Some maths on home delivery

The supermarkets have a £5bn problem and growing with on-line groceries. The problem is that they charge £5 for each delivery and it costs them £15 to £20 to make the delivery.

If they don't go on-line, then they lose market share and buying power. If they do go on-line, then they cannibalise their own profitable sales.

If you are a supermarket making a 10 per cent margin, then you need to sell more than £100 of groceries to break even on each home delivery order. A £200 order is effectively cutting your margin in half to 5 per cent.

Is this good news for local shops? Probably not. Hundreds of thousands of shoppers are being trained to buy in a way that destroys retail margins.

The supermarkets are also having to open local shops themselves. This helps reduce the turnover from their larger - and most profitable - stores by around 5 per cent. It sounds toxic. Avoid moving your business into the same space.

Comments

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