2706. On the economic performance of e-grocery delivery: growing profitable or die trying?
Invited abstract in session MC-55: Network Optimization 3, stream Network Optimization.
Monday, 12:30-14:00Room: Liberty 1.09
Authors (first author is the speaker)
| 1. | Jan K. Strackbein
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| Chair of Logistics and Supply Chain Management, University of Mannheim | |
| 2. | Moritz Fleischmann
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| Chair of Logistics and Supply Chain Management, University of Mannheim |
Abstract
Industry experts and scholars commonly consider grocery home delivery (e-grocery) in developed economies as unprofitable. Nevertheless, both the number of companies offering e-grocery services and the share of online grocery sales continue to grow. In this study, we investigate the interplay between growth and profitability in e-grocery services. To this end, we develop an analytic model that captures the key profit drivers and evaluate it using publicly available real-life data. At the core of our model is the economic structure of the delivery operations. We consider a two-echelon distribution network, reflecting a commonly observed fulfillment strategy, where orders are assembled in a central fulfillment center (FC) and delivered by trucks to transshipment hubs. At these hubs, larger order batches are broken down and delivered to customers using smaller delivery vans. We use continuous approximation to assess delivery distances in such a network and determine the profit of a given FC. We derive analytical results on the level of an individual service area as well as on a system level, considering a growing number of orders and their spatial distribution. In this process, we identify and discuss internal and external constraints that limit the systems’ growth potential. Finally, we calibrate the model by conducting numerical experiments based on real-world data to quantitatively assess conditions under which e-grocery services can achieve profitability.
Keywords
- Network Design
- Logistics
- E-Commerce
Status: accepted
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