Every Monday on LogistiekProfs, we let a logistics professional have his say. This week, logistics and supply chain journalist Marcel te Lindert discusses the launch of Picnic: an online supermarket that aims to keep delivery charges low by working with fixed delivery routes. Does this concept have a chance of succeeding?
Picnic made headlines in recent days with a new initiative: buy groceries online for the lowest price and get them delivered to your home with no extra delivery costs. Picnic is the next in a line of initiatives, which for now have failed due to high delivery costs. Are fixed delivery routes the egg of Columbus?
Picnic is not the first online supermarket to try to take market share from established supermarket chains such as Albert Heijn and Jumbo. Back in 2000, supermarket entrepreneur Dick Groot started MaxFoodmarket, which, like Picnic, promised at the start not to charge delivery fees. In 2002, MaxFoodmarket was forced to shut down. The company had failed to become profitable, the number of orders was not growing fast enough and new capital was not available. Subsequent attempts by Truus.nl and Superdirect.com, among others, also failed after a short time.
Bottleneck of online supermarkets is the delivery of groceries. This requires a dedicated distribution network, partly to deliver fresh food and frozen food fast enough under the right conditions. MaxFoodmarket offered the service of free delivery of groceries within two to five hours. By offering the concept only in a few densely populated areas, the company hoped to achieve a high load factor and drop density and keep logistics costs low. Years later, initiator Dick Groot claimed to be too early with his concept. Now he believes MaxFoodmarket could be successful, but only by charging €4.95 in delivery costs.
After MaxFoodmarket, many startups have tried to keep the logistics costs of online grocery shopping low with customised concepts. One example is Truus.nl, which started selling non-food products such as detergents and cosmetics in autumn 2010 and later added groceries. By not including fresh and frozen products in its range, the company was able to keep logistics simple. That made it possible to outsource fulfilment to specialist S&H and delivery to parcel carrier TNT. However, a range without fresh produce made the concept lacklustre. After all, consumers still had to go to a supermarket for their milk, meat products and fruit.
Superdirect.com tried it in September 2013 with a collection point instead of home delivery. Despite the innovative technology used for the first and only pick-up point in Eindhoven, it pulled the plug after nine months. Studies show for good reason that the majority of consumers prefer home delivery despite all pick-up options. Concepts that are successful like HelloFresh may face high delivery costs, but manage to keep their logistics costs low in other ways. HelloFresh determines what the consumer eats and supplies all ingredients including the recipe to do so, but only orders those ingredients when all orders are received. This means no inventory costs and - due to the very limited range - relatively low handling costs in the distribution centre.
So Picnic does offer a complete range including daily fresh products such as bread, vegetables, fruit and meat and promises to deliver them for free. A key challenge is to achieve a high load factor and a high drop density with the electric delivery vans entering Amersfoort from September. In other words, the vans should be as full as possible and deliver as many groceries in as small an area as possible. Another challenge is to spread the deliveries as well as possible over the day, so that each car can do multiple trips and be used as efficiently as possible.
Albert Hein does this with AH.nl by using delivery costs precisely as a steering tool. For example, by making the cost of delivery at peak times more expensive, consumers are more inclined to choose a different, logistically more efficient time slot. With variable delivery costs, Albert Heijn succeeds in reducing logistics costs.
Picnic goes one step further and opts for fixed routes, with a delivery van hitting the streets every other day. Consumers can subscribe to a route and receive a notification on the delivery day, indicating the delivery time with an accuracy of half an hour. If the route is full, it disappears from the list of delivery options. "Existing delivery services drive a truck through Zwolle, for example, where they criss-cross around all day for twenty groceries at a time. With us, you have to subscribe to a fixed route that comes to you every other evening. That means we don't have to go to a certain street for one customer, but maybe twenty and that saves money," reads the explanation in the Volkskrant by Michiel Muller, one of the four initiators. The future will show whether Picnic manages to achieve sufficient scale and a profitable operation quickly enough. In any case, it will be interesting to follow whether the logistics concept with fixed delivery routes catches on with consumers.
Marcel te Lindert - Journalist logistics and supply chain
