Travel and E-Commerce site
Travel and E-Commerce site

High logistics costs threatens delivery service startups

I was reading through an article about grocery delivery service and I was able to relate a lot from the article simply because I’m leading Bigbag Fresh, a grocery delivery service in Pampanga, at the moment. For the past three months since we started operating the business the cost of logistics is the number one concern of the business due to high delivery costs. A delivery service requires that you secure a motorcycle fleet, pay a driver on a daily basis along with his benefits, pay for the motorcycle’s maintenance, permits and fees from the government, and pay for petrol. All these eat up the meager income you get from the items sold on the website. All these factored can somewhat get the business spiralling down if the company’s finances aren’t managed well.

The online grocery delivery service is a promising industry because of the changing buying habit of consumers today. The traffic and stress brought about by increasing cars on the road and an increasingly busy lives of people are driving people to eat fast food instead of cooking their meals at home. Online grocery delivery promises to change that, however at a cost.

Many companies including the ones in the US are feeling the heavy financial bouts brought by high costs of logistics. It makes a lot of sense even though we see just how food delivery service are thriving on all corners of the e-Commerce world but they are not all immune to the curse of logistics. Additionally, logistics is not an exact science and delivery time and date can change depending on many factors including customer’s indecisions or requests, accidents on the road, or accidents involving the drivers themselves while on the road, among others.

Delivery costs are not the only one that’s being considered here but also the food perishability. Fresh goods such as vegetables, meat, seafood, and fruits are highly perishable. Ice creams can be particularly challenging to deliver because they melt fast. For small startups it can be particularly challenging because it won’t make sense to hire a refrigerated van just to deliver a single pint of ice cream to one customer unless you plan a scheduled delivery date where 10 orders on a single area are delivered as dictated by the business itself. But time is of the essence and customers nowadays do not appreciate this kind of delivery system simply because there are other businesses that offer same day delivery further increasing the threat to other startups who operate and not backed by million dollar funding making the entire delivery process complicated, costly, and unsustainable in the long run forcing your margin to go down the drain and leaving you with a huge debt with government tax collectors eagerly waiting for their share to boot.

Another unique problem we face in the Philippines in particular is the sorry state of our Internet. Our internet speed is among the lowest in Asia and Internet penetration is low. Grocery delivery or e-Commerce adoption as a whole will not be at a satisfactory rate if there is a huge internet infrastructure bottlenecks that we cannot resolve as a country.

Grocery delivery companies like Bigbag Fresh in the Philippines also considers the cost of maintaining a website along with the costs associated with hiring a web developer and designer and graphic artists who will take care of regularly updating the website making sure that’s it’s running smoothly. But while that is given, the real costs is really tied up to delivery itself because that’s where all the action is in this kind of business especially if you do not have a sound delivery network to back up your day-to-day operation.

The industry is young and many people are yet to find the service useful as they consider the cost associated with traffic, commute, and lining up in grocery stores. For now, we’ll continue to see how it will evolve from here.

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JM Mariano