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Can Reliance Fresh, Trinetra, Spencers, Nilgiris, Shubiksha win in the home delivery segment? September 3, 2007

Posted by Ramnath Rangaswamy in Business, Emerging Markets, India, Indian Economy, Logistics, Retailing, Supply Chain.
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untitled1.jpg Can the large retail chains in India win in the grocery home delivery segment?

The traditional retailers [ mom and pop stores,similar to sari sari stores in the Philippines] will dominate the grocery home delivery segment of the Indian retail market.

In India, the traditional retailers are ubiquitous. They already offer a very convenient home delivery service. For example, they will deliver a packet of milk, and a bottle of water, a bill value of Rs 20 [ about US$ 0.50 or € 0.36] at 10pm in about 20 minutes. A somewhat similar service was offered by Kozmo in the US.

Large retailers, like Reliance Fresh, Trinetra, Spencer Daily, Big Bazaar will not be able to match this home delivery service. In the US and Europe the results on home delivery has been mixed.Webvan, Home Grocer, Streamline all folded up. However, Sainsburys, Safeway and Tesco are continuing with the home delivery service. In India Unilever’s Sangam Direct and Fabmart’s home delivery grocery business [ of which I was a big customer] have closed.

Comparing home delivery in US and Europe with India is not an apples to apples comparison. The labour costs [much lower in India] and retail scenario [ a ubiquitous presence of traditional mom and pop stores, In India] is very different. Having said that, there are some learnings that can be re-applied. The strong backroom processes and the robust ‘last mile’ supply chain processes can be reapplied.

Coming back to the traditional Indian retailer, in the home delivery segment too, there will be competition. Also, the traditional retailers do not have a strong process to manage timely deliveries. Their range and spread is limited to a small hinterland.

Traditional Stores
To ensure that home delivery is a competitive advantage the traditional stores will have to put in some effort and make changes. The traditional retailers will have to strengthen their home delivery processes.

  • Order acquisition: How does the customer place the order? The customer’s call should be picked up within 3 rings, have sufficient phone lines, give an approximate time when the order would get delivered.
  • Order picking: Gather the stocks for delivery. In a traditional store in India, the store boy does the picking. There is no physical interference with the other shoppers as these are not self-service stores. However, it could interfere with the order being picked for a customer who has walked in. How do you handle this?
  • Order delivery: How quickly is the order delivered? Like Pizza deliveries, retailers should have a standard of delivering within 30 minutes or 45 minutes. Details like, does the person carry sufficient small coinage for change, not demand tips would be important. The delivery person is the only representative of the store that the customer comes into contact with.
  • Billing: The store has to bill correctly.
  • Order tracking: Ensure the order gets delivered within the time standards [ 30 minutes – 45 minutes]. If the order is delayed, inform the customer.
  • Returns: A necessary evil. For small retailers, this is fairly straightforward; he can send the delivery boy again or if an instantaneous decision has to be made, the store owner himself could go and complete the process.

Unilever has a SUPERSTORE programme with the big and forward looking traditional retailers. Similarly P&G has a STAR STORE programme. These big companies can train the traditional retailers on the basics of home delivery and capture that niche. After all, traditional retailers will constitute ~85% of the retail segment 5 years hence.

Large Retail Chains
For the large retail chains, they will have to think of home delivery more strategically.

Target Customer Segment: The large retail chains will have to first identify the consumer segment they are catering to and the needs of that consumers. Double income working couples, old retirees could be the target segment. Those who do not have the time or for those whom travelling to a large retail store is not possible.

Competitive Offering: Why should a customer choose a particular chain for home delivery? They will have to think of the why the consumer should choose their retail chain for home deliveries- price, quality, service, offers/ discounts, sku line-up.

The supply chain: In home delivery the ‘last mile’ of the supply chain is very important. They will have to think of the supply chain; will they deliver from the warehouse or from the store, how will they handle substitutions in case of a stockout, if they chose to deliver from the stores how will they manage the interference between a store picker and a customer, will they have their own vans to deliver or will they outsource, how will they handle returns etc.

As for now, my bet is on the traditional retailers, in the home delivery business.

See detailed article by clicking on the link; Retailer’s home run

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