The secret to distance selling success

The secret to distance selling success

Distance selling has seen double digit growth in Germany for the past few years, and it’s showing no signs of slowing down. In 2013, the German E-Commerce and Direct Selling Trade Association (BEVH) reports a growth of 22 percent, with a turnover of €48.4 billion – 80 percent of which are generated online.

Despite this clear upward trend, some goods are not enjoying similar success. In 2013, German consumers spent a total of €165.5 billion on groceries. But BEVH reports that only a meagre 1.6 percent were bought online. The reluctance to purchase groceries online seems to be a German peculiarity.

Consulting firm Ernst & Young estimates the German e-commerce market share to be about 0.3 percent. While Germans spent on average €12.40 per person online, a 2012 statistic shows their neighbours in Britain and France are spending far more at €108 and €76 per person respectively. Switzerland is also way ahead at €87 per person.

E-commerce experts point to the fact that German consumers are very conscious about quality and price, especially when it comes to buying fresh produce. The fear of paying more for less, the standard €5 delivery charge, and getting goods that are near their due dates are big barriers here. This would also explain their strong preference for discount stores.

On the supply side, startups and established retailers are hesitant in developing a nationwide network due to already narrow profit margins. Only in larger cities like Berlin, the Ruhr district, and Hamburg do we see enough demand for a delivery service.

Game-changing innovations and lessons from pizzerias

We’re seeing companies testing next generation innovations in other markets. Samsung has smart fridges that can track and monitor food; Peapod is a service in the US that lets consumers order groceries with a mobile app; and in Japan, Walmart lets consumers vote for products they’d like to see prices reduced via Twitter.

Closer to home, the REWE group in Germany is working on concepts for an online supermarket. In addition to a home delivery service with temperature-controlled trucks, it’s also offering click-and-collect services at some of its outlets. Customers can order their groceries online, and collect them pre-packed at the store. French retailer Chronodrive has been doing this since 2004 and has since gained a steady following of 130,000 customers.

But self-service concepts like these might not be enough to make a breakthrough in Germany. The German online shopper expects same-day deliveries to their doorsteps, but retailers are finding it hard to meet these demands. Then again, every pizzeria can deliver a warm pizza to their customer within an hour and still be profitable.

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There are two things we can learn from Pizza Express and co. One, a delivery service for groceries must be decentralized to meet the delivery time expectations. Central warehousing concepts are doomed to fail. Orders have to be packed at supermarkets or dark stores, which are warehouses specialized in packing individual products, as is done by British supermarket chain Tesco.

Two, the online retailers need their own delivery networks. Conventional courier services cannot meet customer demands because they drive fixed routes to fixed schedules. This means the customer cannot choose a delivery window that suits them, which is a deal-breaker.

This is why almost all delivery services offer two-hour delivery windows. To meet this promise, retailers like REWE or will disable the option to select delivery windows when delivery capacity is full. Customers who order first will have the freedom to choose when their orders will be delivered.

Route planning for success

Online retailers have to thoroughly optimize their delivery routes for an effective and cost-efficient operation. It’s not enough to plan based on demand or delivery windows, sub-optimal route planning will result in unnecessarily long trips and high costs.

At DELMIA Quintiq, we take an intelligent approach. First, we establish delivery areas and forecast the deliveries for each area based on data over a period of time, say a year. Based on these forecasts, an optimal route is generated.

As new orders get assigned to the route, it is re-optimized and gets better with time. We improve it further by integrating the DELMIA Quintiq planning and optimization software with the online ordering system to influence customer demand.

Now, when a customer adds an item to their basket, their address and personal details are collected, and the system generates several possible delivery windows. Delivery windows that are optimal with be offered with lower delivery charges because it doesn’t require the driver to make a detour. This practice is not new. British online retailer Ocado and Berlin mail-order pharmacy Aponeo are already offering variable delivery options.

The DELMIA Quintiq solution bridges the gap between low-cost route planning and customer flexibility. Retailers can offer same day delivery thanks to dynamic optimization – a big milestone for the online retail industry.

To sum, same day delivery with flexible delivery windows are crucial competitive advantages for any retailer. But it takes a lot to be efficient – a system to tame planning complexities, account for various constraints, and keep the promises to customers.

Contributed by guest blogger, Björn Helmke.

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