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The Small Retailer’s Survival Guide – Part 5 – Home Delivery Costs

As part of a series of articles on how to survive as a small retailer, this article and the article that will follow are about how a small retailer can set up a home delivery service

Home delivery was once the preserve of large department stores and some small local retailers. Now, thanks to the internet and improved global logistics, virtually anything can be delivered to anywhere. Does the fact that home delivery is now commonplace mean that small retailers should not bother with it? Well, of course, most small retailers didn’t deliver in the first place, so will they be jumping on a band wagon that is already overloaded? Possibly. However, the costs of setting up home delivery may not be as overbearing as you may at first think. It may be worth at least considering the idea.

Perhaps, if you never made home deliveries in the past, you should consider making them now. And if you have always delivered, I would recommend that you try to continue the service. The fact that many others are doing it does not mean you should stop. They are doing it because there is obviously a demand for it. If others are offering home delivery then, if it is viable, so should you. Many small retailers are certainly on the ropes these days, but when it comes to delivery then I believe that the best form of defense is attack. The fact that others are doing it means you need to at least consider competing. The next article in this series looks at the benefits – and the pitfalls – of home delivery. This article considers the costs of setting up such a scheme.

Analyzing the Costs and Benefits: The decision of starting (or continuing) a delivery service must, like all business decisions, be made using a proper cost/benefit analysis. What are the capital and revenue costs involved? What are the benefits? The costs calculation may be fairly straight forward but the benefits less so. If you cannot arrive at a reasonable estimate then you may need to carry out a trial.

Costs: Firstly consider the outlay and running costs for the vehicle. Do you need to purchase or lease a vehicle to do the job? If you do you might have trouble justifying the project. After 5 or 6 years a delivery van will start to cost you serious money in maintenance and repairs. Even though it can be a capital cost, think of vehicles as more of a revenue cost, a week to week drain. Just amortize the purchase cost over 5 years to work out the true revenue cost of purchasing a van. If you intend to lease, then this aspect is already worked out. Add to this the running costs, which for a vehicle can be considerable. I will make a rough and ready prediction here and now: if you purchase or lease a vehicle for the sole purpose of making customer deliveries then it will not pay. Think of another way. What you must try to do is sweat your assets. A delivery vehicle that gets a run out, say once per day, is not earning you money for the rest of its time. It’s like taking on a new staff member on a full time wage, but only having them work 12 hours per week. There are various ways of making fuller use of a vehicle:

Share the delivery service with others: if you are a food grocery store and wish to deliver to some of your customers, then ask the other nearby stores if they would also like to take part in the scheme and send their goods out to customers on your vehicle and share some of the costs. Alternatively you could piggy-back the video rental delivery van and simply pay them a modest standing charge or pay for each delivery. Of course, many jurisdictions have regulations governing the manner in which foods and non foods, cooked and raw foods, foods and drugs etc should be separated. You must also take into account the need to keep certain products refrigerated. You may need to use a cool-box or roll cage cover in order to keep products at the right temperature in a van with an ambient temperature. There are also regulations in some areas about who is authorized to handle certain goods such as drugs, alcohol and cigarettes. So make sure you check first.

Use your own vehicle: Once again, attention must be paid to the needs to protect foods and other products from contamination or temperature abuse. If you can transport the goods using your own vehicle and not violate any regulations and you can ensure the products are well protected, then why not do it. At a swipe you have a delivery service with no capital outlay. You may also be able to persuade your own staff (if you have any) to drop products to customers’ houses on their way home where the route fits the direction of their journey. Even if you have no staff, you probably need to travel to the wholesaler, bank or your favorite aunt on occasion. Try to use the vehicle for more than one purpose on each trip, where this is practical.

Consolidate deliveries by area and time: if your catchment area is spread out quite wide and far, or if the costs are simply too much to afford daily deliveries, produce a delivery guide for your customers that breaks your catchment into zones. Let’s say you identify five local zones. You could deliver to homes in zone A on Monday, zone B on Tuesday and so on. This method will lead customers to expect deliveries on these set days and will help them plan their shopping. It may help to smooth your peaks and troughs in demand and this could lead to improved stocking and ordering leading to less out of stocks and less overstocks/wastage. You could even have just one delivery day a week, with timed and zoned drops through the day. Thus, homes in zone A would receive their deliveries between 9am and 10am, zone B between 10.30am to 11:30am. By having one delivery day, it may pay to hire a van and even a driver to take care of the deliveries for you. Many customers will get to know the delivery day and will plan for it.

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