The document discusses challenges and opportunities in reinventing last-mile retail delivery. It notes that e-commerce has grown much faster than physical stores. Consumer expectations for delivery speed and convenience are rising, especially among younger generations. Fulfilling online orders comes with higher costs that compress margins for retailers. Winners will raise the customer experience bar while improving economics through measures like common delivery platforms and optimized operations. The case of Sainsbury's Argos transitioning to a digital retailer focused on omnichannel delivery is also discussed.

1. The Global Challenge to Reinvent the
Last Mile in Retail: Insights From
Sainsbury’s Argos
ANITA BALCHANDANI, Partner, OC&C Strategy Consultants
BERTRAND BODSON, Chief Digital and Marketing Officer, Sainsbury's Argos

2. Anita Balchandani
Partner,
Co-lead of the International Retail Practice
Reinventing the
Last Mile for a
Multichannel
Consumer

3. 3
ecommerce has outgrown stores >10x in most markets
Retail Market Growth by Channel, Top25 ecommerce Markets1, 2005-15
CAGR %
Source: Canadean, OC&C analysis
-2 -1 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16
0
5
10
75
70
30
25
20
15
Sweden
India
Austria
Netherlands
Canada
Spain
Russia
Store Growth
Italy
Australia
Turkey
South Korea
France
Japan
Germany
UK
China
US
Mexico
Argentina
ecommerce
Growth
Denmark
Belgium
Norway
Finland
Poland
Brazil
Bubble Size
Indicates Size of
2015 Online Retail
ecommerce
Growth =
Store Growth
2x
10x
20x
1. Based on 2015 ecommerce value
2_RET_v2.4

4. 4
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
% Total
16%
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 2020e
Online Purchased 2020F
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5. 5
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 Online
2015 Researched Online
1. Data not available for Books, News and Stationary, Sports & Leisure Equipment or Music, Video & Entertainment Software
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6. 6
Last mile deficiencies are holding back consumers
100%
10-15%
55% =
Store as
preferred
channel
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 = 1415
Source: 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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7. 7
Consumer Evolution
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8. 8
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 = 517
3. 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
Home
Delivery
Collection3
Drive Thru
Two ways to shop Willing to drive
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9. 9
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 = 517
Source: OC&C Consumer Survey, OC&C analysis
23
5
7
21
53
17
13
18
29
37
23
5
8
16
27
17
2
5
11
38
27
13
17
34
58
33
45
21
42
InstantWithin 2 HoursSame DayNext Day Specific Time Slot
Japan
China
Germany
France
US
UK
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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10. 10
2
5
4
6
-5
Next Day
Instant
Within 2 Hours
Same Day
3 – 5 Day
…and are particularly pronounced in younger generations
Delivery 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 respectively
Source: 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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11. 11
Aside from same day, consumers willingness to pay is low
Willingness 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 = 517
Source: 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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12. 12
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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13. 13
…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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14. 14
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<10
Source: 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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15. 15
The Economic Challenge
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16. 16
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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17. 17
…accentuated by multiple points of profit leakage
Customer Order Economics and Points of Leakage
Example Fashion Order
Source: OC&C Experience, OC&C analysis
Net Order Value
2 Fashion
Items Gross Margin (GM)
~ 50%
Margin GM after Returns
~ 40%
Return Rate GM After Cost to Serve
Small
Basket
Low Margin
Items
High Return
Rate
Failed Deliveries,
Inefficient Operations
Managing all
points of leakage
is essential to get
order economics
right
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18. 18
Ways to Win
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19. 19
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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20. 20
Over 600 pick up locations 15 min time slot for collectionOrders through website or app
Direct to the boot of your carDelivered 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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21. 21
Picnic employs focused range and fixed delivery time slots
Fresh goods ordered overnight Technology speeds packingOrder 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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22. 22
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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23. 23
And finally…experiment your way…
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24. 24
… and join forces to create common platforms
Retailer PartnershipsCommon Service for Retailer Use
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25. Acknowledgements
OC&C worked with Toluna Research to run a
survey of 3000 respondents across 6 markets
For further information contact:
Anita Balchandani
Partner, OC&C Strategy Consultants
anita.balchandani@occstrategy.com
Hendrik Walter
Associate Partner, OC&C Strategy Consultants
hendrik.walter@occstrategy.de
Miranda Parry
Consultant, OC&C Strategy Consultants
miranda.parry@occstrategy.com

26. The Argos Digital Transformation
Bertrand Bodson
Chief Digital & Marketing Officer,
Sainsbury’s Argos

27. Argos has changed

28. Increased
range
Transparent
pricing
Higher
service
standards
Role of
physical
space
Legacy vs.
TechCo
Specialists
& pace
The online challenges to traditional retailers

29. Argos Strategy: Repositioning Argos as a digital retailer

30. Invested in fast growth of Argos channels

31. Repositioning our stores for a digital future

34. 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+

36. More universally appealing for customers and brands

37. Partnerships have helped us evolve our model

38. Sainsbury’s and Argos coming together (fast), and more
innovation

39. Key for us to springboard our customers online

40. 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)