Dive Brief:
- Tractor Supply saw a double-digit increase in delivery volume for the quarter that ended March 28 compared to the year prior as it boosts its final-mile capabilities, EVP and Chief Supply Chain Officer Colin Yankee said on an earnings call Tuesday.
- Tractor Supply's final-mile delivery initiative involves standing up hub locations, which bring drivers and inventory from different facilities together for deliveries to nearby customers. Yankee said the retailer established about 200 final-mile hubs last year and plans to open up 176 more this year.
- Scaling up the program is helping Tractor Supply lower its cost per delivery while meeting customer demand, according to Yankee. Customers are particularly leaning on Tractor Supply's final-mile capabilities for larger order quantities, he added.
Dive Insight:
Tractor Supply's final-mile push is one of the key levers behind the retailer's recent growth in its digital business, President and CEO Hal Lawton said on the earnings call.
"In final mile, we're scaling our delivery network, adding hubs and increasing delivery volume, supporting the continued strength in our digital business while improving efficiency and reducing our cost to serve," Lawton said.
The retailer continues to rely on delivery partners for small and medium-sized items, while its own employees will focus on delivering larger and bulkier items, Yankee said. When the initiative was first announced, Yankee said Tractor Supply aimed to deliver up to 95% of large-item orders itself. Delivering large and bulky orders via carriers like FedEx and UPS can trigger various surcharges, adding pressure to shippers' transportation budgets.
"We'll go put a final-mile delivery hub in and all of a sudden, we'll see 250 bags of shavings get ordered, 75 16-foot fence panels, just these big orders that nobody else can deliver at scale nationally like we can," he said on Tuesday's call.
Tractor Supply's net sales increased by 3.6% year over year in Q1, with comparable store sales ticking up 0.5%, according to an earnings release. The company's gross margin remained flat at 36.2%, with benefits "offset by higher tariffs and delivery-related transportation costs." In January, Lawton identified “$10-ish million a year” in freight-related savings tied to the final-mile plan to benefit Tractor Supply's gross margin.
