Home delivery is eco-friendly and money-smart
Every day, more and more delivery vans are racing around to deliver packages. Younger generations have grown accustomed to the luxury of ordering items online and having them delivered at home for free, preferably on the same day. Public debate has started to address the negative impact of this consumption behaviour on the environment and traffic density. However a closer look at the issue uncovers the undeniable fact that home delivery of groceries has a huge positive impact on traffic and the environment. Today’s case studies of Ocado (UK) and Picnic (The Netherlands) both serve as living proof that the online grocery business is both ecological and profitable.
Average households in the Benelux shop for groceries two to three times per week. Every two weeks, they often go for a ‘big restock’ of products with a longer shelf life. 90% of families keep the driving distance to their supermarket under ten minutes, mostly by car (65%) and by bike (15%). Only 12% of consumers make this trip on foot. The Dutch are a bit less reluctant to use their bike for grocery shopping, mainly due to a smarter spread of supermarkets throughout residential areas.
This article uses a simplified view in order to convey a general look at the issue, we don’t go into detail as consumers combining grocery shopping with daily commutes or other shopping trips.
Home delivery reduces the distance traveled by 80%
Our first hypothesis: one delivery van can deliver between 20 to 30 grocery packages within a eight-hour workday. Ocado confirmed these numbers in their 2017 yearly report: their vans delivered an average of 21 packages per day, each package consisting of an average of 50 items with a basket size of £100 (of which 46% fresh produce).
Sceptics claim that this doesn’t necessarily imply that less vehicle kilometers are traveled. However, grocery shopping is of a completely different nature than the delivery of non-food items, which are often only ordered sporadically by any given consumer. Grocery shopping is highly frequent, regular and predictable. This allows for modern technologies to analyse and plot the most efficient routes between deliveries within the same neighbourhood. Picnic and Ocado have mastered this technique as they develop their customer base neighbourhood by neighbourhood. Only delivering when a critical mass of potential customers within a certain area is reached, guaranteeing profitability and efficiency. A fine-meshed network of distribution centers, optimized by smart data analytics, contribute to this highly efficient delivery system. These players only operate in densely populated areas in order to keep profitability high, being careful not to burn their cash and efforts in rural areas. Ocado for example offers its services in central parts of the UK, skipping Scotland, Wales and Cornwall. Most parts of the Benelux are very well suited for this type of fine-meshed home delivery.
In The Netherlands and Belgium, we can assume that the average distance to a supermarkt totals an average of three kilometers. An optimised network of distribution centres could therefore reduce the amount of kilometers traveled by 60-80%.
For many people, this feels counterintuitive and sceptics use the following arguments to drive their point home:
- Delivery vans are much more polluting than a normal family car. Moreover, they consume energy because of the cooling equipment needed to transport fresh groceries.
- For same day and two-hour deliveries it’s impossible to pre-define an optimal delivery route.
- A considerable percentage of products will be returned by consumers (as often happens today with clothing and electronics ordered online).
- Optimal routes and shorter distances are not realistic for all areas in the country.
- Consumers will probably use the time that they have freed up to drive around for other activities.
Although these arguments could be valid under certain circumstances, the grocery home delivery model has many advantages to tip the balance in its favour:
- It’s easier to electrify all delivery vans at once (as Picnic has done) instead of waiting for the slow adoption of eco-friendly cars amongst consumers. Home delivery could also be done by bike.
- Further optimisation of delivery routes, for example by utilising storage space of flats and office buildings.
- The minimum basket size could be increased, in order to reduce the number of small trips.
- Grocery delivery could be combined with the collection of returns (non-food), empty packages and waste.
- Different home delivery services could be combined. Several retailers are already exploring the possibility of combining groceries with prepared meals.
80.000 delivery vans are needed for the Benelux in order to save 685.000 car rides a day.
A second thought experiment starts from the consumer’s shopping behaviour.
The average household goes grocery shopping about 100 times a year. Assuming the average distance to a supermarket is 3 km, this adds up to 600 km of traveled distance per year. Let’s also introduce the (conservative) “home delivery conversion factor” of 50%, assuming that half of these trips are not done by car or are picked up during combined shopping rounds.
In other words, 50 trips per year are left to potentially be optimised by home delivery. In the Benelux alone, this embodies 600 million shopping trips and 3.6 billion kilometers of vehicle distance traveled by 12 million households.
Ideally, we would need 80.000 delivery vans operating in an optimised home delivery model to make this reality, assuming 8 hour productivity per day, 365 days a year, 20 deliveries per day. This investment would prevent at least 2 billion kilometers of distance traveled per year and remove 685.000 cars from our roads per day. Indeed, converting half of our shopping to home delivery doesn’t seem like science fiction anymore. Benefits to the environment and mobility would be considerable. Furthermore, economically there are no counterarguments, with Ocado proving that the online supermarket can be a very profitable business model, with a healthy EBITDA of 6% in 2017.
Traditional retail would be immensely impacted by this development. The bigger the share of home delivery, the less profitability for brick-and-mortar stores. Not only would the number of supermarkets plummet dramatically, their roles would need to be re-invented in order to provide supreme (ultra-local) convenience and/or experience. Not unlike what happened in the banking sector, where a complete transformation resulted in less, but better offices and more digital service. Although most retailers are experimenting in this area, very few are preparing for the scale and speed of change. With current profitability levels of food retail, a 5% share of home delivery would lead to 50% less shops.
About Nils van Dam
Nils van Dam is a seasoned business leader, with more than 30 years of experience in the FMCG industry. He has occupied senior roles at global, regional and local level at Unilever, AB-Inbev and Censydiam in marketing, sales and general management. In his last role, as CEO Unilever Belgium & Luxemburg, he has lead the digital transformation in order to build a future-proof company. Nils has a passion for marketing, change management and business transformation.
In 2018, Nils became Global head of the Food, Beverage and Food Retail practice of Duval Union Consulting . He is also partner and non-executive director at Jacoti, a new tech company in the hearing aids industry and non-executive director at the Brewery of the Trappists of Westmalle.