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The Global Challenge to Reinvent the
Last Mile in Retail: Insights From
Sainsbury’s Argos
ANITA BALCHANDANI, Partner, OC&C...
Anita Balchandani
Partner,
Co-lead of the International Retail Practice
Reinventing the
Last Mile for a
Multichannel
Consu...
3
ecommerce has outgrown stores >10x in most markets
Retail Market Growth by Channel, Top25 ecommerce Markets1, 2005-15
CA...
4
Up to a third of purchases
made online by 2020
Majority of purchases
researched online
Majority of retail will be multic...
5
Averages mask substantial category differences
7% 11% 12%
21%
47%
7%
Health & Beauty
28%
62%
32%
Furniture &
Floor Cover...
6
Last mile deficiencies are holding back consumers
100%
10-15%
55% =
Store as
preferred
channel
c20%
10-15%
Current Onlin...
7
Consumer Evolution
2_RET_v2.4
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 U...
9
Consumer service expectations continue to rise…
Delivery Expectations1,2
% Respondents
1. Consumers were asked: “Which o...
10
2
5
4
6
-5
Next Day
Instant
Within 2 Hours
Same Day
3 – 5 Day
…and are particularly pronounced in younger generations
D...
11
Aside from same day, consumers willingness to pay is low
Willingness to Pay Varies Slightly by Country, But Shows Same ...
12
Amazon Prime and Prime Now have taken off globally…
Source: OC&C Consumer Survey, OC&C analysis
1. Consumers were asked...
13
…and new last mile concepts are gaining traction
Source: OC&C Consumer Survey, OC&C analysis
1. Consumers were asked: “...
14
Online barriers
have disappeared
Stores will need to fight back on immediacy & convenience
3%
3%
3%
6%
11%
11%
12%
21%
...
15
The Economic Challenge
2_RET_v2.4
16
Higher fulfilment costs are challenging retail economics…
Source: OC&C Experience, OC&C analysis
Traditional
Retailer
3...
17
…accentuated by multiple points of profit leakage
Customer Order Economics and Points of Leakage
Example Fashion Order
...
18
Ways to Win
2_RET_v2.4
19
Winners will raise the bar on customer experience, while
improving the economics
• Order before 22.00 for free next day...
20
Over 600 pick up locations 15 min time slot for collectionOrders through website or app
Direct to the boot of your carD...
21
Picnic employs focused range and fixed delivery time slots
Fresh goods ordered overnight Technology speeds packingOrder...
22
Actions to consider
Make the last
mile integral
to your offer
Reimagine
how you can
raise the bar
for
customers
Make mo...
23
And finally…experiment your way…
2_RET_v2.4
24
… and join forces to create common platforms
Retailer PartnershipsCommon Service for Retailer Use
2_RET_v2.4
Acknowledgements
OC&C worked with Toluna Research to run a
survey of 3000 respondents across 6 markets
For further informa...
The Argos Digital Transformation
Bertrand Bodson
Chief 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
T...
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 ...
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
deve...
The Global Challenge to Reinvent the Last Mile in Retail: Insights From Sainsbury’s Argos
The Global Challenge to Reinvent the Last Mile in Retail: Insights From Sainsbury’s Argos
The Global Challenge to Reinvent the Last Mile in Retail: Insights From Sainsbury’s Argos
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The Global Challenge to Reinvent the Last Mile in Retail: Insights From Sainsbury’s Argos

Presentation from Retail’s BIG Show, January 15-17, 2017.
ANITA BALCHANDANI, Partner, OC&C Strategy Consultants
BERTRAND BODSON, Chief Digital and Marketing Officer, Sainsbury's Argos

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The Global Challenge to Reinvent the Last Mile in Retail: Insights From Sainsbury’s Argos

  1. 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. 2. Anita Balchandani Partner, Co-lead of the International Retail Practice Reinventing the Last Mile for a Multichannel Consumer
  3. 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. 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 2_RET_v2.4
  5. 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 2_RET_v2.4
  6. 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 2_RET_v2.4
  7. 7. 7 Consumer Evolution 2_RET_v2.4
  8. 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 2_RET_v2.4
  9. 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 2_RET_v2.4
  10. 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 2_RET_v2.4
  11. 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%) 2_RET_v2.4
  12. 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 2_RET_v2.4
  13. 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 2_RET_v2.4
  14. 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 2_RET_v2.4
  15. 15. 15 The Economic Challenge 2_RET_v2.4
  16. 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 2_RET_v2.4
  17. 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 2_RET_v2.4
  18. 18. 18 Ways to Win 2_RET_v2.4
  19. 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 2_RET_v2.4
  20. 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 2_RET_v2.4
  21. 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 2_RET_v2.4
  22. 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 2_RET_v2.4
  23. 23. 23 And finally…experiment your way… 2_RET_v2.4
  24. 24. 24 … and join forces to create common platforms Retailer PartnershipsCommon Service for Retailer Use 2_RET_v2.4
  25. 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. 26. The Argos Digital Transformation Bertrand Bodson Chief Digital & Marketing Officer, Sainsbury’s Argos
  27. 27. Argos has changed
  28. 28. Increased range Transparent pricing Higher service standards Role of physical space Legacy vs. TechCo Specialists & pace The online challenges to traditional retailers
  29. 29. Argos Strategy: Repositioning Argos as a digital retailer
  30. 30. Invested in fast growth of Argos channels
  31. 31. Repositioning our stores for a digital future
  32. 32. 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+
  33. 33. More universally appealing for customers and brands
  34. 34. Partnerships have helped us evolve our model
  35. 35. Sainsbury’s and Argos coming together (fast), and more innovation
  36. 36. Key for us to springboard our customers online
  37. 37. 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)

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