Undercharged deliveries cost supermarkets €415mn every year

By running their online businesses unprofitably, supermarkets in the United Kingdom are losing around 300 million pounds (418 million euros) every year, new figures have revealed. Instead of charging consumers a fair fee for delivering groceries at their homes, supermarkets are losing 3 to 5 pounds fulfilling each home delivery.

When you take into account all costs like distribution, wages, marketing, fuel and vehicle leasing or maintenance, the total cost of fulfilling an average £100 online order when the groceries are picked from store is between £28 and £30. That’s what management consultancy Kurt Salmon found out for Retail Week.

‘Each home delivery costs them £3-£5’
But at the same time, supermarkets are making an average gross margin of £25 of every £100 order. This means each home delivery costs them between 3 and 5 pounds. With around 90 million home delivery orders that are currently places in the United Kingdom every year, that means supermarkets are losing about 300 million pounds a years from their online businesses.

Kurt Salmon also found out that the actual cost of delivering an average £100 order to a customer’s home, was between 8 and 9 pounds, while supermarkets generally charge between 1 and 6 pounds for home deliveries.

‘Fear of creating another cost-additive channel’
And now there are voices saying supermarkets should stop under-charging for deliveries, because it will destroy the market. Robbie Feather, online director at Sainsbury’s, accused British food retailers of stripping most of the value out of the channel by trying to out-do each other on fulfilment costs charges to customers, Retail Week wrote last week. “As an industry, we have to be quite careful as what we do there because there is a danger that we just create another cost-additive channel in our businesses, ultimately diluting profits by not charging for the service. That’s something that we’ve got to learn to do – charge for these amazing services we offer our customers”, he said.