When The Last Mile Is The First

Sridhar Rajagopal Nov 12, 2022

For a long time, milk and newspapers were pretty much all that was delivered to our doorsteps. This has transformed over the last 10 years and today we get free and fast delivery of almost everything, from groceries to food to healthcare. This is nothing short of a golden era for the last mile of the supply chain, which is the delivery of goods from a distribution center in the city to the doorstep of a consumer. This begs an important question: How is it that a milk delivery person, who charges INR 6 per litre of milk (10 per cent of the price of milk in Mumbai) remains poor, but the ecommerce companies who deploy a fleet of vehicles and an army of delivery staff can deliver the goods for free and still be valued in millions of dollars? Miracle or Illusion?

A significant event that propelled the free and fast delivery of goods is the launch of Amazon Prime in 2005 in the USA with free deliveries of goods in two days. In 2007, Flipkart was launched in India (by two ex-Amazon employees) with free delivery of books above a certain value. From then on, free and fast delivery has improved year after year. From delivery in two days to the same day, to two hours and now a group of companies called Quick Commerce that promise groceries in 10 minutes. Just imagine! Ten-minute deliveries in the congested cities of Mumbai or Delhi. We could suggest for the delivery staff to wear blue paint like the Genie from Aladdin and for the carry bags to be shaped like a magic lamp. We can comically extend this to imagine a food delivery company that would pick up food from our kitchen and deliver it to the couch in the living room while we are watching cricket! That would be Instant Commerce, delivery in 10 seconds. Jokes apart, there is no such thing as free delivery! It is an illusion, and we are falling for it. The problem is that someone is paying for it and sooner or later it will be the customer who will pay for it.

This context raises two questions.

Question 1: How long can the online shopping, food delivery and Direct to Consumer (D2C) brands offer free and fast deliveries? Sooner or later, they will run out of investor money to fund the free deliveries. Sooner or later, they will run out of manufacturer margin to squeeze. Then they will have to charge the actual shipping cost for every delivery and if so, will consumers still buy online the same way there are buying today – one item at a time, as and when the need arises?

Question 2: How long will Brick-and-Mortar companies sit on the side lines and watch the growth of the online shopping industry based on free and fast deliveries? In India, online shopping is less than 4 per cent of retail sales and the remaining 96 per cent is with Brick-and-Mortar companies. Are they ready to disrupt and transform themselves and enter the last-mile delivery?

Let us look at this differently. Why have brick-and-mortar companies not rushed into the delivery of goods to the customer’s doorstep? These companies have continuously improved their supply chain over the years with innovations like lean manufacturing, lean supply chain, RFID (Radio frequency identification), 3PL (third party logistics), hub and spoke model and milk run to efficiently deliver goods from the factory to distributors in the cities. Yet they are not comfortable taking the additional step of delivering goods to the doorstep of the consumer. Why are they shy to knock on doors?

The reason is that last-mile delivery is complex and cumbersome. The Brick-and-Mortar companies fondly call home deliveries a ‘last mile problem’. Data shows that the last mile delivery, i.e. the travel from a distribution center in the city to the doorstep of the customer costs up to 50 per cent of the total supply cost. The last mile is a lot more than a mile. The delivery staff carry many small packages with complex routes, have a lot of idle time and the vehicles spend more time on the road, burning expensive fuel. The last mile is expensive and a nightmare in supply chain management.

If the last mile is so expensive, then why are ecommerce and D2C (Direct to Consumer) companies competing on free deliveries? The reason is simple. The one thing that online shopping companies hate is the image of an abandoned cart. Research shows that one of the reasons online customers select items for purchase and add them to a cart but exit without purchase is their dissatisfaction with the cost and time of delivery offered by the website. Online shoppers are saying that they do not want to pay for deliveries anymore. The ecommerce and D2C companies have no choice but to continue with free and fast deliveries. The need of the hour is for us to understand the cost of free delivery. What is this hidden cost?

In parallel, many Brick-and-Mortar companies are transforming themselves into Direct-to-Retailer and Direct-to-Customer businesses. For example, Hindustan Unilever is investing in a Direct-to-Retailer model by which they are directly serving the Kirana stores. Brick-and-Mortar companies have begun to compete with ecommerce companies in the last mile of the supply chain.

Online shopping companies, food delivery companies and Direct-to-Consumer brands have revolutionised the last mile of the supply chain. These businesses have made the last mile their first mile and focused on connecting directly with end users and delivery of goods to their doorsteps. Is their last-mile supply chain cost-effective? Not yet! The entry of brick-and-mortar companies into the last mile will bring their supply chain innovations, robustness and cost efficiencies. This will also bring transparency to the cost of last-mile deliveries. So that when customers want to shop, they can decide whether to exercise their fingers and shop online or their legs and walk down to the nearby Kirana store.