The Operational Impact of Customer Location in On-Demand Services

The rapid growth of on-demand delivery services, particularly in the food and grocery sectors, has driven the expansion of hyperlocal fulfillment centers (FCs). This paper uses data from an on-demand grocery delivery platform in Latin America to assess how customer location influences purchasing behavior and operational efficiency. We examine how service quality varies with customer proximity to FCs and how purchasing behaviors are affected by the distance from these centers. Our analyses show that customers farther from their assigned FCs purchase less frequently and have higher service abandonment rates. We also observe that these location-dependent behaviors lead to a higher proportion of first orders than repeat orders in areas farther from the FCs, reflecting a decline in service usage due to lower service quality.
Our findings highlight the critical role of customer location in determining service quality and its operational implications for retailers. If unaddressed, these dynamics could lead to a "coverage area shrinking effect," where geographic order density concentrates closer to FCs, which can reduce the effective coverage area size over time. We discuss the broader implications of these findings for other settings where customer location influences service quality, a scenario that is increasingly prevalent.