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The Global Challenge to Reinvent the Last Mile in Retail: Insights From Sainsbury’s
Argos
ANITA BALCHANDANI, Partner, OC&C Strategy ConsultantsBERTRAND BODSON, Chief Digital and Marketing Officer, Sainsbury's Argos
Anita BalchandaniPartner,
Co-lead of the International Retail Practice
Reinventing the Last Mile for a Multichannel Consumer
3
ecommerce has outgrown stores >10x in most marketsRetail Market Growth by Channel, Top25 ecommerce Markets1, 2005-15CAGR %
Source: Canadean, OC&C analysis
-2 -1 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 160
5
10
75
70
30
25
20
15
Sweden
India
Austria
Netherlands
Canada
Spain
Russia
Store Growth
Italy
Australia
TurkeySouth Korea
France
Japan
Germany
UK
China
US
Mexico
Argentina
ecommerceGrowth
Denmark
Belgium
Norway
Finland
Poland
Brazil
Bubble Size Indicates Size of 2015 Online Retail
ecommerce Growth = Store Growth
2x
10x20x
1. Based on 2015 ecommerce value
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Up to a third of purchases made online by 2020
Majority of purchases researched online
Majority of retail will be multichannel enabled
Source: Canadean; Google Barometer; OC&C analysis
Online Consumer Activity1
% Total16%
20%
18%
17%
20%
26%
17%
20%
22%
15%
21%
20%
21%
Austria 75%
79%
Australia
USA
77%
79%
75%Netherlands 72%
85%
Germany
South Korea
Norway
China
68%
France
70%Finland
80%
92%Sweden
72%Denmark
UK 79%
1. Excluding ‘Food & Grocery’
Excluding Food & Grocery
Online Researched 2020eOnline Purchased 2020F
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Averages mask substantial category differences
7% 11% 12%21%
47%
7%
Health & Beauty
28%
62%
32%
Furniture & Floor Coverings
Food & Grocery Home & Garden Products
70%
79%
Apparel, Accessories, Luggage & Leather
Goods
Electrical & Electronics
65%
ecommerce Share by Category, 2015 vs 2020F% Total
Source: Canadean; Google Barometer; OC&C analysis
2015 Bought Online2015 Researched Online
1. Data not available for Books, News and Stationary, Sports & Leisure Equipment or Music, Video & Entertainment Software
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Last mile deficiencies are holding back consumers
100%
10-15%
55% =Store as preferredchannel
c20%
10-15%
Current Online Penetration
1%
Grocery continues to see barriers to online1,2
% of Market
Limited slots Uncertainty on
attendance
Picking Substitutions Bad experience
Trust
Too expensive High threshold
on free delivery
Price Scheduling
45% = Delivery-related Reasons
1. Consumers were asked: “What are the main reason(s) that you have not purchased grocery items online in the last 6 months?”2. Sample: Aggregated Sample (UK, US, FR, DE, CN, JP); N = 1415Source: Euromonitor, OC&C Consumer Survey, OC&C analysis
25% in Japan
>20% in UK / US; <10% in China / France
6% in UK
45% in UK; 65% in France
7% in UK
UK, US, FR, DE, CN, JP
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Consumer Evolution
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Japan
78%
19%
2%
85%
12%
2%
USA
18%
29%
55%
32%
17%
68%
Markets are segmenting into three last mile end states
Germany UK FranceChina
Source: OC&C Consumer Survey, OC&C analysis
1. Consumers were asked: “Which of the following delivery methods have you used to receive online orders in the last 6 months?”2. Sample: UK = 543, USA = 523, FR = 506, DE = 553, CN = 502, JP = 5173. Most popular of Collection Points, Lockers, Click & Collect, Check & Reserve
Usage of Fulfilment Types1,2
% Respondents
5%
36%
80%
5%
40%
80%
Deliver or Collect
Home delivery winning
HomeDelivery
Collection3
Drive Thru
Two ways to shop Willing to drive
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Consumer service expectations continue to rise…Delivery Expectations1,2
% Respondents
1. Consumers were asked: “Which of the following delivery options would you expect to see offered ‘as standard’ across the majority of retailers (vs only offered by selected retailers)?” 2. Sample: UK = 543, USA = 523, FR = 506, DE = 553, CN = 502, JP = 517Source: OC&C Consumer Survey, OC&C analysis
23
57
21
53
1713
18
29
37
23
58
16
27
17
25
11
38
27
1317
34
58
33
45
21
42
InstantWithin 2 HoursSame DayNext Day Specific Time Slot
JapanChina
GermanyFrance
USUK
Outside of France, over a third of consumers expect Next Day
to be offered as standard
Same Day likely to be the next
market standard in many markets
USA and China are most demanding for speed
20-30% of consumers expect to be able to select
specific time slots for delivery
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2
5
4
6
-5
Next Day
Instant
Within 2 Hours
Same Day
3 – 5 Day
…and are particularly pronounced in younger generationsDelivery Expectations, by Age1
%pt Delta in Respondents (vs Market Average)
Expectation Higher Than Market
Expectation Lower Than Market
18-34 55+
1. Consumers were asked: “Which of the following delivery options would you expect to see offered ‘as standard’ across the majority of retailers (vs only offered by selected retailers)?” 2. Aggregated Sample; N = 931, 881 for 18-34, 55+ age brackets respectivelySource: OC&C Consumer Survey, OC&C analysis
Usage of Same Day Delivery Concepts, by Age% Respondents
0
5
10
15
20
18-34 34-55 55+
9
Within 2 hours -6
-5
-4
-5
Instant
3 – 5 Day
Same Day
Next Day
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Aside from same day, consumers willingness to pay is lowWillingness to Pay Varies Slightly by Country, But Shows Same Overall Trends% Respondents (Aggregated Sample - UK, US, FR, DE, CN, JP)
1. Consumers were asked: “Which of the following delivery options would you willing to pay for (vs expect to be free of charge)?” 2. Sample: UK = 543, USA = 523, FR = 506, DE = 553, CN = 502, JP = 517Source: OC&C Consumer Survey, OC&C analysis
18%
16%
24%
24%
32%
25%
13%
5%
Specific Time Slot
Sunday
Instant
Within 2 Hours
Same Day
Next Day
3 – 5 Day
2 Week In the US, 20% of consumers are willing to pay for 3-5 day delivery
UK consumers value same day more highly (40%), and German consumers
over twice as likely to pay
Predictability over speed – German consumers will pay for Sunday
delivery (25%), with time slots most popular in Japan (25%)
Next day valuation varies, with US most willing to pay (35%)
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Amazon Prime and Prime Now have taken off globally…
Source: OC&C Consumer Survey, OC&C analysis
1. Consumers were asked: “Which of the following delivery methods have you used to receive online orders in the last 6 months?”2. Sample: London = 223, New York = 252, Paris = 255, Berlin = 251, Beijing = 280, Tokyo = 276
Usage of Amazon Prime & PrimeNow1,2
% Respondents
25%
31%
37%
43%
43%
61%
Paris
Shanghai
Berlin
Tokyo
London
New York
11%
12%
23%
50%
Paris
Berlin
London
New York
n/a
n/a
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…and new last mile concepts are gaining traction
Source: OC&C Consumer Survey, OC&C analysis
1. Consumers were asked: “Which of the following delivery methods have you used to receive online orders in the last 6 months?”2. Sample: London = 223, New York = 252, Paris = 255, Berlin = 251, Beijing = 280, Tokyo = 276
Usage of New Delivery Concepts1,2
% Respondents
37%
63%
6%
24%
37%
12%
London New York BerlinParis Shanghai Tokyo
Food Delivery Convenient Parcel DeliveryGrocery Delivery
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Online barriers have disappeared
Stores will need to fight back on immediacy & convenience
3%
3%
3%
6%
11%
11%
12%
21%
22%
Offer In Store
Product Unavailable Online
Cost of Delivery
Prefer Dealing with People / Wanted Advice
Enjoy Shopping In Store
Needed Item Urgently
Impulse Purchase
Wanted to Test, Try & Compare
Convenience / Proximity of Store
1. Consumers were asked: “You said you bought the item in store, what were the main reasons for this?”2. Sample: UK, N = 341, excludes n<10Source: OC&C Consumer Survey, OC&C analysis
Primary Reason for Choosing In-Store% Respondents
Immediacy & convenience are key drivers for
physical channel
Stores not sufficiently differentiating on experience
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The Economic Challenge
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Higher fulfilment costs are challenging retail economics…
Source: OC&C Experience, OC&C analysis
Traditional Retailer
3-5%
Fulfilment Costs% Sales
11%
6%
0%
High Service, High Cost Market
High Service, Low Cost Market
Marketplace
TodayYesterday
Switch to online fulfilment expected to compress profit margins for multi-channel retailers by c.1.5 % points
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…accentuated by multiple points of profit leakageCustomer Order Economics and Points of LeakageExample Fashion Order
Source: OC&C Experience, OC&C analysis
Net Order Value2 Fashion
Items
$50
Gross Margin (GM)~ 50%Margin
$25
GM after Returns~ 40%
Return Rate
$15
GM After Cost to Serve
$<10
SmallBasket
Low MarginItems
High ReturnRate
Failed Deliveries, Inefficient Operations
Managing all points of leakage is essential to get order economics
right
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Ways to Win
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Winners will raise the bar on customer experience, while improving the economics
• Order before 22.00 for free next day delivery• 1 h delivery slot; on morning of delivery exact
arrival time +/- 10 min announced
Kakuyasu
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Over 600 pick up locations 15 min time slot for collection Orders through website or app
Direct to the boot of your car Delivered in 5mins from arrivalPicked in advance in-store
Leclerc leverages a dedicated format for 2-hour collection
5 min
1
4
2
5
3
6
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Picnic employs focused range and fixed delivery time slots
Fresh goods ordered overnight Technology speeds packing Order by 10pm deadline
…tracked in the Appat a time dictated by route plan…Delivery by electric van..
1
4
2
5
3
6
“Every day we come to your street but everyday there’s
only one delivery time” – Co-founder, Picnic
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Actions to consider
Make the last mile integral to your offer
Reimagine how you can raise the bar
for customers
Make more of stores
Back speed as the norm
Invest in predictive
analytics to reduce profit
leakage
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And finally…experiment your way…
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… and join forces to create common platforms
Retailer PartnershipsCommon Service for Retailer Use
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Acknowledgements
OC&C worked with Toluna Research to run a survey of 3000 respondents across 6 markets
For further information contact:
Anita BalchandaniPartner, OC&C Strategy [email protected]
Hendrik WalterAssociate Partner, OC&C Strategy [email protected]
Miranda ParryConsultant, OC&C Strategy [email protected]
The Argos Digital Transformation
Bertrand BodsonChief Digital & Marketing Officer, Sainsbury’s Argos
Argos has changed
Increased range
Transparent pricing
Higher service
standards
Role of physical
space
Legacy vs.TechCo
Specialists & pace
The online challenges to traditional retailers
Argos Strategy: Repositioning Argos as a digital retailer
Invested in fast growth of Argos channels
Repositioning our stores for a digital future
At Peak 2015 we launched Fast Track Delivery
• Same Day Delivery on 20,000 products for £3.95
• 4 slots a day (e.g. Order by 6pm, get it by 7-10pm), 7 days a week
• Live on 95% of UK postcodes, not just in big cities
• Delivered from our Hub stores, via our own friendly drivers
• Even on Christmas Eve, customers could order up to 1pm for 4pm delivery
• NPS: 80+
More universally appealing for customers and brands
Partnerships have helped us evolve our model
Sainsbury’s and Argos coming together (fast), and more innovation
Key for us to springboard our customers online
We have evolved Argos culture and the way we work
An army of 30,000 digital colleagues (now c.200,000)
Brought in and developed new skills and talent
Feels like a start-up inside
Customers first (end to end,
NPS)