14 April, 2020

The ongoing COVID-19 pandemic is impacting every part of our lives from our work, to our leisure time, to how we buy goods. Will it also see the return of the milkrun?

Following the Australian Government’s decision to close all non-essential services and impose social distancing rules to combat the spread of the virus on March 21, 2020, Australians have responded by stockpiling basic necessities and in the process, stripping supermarket shelves bare.

Online grocery deliveries have also risen sharply in recent weeks as Australians look to avoid crowds at supermarkets. Research from Nielsen reveals that online grocery sales in Australia have increased by over 45% over the past few weeks (compared to 34% in Q4 2019). They found that panic buying is not just limited to toilet paper and sanitisers, but is having a ripple effect on pantry and fridge essentials such as pasta (+76%), eggs (+72%), canned meals (+71%) and long-life milk (+50%).

Search interest data for Coles, Woolworths, Catch and two major meal delivery kit providers, provides insight into the recent interest in online groceries in Australia. The values represent search interest relative to the highest point on the chart (i.e. a value of 100 means peak popularity for the searched term, whilst a value of 50 means that the term is half as popular as the peak).

Not surprisingly, the data reveals a clear spike in search interest during the peak of the stockpiling phenomenon that was observed in March. Immediate essential items were on the minds of consumers at this time: the most popular related search queries for online groceries were “toilet paper” and “hand sanitiser”). Woolworths and Coles were temporarily forced to halt online grocery sales as their online portals, physical stores and distribution channels struggled to keep pace with unprecedented demand.[1]

How purchasing habits have changed

For those old enough to remember, the milk run involved the daily distribution of milk bottles by the milkman (or now, the milkperson). The milkman would deliver fresh bottles each morning and collect empty bottles as part of their daily route. Towards the end of milk runs in the late 1980s, some milkmen broadened their service offering by providing other staples such a bread, meat and vegetables.

Return of milk delivery

The milk run business model was highly successful due to four key factors:

  • Milk is a perishable good that needs to be refrigerated. As such, someone had to be at close hand to prevent spoilage.
  • Reusable packaging was integral to the supply chain and supported drop-off and pick-up services
  • At the time of milk runs, there were few convenience stores and most supermarkets did not have extended hours of trading
  • Consumers were used to receiving regular deliveries of milk, meaning that milk was often delivered to most houses within a street at the same time. This enabled delivery to be cost effective and efficient.

Over time, consumer mobility improved, plastic packaging emerged, and cheap milk became readily available at supermarkets and convenience stores that were open for longer periods. No longer did you have to wait at home to receive your milk delivery. Technology and accessibility rendered the traditional milk delivery business model obsolete.

Fast forward several decades and supply chains have once again transformed with the growth of e-commerce. While home delivery services for groceries have been established for many years and have been growing in popularity, in-store purchasing has continued to be the preferred option for Australian shoppers, representing over 95% of total grocery expenditure. The inconvenience of having to be at home for deliveries, the higher costs (prices and delivery fees) associated with online shopping and the accessibility of brick-and-mortar supermarkets have meant that large numbers of Australian consumers have been reluctant to shop online for their weekly groceries. However, with various state governments announcing that lockdowns will continue for the foreseeable future and households forced to self-isolate, the online grocery market might be reaching an ‘inflection point’ in Australia.

IBISWorld forecasts online grocery industry revenue to rise by 56% off the back of increased home deliveries due to COVID-19.[3] The COVID-19 outbreak is also expected to impose lasting changes on the way Australians grocery shop. While Australia’s uptake of online grocery shopping has been slow compared to other developed countries such as the UK, a large proportion of individuals who adopt online services will likely continue to use these platforms in some format in the future as households realise the ease and convenience of shopping for groceries online and become familiar with digital platforms.

 

Could the milk run make a comeback?

Could this shift result in permanent reductions for the costs of buying groceries online and result in lasting changes to the way that consumers do their shopping? If the future involves most houses receiving more frequent deliveries of groceries, could this start to look like a resurgence of the old fashioned milk run? Will daily delivery services for key items become viable again?

Many retailers have adapted their business models to survive the impacts of COVID-19. Cafes and restaurants have pivoted towards takeaway and home delivery, and are also selling staples such as bread, eggs and milk. Sydney-based high-end restaurant nel. recently launched the nel.box, a weekly food delivery service with fresh fruit, vegetables, meat and seafood sourced from local farmers and suppliers.[1] With a number of businesses developing their online channels overnight, and more households beginning to receive home deliveries, what opportunities will this present? For example, are their opportunities to explore reusable packaging for certain grocery deliveries?

What can policy makers do to make last mile deliveries more sustainable?

Consumer demand is driving the current changes in purchasing behaviour and by and large, supermarkets have responded with government playing a supporting role. However, if online groceries are to become the new norm, what actions could be taken by government to assist in making “last mile” delivery for groceries and other products more efficient and sustainable?

Some options may include:

  • Continuing to allow 24/7 deliveries to supermarkets and removing other red tape to address long standing inefficiencies and make it easier for supermarkets to balance replenishment, in-store purchasing, and where applicable, deliveries to customers from individual stores.
  • Providing targeted assistance for retail businesses to go digital which can improve productivity, boost sales for retailers and provide better services to customers.
  • Reconfiguring streets and kerbside space to enable easy access for delivery services to ensure cost-effective and efficient order fulfilment.
  • Planning reforms for more effective provision of loading docks in high-rise developments and other initiatives to remove the barriers to increasing home deliveries.

Why it matters

Achieving sustainable last mile deliveries is not just beneficial to industry but also to the broader community. Increased use of online grocery shopping can deliver a number of economic and environmental[1] benefits such time savings for consumers and reduced private vehicle usage which can lead to reduced vehicle emissions and congestion. Research by Wygonik and Goodchild (2012) found that online grocery delivery can reduce CO2 emissions by 50 % in comparison to traditional in-store purchasing of groceries. More importantly, they can assist in flattening the curve and controlling the spread of COVID-19 – and ultimately that’s what really matters.

 

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