UK Driver Shortage: How Grocers Could See Increased Profits

The U.K. Driver Shortage and the Future of E-Grocery Delivery

The present driver shortage within the United Kingdom underscores the inherent instability present in the logistics of e-grocery home delivery services. Despite the expanding size of the e-grocery market, a lack of available drivers could initiate a significant shift in consumer behavior within the U.K.

Rising Delivery Costs and Shifting Preferences

Both initial and final stage delivery expenses are projected to increase, with the last mile representing the area where consumers will likely experience the most substantial price adjustments. The precise extent of these increases remains uncertain, but the situation could herald a re-evaluation of last-mile delivery preferences among U.K. e-grocery shoppers.

Consequently, click-and-collect pickup options may become considerably more prevalent. This development presents a potential advantage for grocery retailers possessing established store networks.

The Value of Brick-and-Mortar Stores

A physical store network, often viewed as a liability during the surge in e-grocery demand, could prove to be a valuable asset in this evolving landscape. These retailers are uniquely positioned to offer click-and-collect services both efficiently and profitably at scale.

A Historical Perspective on Delivery Options

Traditionally, the U.K. e-grocery market has favored home delivery, frequently offering exceptionally low delivery prices to attract and retain customers. Furthermore, “quick commerce” services, delivering small orders rapidly – sometimes within fifteen minutes – have gained traction.

These rapid delivery options are often supported by venture capital and may operate at a loss to secure market share.

The Economic Viability of Home Delivery

All home delivery customers, regardless of their shopping frequency, rely on maintaining low last-mile costs to ensure the long-term economic sustainability of the service. The critical question is determining the price point at which consumers will deem home delivery unaffordable.

The pandemic-driven expansion of the market has inevitably attracted a larger proportion of price-sensitive consumers. U.K. grocery retailers are already attempting to address this with offerings like annual free delivery passes, but the driver shortage may necessitate a reassessment of the profitability of such promotions.

Global Trends in E-Grocery Fulfillment

Recent price increases by Amazon for Whole Foods home delivery in the U.S. suggest a potential broader correction in the global e-grocery home delivery market. Internationally, home delivery isn’t as dominant as it is in the U.K.

For example, in France, a nation of comparable size, drive-thru and in-store pickup are the preferred methods. In the U.S., click-and-collect surpassed home delivery as the most popular last-mile option in spring 2021.

Sweden's Approach to High Labor Costs

Sweden presents a similar case study, with click-and-collect exceeding home delivery in popularity by late 2020. This trend is linked to historically high labor costs, even prior to the current driver shortage.

Supermarket associate wages in Sweden begin at £25 per hour, placing the country at the forefront of global labor cost rankings. Even minor cost increases can quickly erode profitability in such an environment.

The Role of Temperature-Controlled Lockers

Sweden has embraced temperature-controlled grocery lockers for click-and-collect, a solution that remains relatively uncommon in the U.K. These lockers allow for unmanned order pickup, eliminating the need for staff interaction.

Integration of smartphone-based age verification systems further enhances efficiency. Crucially, Sweden is effectively utilizing existing assets – stores and personnel – to deliver these services.

Implications for Different E-Grocery Players

Should the U.K. shift towards a larger click-and-collect market, pure online players and e-grocery technology startups will face the greatest challenges in serving these customers. Conversely, grocery retailers with brick-and-mortar stores are well-positioned to gain market share quickly and profitably, as click-and-collect is less expensive to provide.

Paradoxically, the rising prices resulting from the current driver shortage could create a more lucrative e-grocery opportunity for British retailers by incentivizing a transition from home delivery to click-and-collect.