What it is
The Capgemini Research Institute, part of a consultancy that sells last-mile consulting and technology to retailers, so it has an interest in the cost looking high.
Published in January 2019 from surveys fielded in October and November 2018, the report models the profitability of last-mile delivery for a hypothetical US grocery retailer with 1.36 billion dollars of monthly revenue, five million customers, a 3.48% net margin and a 272 dollar monthly basket. In the model the retailer recovers from the shopper about four fifths of the cost of a delivery order, a gap of about two dollars an order, and about a third of the cost of a click-and-collect order, a gap of about three dollars. The modeled loss rises from about 21 million dollars a month in 2018 to about 33 million in 2021, cutting the net margin from 3.48% to 2.58%.
The surveys beneath it covered 2,874 consumers in five countries and 500 supply-chain executives in nine, with a focus on food and grocery. The assumed 3.48% net margin is well above the 2.1% the industry association reports.
What the commerce leader should take from it
- No US grocer discloses what an order costs to pick, pack and deliver. This model is what stands in for that disclosure, and it is seven years old.
- Even in the model, the shopper pays four fifths of the cost of delivery and about a third of the cost of collection. The fee has never covered the order.
- A model with a generous margin assumption still shows a quarter of the net margin gone to fulfillment. At the industry’s real 2.1%, the same gap would be the whole margin.
Where to start
Finding 3.2 cites it as the only published estimate of the gap and uses it for the shape of the problem, never for a figure to plan against. For one quarter, produce a contribution margin per order by fulfillment method and put it in the monthly pack; that number replaces this model for your business.
Keep in mind
A model of a hypothetical retailer, not a disclosure. Parameters are assumptions, the surveys are from 2018, and the publisher sells last-mile services.