It can be daunting to produce, market and deliver products. Many food suppliers find that they do not have the resources to be able to expand their delivery area, meanwhile trying to maintain other aspects of their business.
Often, it is very time consuming and difficult to coordinate a number of small deliveries within a week and that there is often a gap between supplier and buyer when it comes to delivery frequencies, minimum orders, and fees. If you’re concerned that your orders are too small to be doing direct delivery, you might want to look into establishing pickup locations!
A pickup location is a predetermined area where a buyer is able to go to collect the items they have purchased from your business. A pickup location could include a store, warehouse, or restaurant. These locations can be inside or outside of your current delivery zones dependent on your capacity. Introduction of pickup locations also allow you to be able to sell your product in multiple locations and serve multiple customers from one physical location. It can broaden your distribution area by reducing the amount of deliveries per certain region.
When determining what types of distribution are best for your business, it is important to determine which types are feasible for you. Direct delivery is a good service to be able to offer your customer-base, it is not always an option for everyone.
Here are four steps in deciding if direct deliveries are feasible for your business:
1. Determine your distribution needs
This step is relevant to determine what your direct delivery capacity is and the frequency required for delivery. Do my customers specifically need direct delivery? How many of customers want direct delivery? Can I offer this service? Determining your logistics is important when understanding what the best distribution will be your for your business.
2. Calculate your minimum order value (MOV)
Calculating a MOV allows you to be able to determine what the minimum order needs to be, while also ensuring that the cost of distributing your product is not too high. We have posted a previous blog post that outlines how to do this for your business.
In the post, we used the example of the cost on the road to be 80$/h, which resulted in the order minimum for that business to be $213 per customer. This value took into account a margin of 25% and the capacity of making 3 deliveries in an hour.
3. Is my minimum order value feasible for shipping to my customer base?
Determining feasibility for shipping to your customer base is dependent on who your customers are. For example, if the MOV of a business is $213 per order and the main customer base are restaurants who make an average order of $600; the MOV is very appropriate. However, if the customer base are households who make an average order of $60, the MOV is unsuitable.
4. Are deliveries feasible?
Ask yourself, does it make sense for my business to provide door-to-door shipping for buyers based on my MOV?
If direct delivery is not an option for you, it is very efficient to have fewer delivery points and to have your customers to come to you. A pickup location brings the product a little closer to them, but also is a lot closer to you. This will reduce your transportation costs significantly and free up time that was currently used for direct deliveries.
So, how do pickup locations save me money?
Let’s use the sample business model from the MOV blog. Just to refresh, these are our numbers:
- The cost on the road is 80$/h
- The breakeven point is $320
- The target net profit is $80
- The truck is able to make 3 direct deliveries in an hour
- The minimum order quantity (MOQ) is $640
Therefore, based on the model, your business would make 24 deliveries in a day (3 deliveries/hour x 8 hours = 24 deliveries/8 hours) with an MOQ of $5120 and a net profit of $640/day.
If at one pickup location you were able to deliver two customer orders, you would be able to make 6 deliveries per hour instead of 3. This would reduce your time on the road by 50%, saving you $320 per day (4 hours x $80/hour = $320 saved).
The amount of money you saved is entirely dependent on your business and transportation plan, but it's evident that by introducing pickup locations you have the ability to service multiple customers in one place.
The example used above only delivered two customer orders per pickup location, yet this can be scaled up to your capacity and allow you to service many more customers.
Optimize profitability on all of your delivery orders.
Download our Minimum Order Calculator to calculate hourly distribution costs, your break-even point and target profit and more!
Nina Galle is Local Line's Content Marketer, creating blog posts, templates, free tools, and other helpful resources for local food suppliers.