Last mile delivery in times of uncertainty

By 2027, the European last mile delivery market is expected to nearly double compared to 2022. E-commerce growth shows no signs of slowing down, although it is faced with many challenging dynamics: more players are entering the market, the Covid-pandemic seems to have changed the rules of the game permanently, and even as customer-oriented services like sustainable delivery are becoming more important, delivery vans still line the streets on a daily basis. The industry seems to be at the verge of a paradigm shift, and the million-dollar question is: how will continued growth and societal trends transform last mile delivery for retailers and consumers?

The PwC Retail Monitor 2023 explores the current state-of-play of last mile delivery¹ and provides directions for the future based on four success factors:

1. Accuracy – delivering the right order at the right time to the right location;
2. Speed – delivering to the customer within the shortest time after order placement;
3. Convenience – providing additional services that are aimed at making the delivery process more customer-oriented; and
4. Profitability – improving revenue while decreasing costs.

The Retail Monitor is data-driven annual research performed together with over 50 retailers from various subindustries whose financial data and view on last mile delivery are used to build industry insights. This year, we also included an order study as an extra research component to add the consumer perspective. This order study collected consumer feedback based on their experiences with last mile delivery of their orders. Altogether, these findings and perspectives make up the Retail Monitor 2023.

The bottom line is that in the post-pandemic retail environment, accuracy gets priority over speed. Retailers will win if they can achieve a perfect balance between managing and meeting expectations of delivery time, location and convenience. These and other conclusions of the PwC Retail Monitor 2023 are summarized in the animation.

¹_{Last mile delivery is the last leg of the delivery process of moving goods from distribution hubs to the customer. Inherently, many stakeholders and handovers are involved in this process, all with the ultimate goal of satisfying the customer with a successful delivery and smooth customer experience.}

Retailers put accuracy at the top of their to-do list, by far: sixty per cent indicate that this is top priority for them. Customers, too, prefer accuracy over speed. This drive to achieve higher accuracy forces retailers to both manage and meet expectations. Managing expectations can be done by clearly communicating about delivery time, location and any other services (such as mode of delivery) and by clearly communicating about any changes during the process. Our research shows that even if the order is not delivered as fast as possible, customers are still happy when their expectations are being managed and met.

However, our research also shows that achieving this is not easy. We measured the ‘on time in full’ (OTIF) percentage of deliveries. While ‘in full’ deliveries are achieved in the majority of cases (ninety per cent of customers report a complete delivery), delivering ‘on time’ tends to be more challenging (twenty per cent of customers report that their delivery was not received in the promised slot). The grocery market sets an example for the rest of the retail industry. This is the most reliable subindustry coming out of our study: customers report that grocery retailers meet their promised delivery time and date in almost all cases. 

A great way for retailers to set expectations is time slot planning, and here we see large differences across subindustries. Where grocery retailers offer accurate time slot planning, retailers in many other subindustries do not offer this possibility to customers. For example, only half of the electronics and technology retailers offer time slot planning. In apparel, it varies between selecting a timeslot or not offering a time slot at all (2 to 3 working days is often only mentioned).

Communication is key to managing expectations throughout the delivery process. Even when retailers are not fully accurate in their delivery, customers can still have a good delivery experience if changes or updates are communicated transparently. Above seventy per cent of the retailers do so by informing their customers about delays. Sharing a track-and-trace has become the standard across all subindustries: the customers’ expectation is to receive a track-and-trace for their order. 

Customers no longer base their delivery process satisfaction solely on accuracy and speed. Now it is of greater importance that retailers also focus on providing a customer-oriented and convenient experience. The order study shows that additional efforts, such as special packaging or a hand-written note, resonate positively with customers. Similarly, excessive packaging is perceived negatively by customers. Both factors impact customers’ satisfaction even if it is only a small part of the overall delivery experience.

Although reverse logistics are a separate area of focus, a delivery is at the start of the return process as retailers decide whether to provide return labels and/or return forms. By including return materials, they are increasing customers’ convenience in the order process. When asked whether their delivery contains a return label and/or return form, more than fifty per cent of the customers reported that the retailer did not provide either. However, customers find this added service very important and convenient. Retailers are, therefore, recommended to better facilitate the start of the return process.

Convenience is also impacted by societal pressure for sustainability. Our research shows that only 25 per cent of the retailers offer the choice for a sustainable delivery option, showing that there is an opportunity for retailers to grow in this area. Some retailers already do this by offering the option of delivery by bike. Aside from offering sustainable delivery options, retailers also need to make the impact of sustainable options clearer. For many customers, it is unclear what impact they can make by choosing a sustainable delivery option. For example, paying an additional 25 cents to offset CO₂ emissions in the delivery process does not give the customer a clear understanding of what will happen with the 25 cents.

Increasingly, residents complain when multiple delivery carriers block the street throughout the day. Thus, order consolidation – grouping different individual items from a single order into one single shipment – stands out as a highly valued service for customers. Not only does this limit traffic and increase convenience for the customer as the deliveries for an order are bundled into one, but it is also makes deliveries more environmentally friendly. Currently, only about half of retailers’ orders are consolidated.

How will continued growth and societal trends transform last mile delivery for retailers and consumers?

For retailers, the top priority for last mile delivery is to successfully manage and meet customer expectations. While that may remain constant, all other aspects of last mile delivery have and will continue to adapt to the changing environment. In the coming years, convenience, sustainability and profitability will set apart retailers in the last mile delivery space.