How to meet rising consumer expectations at an affordable cost

13 November 2018

In my last blog, I described how online consumer goods companies have helped to boost shoppers’ expectations to a potentially unrealistic level, by providing them with a great service for a low—or no—cost. The challenge this industry now faces is working out how to meet those expectations while continuing to turn a profit. In this post, I look at the options for solving this conundrum.

Currently, there’s no clear, dominant answer—not least because ‘consumer goods’ covers such a vast range of deliverables. Solutions for footwear deliveries are unlikely to work perfectly for, say, shipping flowers or groceries, or delivering household appliances or furniture. In practice, given the disruptions throughout the sector, all bets are off.

The result? Anything and everything is worth trying. Examples around the world range from ‘last mile’ tie-ups with hyperlocal delivery providers (shared-ride pioneer Uber is exploring this field); to retailers purchasing logistics providers (think of Target buying Grand Junction and Shipt); to retailers acquiring e-commerce players (Walmart bought Jet and Bonobos last year, and Belgian Post acquired Radial, a US-based e-commerce fulfilment company.)

Other initiatives are breaking further new ground. In the Middle East, Fetchr, an app-based logistics service based in Dubai, uses consumers’ geo-location as the delivery address, overcoming the lack of identifiable street addresses in some countries. In Nigeria, where almost 80% of homes and businesses can’t receive door deliveries, What3Words—an app that divides geo-locations into three-by-three metre squares—has worked with the Nigerian Postal Service to help with deliveries.

Meanwhile, over everything looms the shadow of the e-tailers. Amazon, for example, is experimenting aggressively with everything from locker drop-offs to drone deliveries. And alongside innovating with technology, it has also built its own delivery network—controlling the chain from warehouse-to-door and ensuring deliveries are ‘Amazon-branded’. In February, Amazon a pilot called ‘Shipping With Amazon’ was announced, where the company’s own couriers pick up products from retailers who sell items through their channels, and then deliver them to the appropriate Amazon warehouse—a task currently handled by delivery companies.

Even as Amazon’s reach continues to expand, the good news is that there’s plenty of room for winning solutions to emerge—not only among consumer firms and retailers, but also among the myriad of transportation and logistics providers along the shipping supply chain. PwC’s latest Global Consumer Insights Survey (GCIS) found that shoppers care much more about delivery method and speed than about who’s doing the actual delivering, with more than a third expressing no preference about the ‘who.’

Looking at today’s transportation and logistics market, the leading players—the likes of DHL, FedEx and XPO—are well-placed to thrive, given their capital advantages and savviness about big data and analytics. It’s the mid-sized and smaller firms that are at greatest risk from big moves by consumer products and retail companies. In PwC’s view, logistics companies need to focus on ‘digital fitness,’ cost efficiency, asset productivity, and innovation if they’re to meet the rapidly-changing expectations of shoppers. Building and refining these capabilities, and then scaling them up across the enterprise, will be key.

These same priorities apply to consumer goods companies and retailers. However, we think action is also needed on a higher plane—through far-reaching collaboration across the consumer-goods value chain. Nowhere is this more critical than in dense urban areas, where demand volume is rising fastest and the delivery infrastructure challenges are greatest. PwC’s recent study on ‘last mile’ urban deliveries in Germany pinpoints many of those challenges—from noise pollution to traffic congestion—and emphasises the need for city governments to join coalitions of consumer-goods players and logistics service providers to address them.

This need, in turn, calls for those industry players to reach out to government officials as potentially valuable collaborators in resolving increasingly complex last-mile delivery issues. Are drones the answer? Possibly. Certainly, Amazon and DHL have made headlines with their experiments to date. And consumers are curious: 38% of our GCIS respondents said they would trust a drone to deliver their packages.

But amid the ferociously complex dynamics of the last mile, where so little about actual delivery is standard, the advantages of automation may be limited. Do we want drones that carry bulky, heavy packages as well as small feather-light ones? Delivery to the front doorstep, a balcony, or into the waiting customer’s hands? At a neighbour’s house? Under a covered area if it’s raining? Then there are the social and cultural challenges. Consumers who cherish their privacy aren’t enamoured of drones equipped with cameras. Others may object to the airborne congestion.

Given such issues, the more immediate opportunity for drones may be in improving the effectiveness of other stages of consumer-goods supply chains, such as monitoring and updating inventory in distribution centres. The truth is that drones are just one of many options, which also include delivery robots, automated lockers, crowd-sourced delivery, and of course traditional delivery trucks. There’s so single solution: the delivery options are as diverse as consumers’ preferences.

Nobody expects 2018 to be the year in which all shipping and delivery challenges are solved. But it may well be a year when consumer goods companies, retailers, and their suppliers work together more closely to find out exactly what shoppers will pay for—and what they won’t. The answers will be worth hearing.

Tom Woodham

Tom Woodham | Digital Supply Chain Leader
Profile | Email | +44 (0)7709 441851

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