In 2014, a McKinsey study identified same-day delivery as a critical driver of sales.By Alagu Balaraman
Last year, in the US, e-commerce sales jumped by 58%. Since the products were standard, competition was largely based on the range of products on sale, ease of use, and delivery time. It is expected that a significant fraction of consumption that shifted to e-commerce would become permanent, even post-pandemic. In India, with an e-commerce penetration of 3.6% in 2019, this presented a huge growth opportunity. So, there is much at stake in capitalising on this new trend.
In this environment, Grofers announced a new 10-minute delivery commitment to customers recently. This started a debate, largely on social media, regarding the advantages and disadvantages of the new model. Concerns were articulated on the safety of drivers and others in traffic due to the pressure of delivering within the deadline. The company reverted with a view that having a high density of stores allowed them to deliver in 10 minutes, even if the rider travelled at 10 kmph.
It is worth taking a more considered look at this offering and its implications.
Needs and wants
In 2014, a McKinsey study identified same-day delivery as a critical driver of sales. With food delivery gaining huge traction in the urban areas and with the pandemic, faster deliveries have been in demand.
There are two advantages of having shorter delivery times. One is a competitive advantage, taking share from competition. The other is to increase consumption by increasing impulse purchases. The former has been occupying the minds of many consumers on social media, but the latter is probably more significant.
Impulse purchases are usually small orders. This means that there will be an increase in the number of orders to meet the demands of a household, leading to extra packaging material and extra fuel consumption. Both these factors will increase the negative impact on consumers. While many established corporations are reporting on carbon neutrality and the triple bottom line, most start-ups do not. Without such data being made public, it is hard to evaluate the increase in recycling load and carbon footprint from this model. However, in a world that believes we need to be more thoughtful about consumption, this will be a move in the negative direction.
Economic productivity challenge
From a purely supply chain engineering perspective, there are some implications that can be derived from the commitment to a 10-minute delivery. Firstly, the company statement that owing to the store density in the 10 cities that Grofers operates in, the travel time commitment can be met by travelling at 10 kmph tends to hide more than it admits.
The company has said that packaging time has been reduced to two and a half minutes. Accepting that, and assuming that includes time for picking as well, it leaves seven and a half minutes to deliver. The average traffic speed in a city like Bengaluru is 18.7 kmph, with substantial variations. There is a huge difference between an average value and ensuring adherence to a committed value. For example, a cricketer might have a batting average of 65, but if you look at what is the minimum you can always expect from the same person, it might drop to as low as 10 or 15. So, a commitment cannot be made on the average (of, say, 65), but only on the lowest performance.
It is similar for delivery commitments. This means that the average speed that riders will have to maintain will have to be significantly higher than the average speed of traffic.
There is a second and more serious problem with this commitment. It completely leaves out the time taken for the rider to reach the local shop. This means that every shop will need to have people on standby waiting for the order to come in, causing a significant drop in their utilisation. When utilisation drops, the total cost has to be amortised over a smaller number of deliveries, so cost per delivery will significantly rise. In India, unlike the US, customers do not like to pay extra for additional convenience. However, in this model, someone will have to foot the bill once the investors stop funding losses.
Overall, from a supply chain design perspective, the 10-minute delivery model in its current form does not look very efficient, nor effective. From a consumer perspective, it is a definite marketing hook, but environmentally and at an economic level it seems to be negative.
The author is partner, CGN Global India
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