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Last Mile Delivery: A Conundrum In E-retail
Festival season of Dussehra & Diwali in India account for around 40% of the total sales for most e-retail companies.
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Festival season of Dussehra & Diwali in India account for around 40 per cent of the total sales for most e-retail companies. The companies pull out all the stops to benefit from this period. Full page ads in leading newspapers, the euphoric TV commercials and the massive hoardings asking you to try the sale just once, are enough to sway most customers. And the sales numbers speak for themselves. Based on current growth it is projected that the industry would touch $50 billion by 2020.
But, doesn't this number assume that all the factors currently supporting this industry will also expand at the same rate?
Let's consider one of the most critical aspect - the last mile delivery at customer's doorstep. This is the final experience in a sale which dictates the next purchase. Not everything is looking rosy in this part of the delivery chain. E-retailers are silently increasing the time required for delivering the products to their customers. This even when, they are drawing delivery staff from smaller players like food delivery restaurants by offering better salaries and amenities. Small players are not even able to put up a fight. They simply cancel the orders in the absence of a delivery staff.
By 2020, we will need 1 million trained delivery boys to provide the same level of services that is being given today. Currently, the e-retail market is around $6 billion. It is expected to grow to $50 billion revenue by 2020 by many estimates. To deliver just the e-commerce parcels to a customer's address, the market currently needs about 50,000 delivery boys across India. With eight times growth, even if we consider the increasing efficiency, this number will go up to 3 lakh by 2020.
Add to this the delivery staff that would be required to manage parcel returns, pick-up from vendors and this number starts multiplying. And this is the demand for just one segment of the market. The traditional courier and home food delivery industries will demand more delivery staff as they grow with increasing disposable incomes. Upcoming services like hyper local delivery, grocery delivery, etc. will also rely on the same pool of delivery boys. The demand now starts to look scary, given that there is only a limited supply of these personnel available in the market.
Only arranging the increased number would not be enough. The costs have to be controlled as well. If the costs are allowed to grow unchecked the companies can lose as much as 2 per cent from their profits. The salary of a delivery boy has almost doubled within a span of a year. Going forward this is only expected to increase and that too at a rapid pace. The new work force has to be trained. Also, in a high demand market, the expectations of the employees from their employers are high too. Improved amenities will be a norm at work places. Considering all this, the delivery costs which are presently hovering around 7 per cent of the total revenue, will touch 9 per cent by 2020.
E-commerce industry was able to gain a foot hold in the Indian market in-spite of so many challenges like low internet penetration, untrusting customers, etc. only because of the fact that they were offering a definite value to the customers. The customers were getting access to branded products at heavily discounted price. Increasing costs were not really a big issue till the time the easy money from the private investors was flowing in. However, these un-sustainable models cannot continue for a very long time. Recent dip in funding has forced companies to re-look at the deep discounting model of customer acquisition and retention. But, this will discourage customers. Instead of reducing discounting the industry needs to move towards cost efficiency and last mile can contribute significantly.
Alternative delivery solutions have to be created urgently, which give access to a wider market and also reduce costs at the same time. These simple infrastructure issues like last mile delivery costs, cannot be allowed to grow into major roadblocks to the growth of the industry. We have to understand that bad experience with just one delivery has the potential to discourage a customer for a lifetime.
One tried & tested solution lies in making the customer himself, a partner in the delivery mechanism. 35 per cent of the deliveries in mature markets like Europe, are being picked up by customers themselves from local stores at a time of their convenience. Models like these have to be implemented in India urgently, for the industry to continue on its growth trajectory. And, the onus is on the experienced and successful e-retail players in India to take the lead in this direction.
Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.