FreshCart is a regional grocery delivery company operating in 14 U.S. metro areas with $420M annual revenue and roughly 11 million orders per year. The company positions itself as a mid-priced alternative to national players, promising same-day delivery with a broad assortment of fresh and packaged goods. Over the last two quarters, EBITDA margin has fallen from 6.8% to 4.9%, and the CFO believes rising fulfillment and delivery costs are the main driver. You are a strategy manager asked to determine whether FreshCart should make a cost-saving operating decision based on a recent variance analysis.
FreshCart’s finance team completed a monthly variance review comparing actual costs versus budget and versus prior year. The largest unfavorable variance appears in the last-mile delivery cost per order, but leadership is split on the cause. Operations argues the issue is temporary fuel inflation. Commercial leaders believe aggressive expansion into low-density suburban zones is creating structurally unprofitable orders. The CEO needs a recommendation within two weeks because the company is finalizing next quarter’s operating plan and marketing spend.
| Metric | Budget | Actual | Variance |
|---|---|---|---|
| Monthly orders | 920,000 | 950,000 | +30,000 |
| Average order value | $38.50 | $37.80 | -$0.70 |
| Delivery cost per order | $6.10 | $7.05 | +$0.95 |
| Picker labor cost per order | $3.20 | $3.28 | +$0.08 |
| Contribution margin per order | $4.40 | $3.05 | -$1.35 |
Additional operating detail:
As the strategy manager, prepare a recommendation for the executive team:
