03/06/2020 | Pauline Poissonnier
The Covid-19 pandemic has seen online demand for fast-moving consumer goods go through the roof, with customers picking up their purchases from drive-through collection points or opting for home delivery. Once the crisis abates, maintaining this level of demand will require organizational changes, by food and non-food retailers alike, in order to enhance the customer experience, optimize resource utilization, and achieve productivity gains.
Drive-through collection points and dark stores: Could the Covid-19 crisis quicken the pace of change?
Even before the crisis hit and life went into lockdown, many French households had already embraced the idea of buying their groceries online. According market-research firm Nielsen, in early April 2020, e-commerce was edging close to the symbolic 10% market-share threshold in the fast-moving consumer goods (FMCG) and self-service fresh food segments. Despite a spectacular rise in the popularity of home delivery, over 80% of growth in general online grocery sales has come from drive-through and walk-up collection.
Drive-through collection may have won favor in the food segment, but alternative delivery and collection methods have also gained ground in other sectors, especially specialized large retailers (home improvement and materials, games and toys, home and sports equipment, etc.) and in textiles—segments where home delivery and click & collect have traditionally been the norm.
Although the lockdown was lifted in mid-May, physical distancing rules remain in force, limiting the number of people allowed in stores, while customers required to follow safety rules such as wearing masks and using hand sanitizer before entering a store. As a result, consumers are unlikely to abandon their new purchasing habits any time soon—in the coming months, or even years.
But this will only happen if retailers deliver the standard of service that customers expect. In times of crisis, and as these alternative solutions are introduced as emergency measures, consumers may be willing to accept a rough-and-ready service—from not always being able to get the products they want, to waiting in line and experiencing modest delays in their pre-booked collection slots. But going forward, the customer experience will likely be one of the driving factors behind the growth of these new consumer practices.
To cater to this new demand, retailers will need to work hard to strike the right balance between the cost of providing these services, a satisfactory service rate, and stock availability (stock reliability and management of substitute products). Meanwhile, if retailers are to set up and deliver these new fulfillment models with success, they will need to think again about how they arrange their outlets and train their employees appropriately.
Turning retail outlets into local logistics hubs
The drive-through collection model uses stores in retail parks on the outskirts of large towns and cities. Although the experience for customers remains largely the same, retailers have to adopt entirely separate logistics models. Some retailers use store stock (stockroom or shelves) and allow customers to collect their orders from a special section of the outlet. Others, meanwhile, have opted to set up so-called “dark stores”—either former outlets or designated parts of stores converted into online-only stockrooms (for drive-through collection and home delivery). Others still have taken the drive-through model to the extreme, setting up collection points in (often highly mechanized) warehouses.
Whatever approach retailers choose, employees more accustomed to organizing sales floors and advising customers have to be retrained in the specifics of large retail operations. It is important to remember that preparing online orders is first and foremost a logistics, rather than a retail, task—one that demands efficient and detailed organization, from optimizing order preparation paths and scheduling preparations in real time, to training specialized pickers for certain types of order (in some cases), grouping orders by collection time slot, and more.
What’s more, if physical purchases and online orders share the same stock, retailers will need to distribute teams and synchronize order preparation tasks with conventional customer service and shelf restocking activities, as well as design new strategies for managing stock between the stockroom, store shelves and drive-through collection orders. In other words, while most retailers can no longer avoid offering these new types of service, they need to think carefully about how they organize their operations to achieve efficiency without compromising their traditional channel. Likewise, they need to do so without hitting customers in the pocket—because consumers expect to find the same prices online as they do in-store.
Three key challenges: stock reliability, real-time management, and agility
Delivering a satisfactory customer experience in an omnichannel context means retailers need reliable, real-time stock information (sales floor, stockroom, dark store, etc.), as well as a deep understanding of customer preferences. That way, they can limit stock-outs and offer substitute products if needed. At the same time, they need to optimize their process to increase productivity and keep costs down as volumes rise. The only way for retailers to achieve these aims is with dedicated, logistics-oriented software and systems.
These software programs will also need to help retailers recalibrate their strategies, and activate, deactivate and adjust their logistics processes with agility—for two reasons. First, because these services are relatively new and have not yet had time to mature, meaning individual stores will need to proceed through trial and error to determine which channels are best suited to their catchment area. And second, because logistics strategies will need to be flexible enough to handle seasonal, weekly or even daily variations in activity across different channels.
As these changes bed in, it is entirely possible that stores could, with time, evolve into fully fledged local logistics hubs serving consumers across all channels and all distribution methods, including home delivery. These new combined stores and storage facilities could help to cut transport distances (and, therefore, reduce the environmental footprint of the retail sector). They could also allow retailers to extract value from unused real-estate, and allow them to provide an inter-store sale service, thereby giving them a competitive edge over e-commerce pure-players who lack the same physical infrastructure.