An Analysis of Online Grocery Last-mile Delivery Models

Open Access
Wang, Jieru
Area of Honors:
Supply Chain and Information Systems
Bachelor of Science
Document Type:
Thesis Supervisors:
  • Robert Alexander Novack, Thesis Supervisor
  • John C Spychalski, Honors Advisor
  • online grocery
  • supply chain
  • last-delivery
The online grocery industry has evolved many times because of the evolution in technology: first changed about sixteen years ago by broadband internet and recently by the wide accessibility of smartphones. However, one thing remains the same: the challenge all online grocers face during last-mile delivery. Without addressing this challenge properly, it is hard to run a sustainable operation and remain competitive. Webvan could not overcome the last mile challenge and failed after two years; Peapod operates on a hybrid model to reduce delivery cost and stay in the business after twenty-seven years. The Last-mile model is crucial for all online grocery retailers. The purpose of this thesis is to analyze different viable last-mile models and understand the criteria that suit each model, specifically Pure Play, Hybrid, Intermediary and Fast Gratification. The Pure play model is best to operate in high customer density areas at a regional scale. The Hybrid model works well for brick and mortar grocery stores as a competitive differentiator; but once the volume reaches a higher level, it should invest in a distribution center to avoid disruption from picking congestion. The Intermediary model requires relatively low initial investment, and therefore has a low barrier to entry. Lastly, the Fast Gratification model can provide high service level delivery in a short delivery window, but the high fixed and variable costs require this model to be used in combination with other models.