Photo: Giant Foods
Giant Food cuts delivery and pickup fees as online biz soars
Giant Food last week did away with the $2.95 fee it was charging customers to pick up their online grocery orders at 159 of the supermarket chain’s stores.
The Ahold Delhaize division is looking to fulfill orders within four hours of them being placed online. Giant saw its online business take off in 2021 with over three million orders fulfilled.
“Ecommerce demand continues to escalate as more customers discover the time-saving benefits of online shopping at Giant,” Gregg Dorazio, The chain’s director of ecommerce, said in a statement. “Free pickup on all orders makes this personalized service even more accessible. What could be more convenient than letting our trained associates do the shopping for you? We guarantee 100 percent satisfaction. Our customers can count on us to select the freshest foods.”
Giant Food in September eliminated minimum dollar requirements for pickup orders.
The chain also ended fees for deliveries made Tuesday through Thursday and cut its delivery charge in half to $3.95 for Friday to Monday orders. Minimum order requirements were cut to $30 from $60.
Mr. Dorazio said at the time, “We are at the forefront of this growing space and believe lower delivery fees and order minimums will make these convenient services even more accessible to consumers.”
Being accessible extends to Giant’s SNAP (Supplemental Nutrition Assistance Program) customers who can place online orders for delivery or pickup and pay using their EBT (Electronic Benefits Transfer) cards.
Giant is also part of the growing number of retailers turning to third-party marketplace sellers to extend their product selection and reach.
The chain launched the Ship2Me marketplace in December to offer a wide variety of products not found in its stores. This includes health and beauty, home décor, kitchen and dining, outdoor, pet, premium pantry and seasonal items. Ship2Me orders do not have a minimum purchase and ground shipping is free. Customers who are members of Giant Flexible Rewards earn points on Ship2Me purchases, which can be redeemed for grocery or gas savings offered by the chain.
“We are always looking for ways to give time back to our customers and make our services more convenient and accessible,” said Mr. Dorazio. “The introduction of Ship2Me allows Giant to expand its assortment within traditional and nontraditional grocery categories, making it the most seamless one-stop-shop for our customers.”
- Giant Food Now Offering FREE Pickup, Bolstering Efforts to Help Shoppers Save Time and Money – Giant Food
- Giant Food Offers FREE Midweek Delivery and Reduces Online Order Minimums to Save Customers Money – Giant Food
- Giant Food Announces Launch of Ship2Me Digital Marketplace; Endless Aisles will Provide Customers More Online Options than Ever Before – Giant Food
Discussion Questions
DISCUSSION QUESTIONS: Will Giant Food’s strategy of cutting minimum orders and fulfillment fees help the chain substantially increase its online business? What effect will the Ship2Me marketplace have on the Giant’s business?
Poll
Loading …BrainTrust
Richard Hernandez
Merchant Director
John Karolefski
Editor-in-Chief, CPGmatters
I am sure the cut will be popular with consumers, especially at a time when inflation is skyrocketing. It will also help Giant compete more effectively and retain and grow online market share. What it does to the bottom line is another matter. Online fulfillment – from picking to packing to distribution (if delivering to home) – is expensive and too many grocers do not recoup the full costs. Perhaps Giant can bury the extra cost in inflationary price rises. Perhaps not.
Despite the long existence of grocery delivery business models (Peapod was founded in 1989!) there’s still a lot of pushback on the “how fast do you really need it?” dimension. There are still many issues to be resolved in “last mile” but it seems to be inevitable, as everyone’s time, expectations, and convenience quotient have moved in this direction. This is a move that will reduce the resistance for many shoppers, and is likely to increase usage – or at least familiarity. As with all business model adjustments, Giant Food will have to find a way to shift the cost of the service from “per use” fees to “baked in” costs. There is no free lunch, even if they deliver it without a fulfillment fee.
This is a good deal for customers, but in the long run how do you compensate for the loss in revenue? I am curious to see how long this will last..
You’re absolutely right, Richard Hernandez. The bottom line must remain just as positive as the consumer experience or it is an unsustainable strategy.
Whichever retailer can conquer the last mile and deliver a consistent, affordable, quality experience will cross the finish line first. This is a great step for Giant’s business as they look to solidify their relationship with their customers and build loyalty. Is it a sustainable strategy? Time will tell as labor costs and workforce challenges continue to disrupt the retail supply chain — not to mention inflationary pressures.
When costs to the consumer drop in any business, it attracts business. No surprise. The strategy is to improve customer attention and business. We all know you can buy customers, but be careful of the price you pay, and be aware of others jumping into the race.
Mr. Dorazio is absolutely correct. “Ecommerce demand continues to escalate as more customers discover the time-saving benefits of online shopping at Giant.” He is not only following the trend that Giant is seeing, he understands why online is the future. It is all about the customer and convenience.
Is Giant continuously looking at ways to offer more and more convenience to shoppers?
Of course, you want to talk about how good this is for the relationship to the customer. But the one thing that isn’t mentioned is critical mass. As volume increases, with dedication to the future, critical mass feeds the bottom line. I am confident that the increase in revenue from online is growing at a much faster rate than the costs and that is one of the reasons Giant can make these changes.
Mr. Dorazio discusses the impact of the changes but interestingly does not discuss the impact on profits from the changes made or the potential impact from those just being put in place. Hopefully this is not a case of sales being up while profits are down.
Certainly the elimination of pickup fees and lowering of minimum order thresholds will be perceived positively by shoppers, but will the math work long term? For all the hullabaloo about BOPAS during COVID-19, its profitability is questionable and many retailers are still trying to figure out the right mix of fees. Applying some simple math and assuming relative stability in dynamics, ditching the $2.95 pickup fee (and only the pickup fee) at 3 million online orders per year and a BIG assumption that 50 percent are for pickup at the store, this would mean Giant would have to generate roughly 2.5 more BOPAS orders per day per store in order to recoup these fees. Can this be done? Certainly, but mix in the other variables and the equation gets a little more complex. That said, I applaud Giant for testing/trialing to find the right mix of fees for their operation. They will find the optimal mix.
Low or no cost delivery is becoming the expectation, just as “free shipping” is now an expectation. The price of the food (or any other product) has a delivery fee built into it. Otherwise, the concept of free or very low cost delivery is not a sustainable business model.
I think the real story here is how Giant Foods is simplifying its customer experience as it relates to fulfillment, pickup and delivery. Whether consumers could have afforded it or not previously, having so many variables for consumers to keep up with regarding if and when they’d be charged for pickup and delivery is overwhelming. No one really wants to have to keep up with that.
All things being equal, cutting minimum orders and fulfillment fees will cut into revenue. But I’m willing to bet this simpler experience will drive more consumer loyalty to more than make up for that.
Giant Food is proving that scale happens. When a van goes out to a neighborhood carrying just three grocery orders, the delivery cost per order is uneconomical. When the same van carries, say, 20 orders along the same route, the cost per customer is slashed. If the same van also carries ride-along orders from the Ship2Me marketplace sellers, the incremental cost to deliver falls toward negligible levels.
It would appear that Giant Food recognized it is approaching a tipping point with respect to its cost to serve digital shoppers. It has cultivated know-how among its in-store fulfillment workers, and stress-tested its practices. With digital order volumes climbing, now is the time to make its services compelling to even more shoppers. Its actions will ensure increasing economies of scale and put enormous pressure on competitors.
Customers have always been reluctant to pay fees for online order deliveries. Eliminating them will absolutely increase the online business. Time will tell if it is worth it.
The cost of handling to support many of these unified commerce services has been a constant issue. As these services have become more in demand, we’ve seen a ton of innovation that has enabled many retailers to become far more efficient. This will continue. I’m not a big fan of extending those services to products and suppliers outside of a retailers primary business. I think there is risk of muddying the brand and losing focus on their core value prop with their customers.
I can understand cutting fees on pickup in-store, since that is a convenience and it can drive traffic to the store for additional items. Given increasing fuel and labor costs delivery isn’t going to be cheaper any time soon, so I don’t see where the margin is unless the online price is higher than the store price.
In this case, the removal of pickup fees increases pickup, reducing delivery fees. The costs for delivery require pick and pack plus shipping. Whether it’s a loss of revenue or not, it still driving lower overall costs by encouraging pickup. Should have been done from the start. The effort won’t necessarily help online business, but it will help online business costs, especially if a percentage of customers decide to enter the store for add-on purchases.
Ship2Me expands into the marketplace space which is still a wild west opportunity, but given that there are few grocers (outside of Walmart) in this space, it’s an ideal space for experimentation and leveraging product sets not found in Giant stores. Both good moves by Giant.
I would urge grocery chains to examine the effect that online commerce has on the store. Associates who are picking multiple orders at a time can block shoppers’ access to merchandise they want to buy. This is going to get even more annoying going forward.
I think this strategy will help Giant Food acquire more customers and ensure improved customer engagement. Gone are the days when retailers had full control over customer behavior and they were the ones to introduce new products and concepts to customers and the community at large. But in this new retail era, customers are the sole decision-makers of whether or not the products best suit their needs, thereby disrupting the traditional ways of order and fulfillment processes. Giant Food, therefore, is trying to tap these customers and inspire them to pursue their brand by abandoning old mindsets of retailing and offering improvised retail experiences like eliminating costs on fulfillment and minimum orders
Many pros and cons here as noted in the discussion. Sales volume can help delivery costs but also further clog aisles with associates picking orders.
Capturing more online sales may generate more store trips and greater share of wallet. Spending is often widely distributed by even “Top” shoppers.
Some shoppers still want to personally pick out certain items on their own. Could be an overall share gain through capturing more online business that results in more customers visiting the store.
The comment that stands out for me is, “What could be more convenient than letting our trained associates do the shopping for you?”
It’s not just about convenience. There’s another level of value here.
Some shoppers want a trained person to select their produce. Typically younger shoppers. A great target for a supermarket. Suggesting added value through the use of “trained” and then diminishing that value through no fees for this extra level of service is inconsistent.
If you invested in associate training and have associates who can pick fresh items better than customers can, that service should have value. For many, selecting fresh produce or selecting among produce options is as vexing a task as picking a decent wine. Produce sommelier has a nice ring.
Some potential upside. Some pain to get there. Credit to Giant Food for competing with gusto.