Can Online Grocers Deliver?: Some Logistics Considerations

The logistics and distribution factors that play a role in the commercial viability of online grocers, and the level of service delivered to customers, are considered. The two business operation models studied are the pureplay model in which the grocer handles the entire shopping experience, and the multichannel model, in which the grocer combines the convenience of online shopping with the stability and leverage of brick-and-mortar stores. The trade-offs that exist for specific delivery policies associated with each type of model are examined. Factors that influence trade-offs are highlighted and include number of demands, number of depots, number of vehicles at each depot, duration of time windows, and road network topology. The commercial viability of each model is examined, and sensitivity analysis to the total demand under different logistical factors is performed. The results illustrate the root causes for the difficult times experienced by this segment of the business-to-consumer electronic commerce sector. Providing the high level of service and convenience (in the form of specific and tight delivery time windows) desired by online customers often results in higher delivery costs, which directly affect the profitability of the operation.