The hidden impact of micro retailers’ survival rate on the logistics cost of consumer packaged goods companies

Abstract

Millions of mom-and-pop stores represent 40-70% of the market share of Consumer Packaged Goods (CPG) companies. Many of these stores are located in megacities in developing countries, cities over 10 million people, where characteristics such as traffic congestion and a dense population make the last-mile delivery process very complex. Therefore, the CPG companies that achieve efficient logistics to reach these stores will have an advantage over their competitors in terms of being top global retail players. However, many mom-and-pop stores disappear in developing countries every year due to poor productivity performance, while others appear due to low barriers of entry. Overall, the number of mom-and-pop stores keeps growing. In this capstone, we study the impact of the dynamics of their appearance and disappearance on the logistics costs of a distributor company that gets supplies from CPGs and delivers directly to mom-and-pop stores in Mexico City. We use cost-to-serve estimations and continuous approximation models for routing to show that by improving the survival rate of mom-and-pop stores, CPGs may avoid loses in transportation costs of up to 31%.