourced delivery services. They will reclaim their business by deploying their own applications for delivery dispatch, routing and live location tracking. To stay competitive with technology-first companies, they'll need to bring per order logistics costs to similar levels. These tools provide countless more options for customization and integration with POS, CRM and ERP systems, giving retailers greater control over the last-mile experience and a higher percentage of profit margins.

The gap between the store and the door has blurred. Retailers that go that extra mile will not only stay in the race, but cross the finish line first.

Location, location, location is the old real estate mantra. The same is true for store locations in retail, but now with different implications. Going forward, the three locations that will matter most will be the delivery driver, store (or fulfillment center), and customer. Using technology that dynamically assigns, tracks and learns from these locations for each order will be key to embracing the future.

Kashyap Deorah is founder and CEO of HyperTrack, the live location cloud for deliveries, visits, and rides. Hundreds of retail, service, and e-commerce companies from every inhabited continent use HyperTrack to power operations efficiency, field productivity, customer experience, and financial payouts.