Thursday 31 July 2014

Online delivery charges - a stumbling block or opportunity for mults?

Fully-costed home delivery by the mults costing £20 vs. a £4 delivery-charge raises some issues and opportunities for suppliers and retailers

If traditional retailers want to be online, home delivery has to be part of the package.

Whilst retailers may try to shift some of the cost-burden via promotion of click & collect, there will always be a proportion of consumers that want and can accommodate home delivery. In special cases retailers may be able to charge a commercial rate but in reality they are saddled with a £4 delivery charge.

As usual, the Amazonian elephant in the room is setting online standards.

Amazon somehow appear to be able to cover the cost of delivery – possibly a combination of scale  and geographical density resulting in drivers being able to cover costs via upwards of 100 deliveries/day – albeit apparently losing money on Prime deliveries.

This appears to suggest that high-density geographical/clustered marketing may offer a way forward for the mults, offering scope for tailored promotions by suppliers.

In other words, the mult’s potential online retail opportunity is too big to miss, so any medium term delivery-cost losses will need to be absorbed by the traditional business via route-to-consumer portfolio management in order to remain competitive.

However, in the long term this cross-financing strategy will dilute overall profitability unless it can be demonstrated that scale will eventually result in breakeven on a £4 delivery charge.

Meanwhile, supplier-partners might usefully explore joint-opportunities to introduce home-delivery promotions to help defray some of the real delivery charge…. 


Mike Anthony said...

Hi Brian,

Thanks for sharing. One question though - how much, per shopping trip, does it cost to run a retail superstore? Home delivery costs, but so do stores - no idea what the number would come out like, but would be an interesting comparison. What do you think?
Of course, this also goes someway to explaining how Amazon can cope. Part of it is that they don't have the store albatross. The other reason is that they have little pressure to make profits at the moment!



Brian Moore said...

Thanks for perspective, Mike.
The anecdotals indicate that with an average retail gross margin of 25% of Sales, ex tax, 15% covers the stores, with 10% left for Head Office and profit. This might get us a bit closer to what would be a great comparison: Delivery costs vs. costs per store visit, as you suggest. Would obviously take one of our retail readers to supply precise figures...
Great weekend