How Changes Within the Food Supply Chain Affect Last-Mile Delivery
While it’s no secret that the COVID-19 pandemic uprooted the status quo around the world in early 2020, it also shined a spotlight on the economic importance of trucking. Some segments, like last-mile delivery, have become indispensable at a time when e-commerce has never been so strong.
“We have absolutely seen an uptick in people ordering truck bodies for last-mile delivery because of COVID, with a big increase in dry freight equipment as well as insulated equipment,” says Mayo Rude, Great Dane’s truck body division director of sales. “Home delivery has taken off. I think most experts right now are saying that they feel that it’s never going to go back to the norm – if anything, it’s going to continue to grow.”
The Rise of Micro-Fulfillment Centers
Today, consumer e-commerce expectations are higher than ever in a market where margins are slim and competition is fierce, which has led many retailers to begin reimagining their logistics strategies in an attempt to shorten the distance of that last mile as much as possible. To this end, retailers whose e-commerce business is exploding are now adding to the popularity of an already- trending business model: micro-fulfillment centers (MFCs).
For these retailers, MFCs represent an opportunity to automate and increase the efficiency of order fulfillment without giving up the speed of local delivery.
“MFCs employ automation and robotics to address a key fundamental cost challenge associated with online order fulfillment – order picking. Automation of the process of retrieving products from the storage area significantly improves efficiency and accuracy, while also minimizing associated labor costs,” says Violetta Volovich in her article “Solving Economics of Last-Mile Through Micro-Fulfillment Centers,” written for global intelligence and advisory company Ascential. “As MFCs operate in structures of compact, vertical rows of storage space, they are small enough to be installed at the back of a store, utilizing excess space and creating an operational advantage over online retailers using central fulfillment centers.”
As consumers continue to rely on the convenience and safety of staying home and ordering groceries to be delivered, grocers, in particular, have now found themselves more willing to adapt their logistical challenges to the times by testing the concept of MFCs.
While today’s economic conditions get the credit for inspiring some grocers to try out MFCs for the first time, the concept didn’t only emerge as the result of the pandemic. According to Forbes’ Brittain Ladd from his article titled “Grocery Retailers Are Embracing Micro-Fulfillment – But Is That Enough?” 2018 was a turning point for the grocery industry, with Ladd noting retailers like Target and Amazon had invested $28 billion in e-commerce in just the last 18 months prior to Feb. 2019.
Citing research from CommonSense Robotics (now Fabric), a fulfillment company that helps retailers with digital strategy, Ladd states that online grocery penetration could be as high as 15-20% of all grocery sales by 2023. On top of this, Ladd says, CommonSense Robotics found that same-day delivery continues to be an area of focus for grocers, increasing by 500% in 2018.
In another article from Forbes, “3 Lasting Changes To Grocery Shopping After COVID-19,” the author Blake Morgan compounds these changes to the grocery landscape by revealing that, “a year ago (from December 2020), 81% of consumers had never bought groceries online, but during the pandemic, nearly 79% of shoppers have ordered online. In August 2019, U.S. online grocery sales totaled $1.2 billion; in June 2020, that total was $7.2 billion. Over that same time period, the number of online customers increased from 16.1 million to 45.6 million and the average spend per order grew from $72 to $84.”
Figures like those above may appear all positive on the surface, but this can make for a frightening future for grocers when considering picking items “for a typical $110 grocery order takes most of a precious hour, costing around $20 of fully loaded labor costs,” Ladd says. Add to this CommonSense Robotics’ findings that retailers incur a pure loss of $5 to $15 on every manually picked online grocery order, and MFCs only become a more attractive option.
Ladd argues that while MFCs are certainly an important piece for grocers in the e-commerce-fulfillment puzzle, grocery retailers will need to take a holistic view of their supply chain needs to achieve an optimal operating model. Retailers will be forced to leverage their supply chain, last-mile delivery included, to meet customer demand and enable growth both online and in retail brick-and-mortar locations.
Great Dane isn’t the only company seeing a boost in last-mile delivery vehicle sales. While commercial food transport opportunities originally fell with the onset of the pandemic, a recent report by ACT Research shows that December 2020 North America Classes 5-7 demand, with orders at 35,100 units, rose 28% sequentially and 73% compared to December 2019. That order volume represents a second-best-ever volume, ACT says.
“Clearly, the shift in consumer spending from experiences to goods has been good for the providers of local trucking services as e-commerce has grown by leaps and bounds during the pandemic,” says Kenny Vieth, ACT’s president and senior analyst.
Truck Bodies Adapting to the Food Supply Chain
Great Dane has relationships with several retailers interested in finding ways to tighten the screws on their own local delivery and food fulfillment efforts, and as a result, Rude says meeting the needs of MFCs is high on his priority list. This can mean re-thinking how truck bodies both look and function, oftentimes in ways that are unique to each individual customer.
“In the past, you had a lot more traditional, walk-in style bodies – which means you have a roll-up door or a two- or three-section rear door that opens into a single-temperature solution, so it’s either frozen or medium-temperature,” Rude says. “But we’re at the point now that we’re seeing more and more requests for a multi-temperature application, where you can have a frozen, a medium, and an ambient [temperature zone]. We’re also seeing them morph away from the walk-in style body to more of a reach-in style body, so the driver remains on the ground and there are multiple doors on the exterior of the body with a reach-in height.”In some cases, customers have asked for bodies with specific internal space requirements or that feature specific dock heights.
Great Dane has also met requests to design bodies that feature a dual-entry system, with doors on each side of the body, and new safety features, like redesigned steps to get in and out of the truck.“We even have options for under 10,000 GVWR, so you don’t need to have a special license to drive the truck. There are a lot of different options popping up,” Rude says. “We have the best quality, the best return on investment, the best thermal efficiency. If you’re going to be delivering a product that needs to keep its integrity from the delivery point to the consumer, you have to talk to us.”
“In every organization that’s doing home delivery of food products in the market, they have to make a choice,” Rude says. “They’re either going to have to choose a piece of equipment that’s made for delivery of a product to keep it fresh and in good shape to the home of the consumer, or they’re potentially going to look at what’s the cheapest, the easiest, the quickest.”
With online food delivery sales projected to grow as high as $220 billion by 2023, according to investment bank Morgan Stanley, the food supply chain will be forced to grow with it. Rude’s prediction is that as retailers and restaurants become increasingly aware of the risks of using third-party deliveries, the market will continue to answer the call for driving that last mile with specialized equipment built for that role.
Learn more about Great Dane’s full line of dry truck bodies.