August 7, 2024
©macniak via Canva.com
Is Free BOPIS Worth It for Grocers?
A university study concludes that the common grocer offering of BOPIS (buy online, pick up in-store) for free is a money loser given the significant labor requirements.
The researchers, led by Marshall Fisher, a professor in the Department of Operations, Information, and Decisions at the University of Pennsylvania’s Wharton School, teamed up with West Monroe Partners, an IT consulting firm, to explore the labor required — “from the point a procured product arrives at a retailer’s distribution center to the moment it lands in the hands of a customer” — to support different delivery modes for a typical online order of 20 units across 15 SKUs.
The study found that the traditional shopping trip method of customers picking up items in-store, paying for their purchases at a cashier, and bringing them home required 30 minutes of retail labor.
In comparison, a BOPIS order requires:
- An extra 27 minutes of retail labor for items gathered from the store’s sales floor
- An extra 17 minutes for items collected from a store backroom
- An extra seven minutes for items assembled from a dark store
These numbers are even higher for curbside delivery. The researchers concluded that with the service often offered free of charge, it’s “doubtful retailers make any profit” from either in-store or curbside pickup as it “more than doubles labor requirements and destroys all profit.”
Significant labor inefficiencies were also found around home delivery across distribution methods. Traditional in-store customers were seen “effectively subsidizing online grocery services.”
After engaging in conversations with 15 senior grocery retail managers spanning 10 countries to explore staffing and wage pressures facing grocers, Wharton’s study identified three go-forward models for grocers:
- Double down on the traditional in-store model: Offering Trader Joe’s as an example, researchers noted that the limited-assortment grocer recognizes it “cannot be everything for everyone” and forgoes online to emphasize in-store selling. Researchers wrote, “Trader Joe’s is known for its excellent in-store shopping experience and easy-to-find, helpful store associates, which enables it to ‘just say no’ to offering an online option. Also, its stores are a bit small, so adding an army of online shoppers to the mix would erode the in-store experience.”
- Make online customers pay extra: Stores like Wegmans outsource BOPIS and home delivery to Instacart, which charges 15% higher product prices on average and service fees to offset labor costs. Wegmans’ large stores can also handle the extra traffic of Instacart shoppers. Wharton’s study states, “The Wegmans approach has the advantage of being minimally disruptive because you hire others to do the heavy lifting and charge customers to cover their costs.”
- Become more efficient at online: Walmart’s Market Fulfillment Centers (MFCs), which are co-located with hub stores in major cities that assemble customer orders for curbside pickup, require only 42 seconds more labor than traditional in-store shopping to offer the best current option for curbside pickup. Automation and scale economies promise to further improve efficiencies. Researchers wrote, “Walmart is known for being good at store operations and technology but not known for providing a great in-store shopping experience. Thus, its approach of using its technical skills to provide free online shopping makes sense in that it transfers some customer demand from stores to online.”
Recent articles and studies have detailed online grocery’s profitability challenges amid wage and fuel inflation. Analysis from Statista of various models of online grocery found only automated micro-fulfillment center click-and-collect online grocery to be profitable, with a margin of 2%.
BrainTrust
Gene Detroyer
Professor, International Business, Guizhou University of Finance & Economics and University of Sanya, China.
Ryan Grogman
Managing Partner, Retail Consulting Partners (RCP)
Georganne Bender
Principal, KIZER & BENDER Speaking
Recent Discussions
Discussion Questions
Do you agree that in-store and curbside grocery pickup won’t scale without fees or charging higher online prices versus those in-store?
Are most other current online grocery methods, including home delivery, also likely too labor-intensive to scale under current fee structures?
What do you think of the three go-forward grocer models proposed by researchers?
Poll
Loading …
This is a great way of winning market and customer share. The problem is that it is also a great way to lose profits. While collection from store is cheaper to service than delivery to home in grocery, it still comes with a lot of costs attached. Servicing an online grocery order requires picking and packing many items, which is usually done by hand and is extremely time consuming. If there is no additional charge for this then it saps margins. And keep in mind that grocery margins for shopping in store are only 3.6% on average. So there’s not a lot of room to accommodate these additional costs.
I agree. All is not hopeless here. What other services can you offer, that will make the revenue to invest in free BOPIS for your business?
According to FMI, the profit margin is now at 1.6% for grocery. So clearly there has to be a way to pay for some of the costs or it is a drain on what little profit exists.
The 3.6% is for store based grocery only – so sales to people who come to store. Once you factor in online grocery, that likely takes the margin down further.
There is one more approach that’s a blend of Walmart’s automation and Trader Joe’s limited assortment. Sell online what shoppers want to buy online and do so with the support of automation.
Online purchases are larger but of a limited assortment and of different item preferences than the same shoppers buy in store. But the retailer model has been to sell the store online. That’s a miss. And fulfilling from store means out of stocks, substitutions, high costs and missed delivery times. Disappointing both in store and online customers.
Focus on building an efficient online business based on online sales. Support with automation where it makes sense. You could end up with a more profitable business by eliminating the costs of store as distribution center. And online shoppers are typically your best shoppers. Don’t surrender them to a third party.
The short answer is “no”, it’s not a viable long-term business model if the market remains the same. However, many of the grocers are still chalking it up to the cost of doing business and don’t want to lose business to a grocer down the street who offers the service for free. The best ways for grocers to combat this would be: (1) as John Hennessey pointed out: move the online selection to a limited assortment that may lend itself to more efficient picking/delivery, (2) introduce an advanced loyalty program level with a moderate annual subscription price that includes the benefit for free, or (3) slightly raise prices across the board to accommodate the shift in consumer behavior. None of those are going to be received greatly by consumers who have become accustomed to the offering since COVID, but as more and more chains start to back off, then it will become more palatable. It reminds me of the various airline fees that start with one carrier and then propagate across the others shortly thereafter.
The other BOPIS issue is store associates picking orders, while blocking customer access to shelves. This is particularly pronounced at Amazon Fresh, where associates can have two or three active trolleys at a time. Sales can’t be effective if customers can’t reach the merchandise.
Trader Joe’s has the right idea: If it ain’t broke, don’t fix it. And Wegmans is smart to offer the service, but farm it out rather than burden team members with added responsibilities. Shoppers know they are going to pay more for BOPIS at Wegmans and they are okay with that.
You can’t be everything to everyone. BOPIS is a shopper favorite which means it isn’t going anywhere. Once you offer a customer perk it’s really tough to take it away. There will always be some hard feelings. At least for a while.
In-store and curbside grocery pickup are labor-intensive, requiring up to 125% more labor than traditional shopping. Without additional fees or higher online prices, these services can be unprofitable, as highlighted by Walmart’s efficiency strategies and Wegmans’ approach to cost management.
To address these challenges, BOPIS can drive foot traffic and increase in-store purchases. By leveraging online convenience, retailers attract customers who often spend more during pickup. Integrating BOPIS with targeted promotions and cross-selling can further boost sales, making it a valuable strategy for enhancing profitability.
In response to the labor and cost issues, three effective models emerge: Trader Joe’s prioritizes a strong in-store experience, Wegmans offsets costs with higher prices and outsourcing, and Walmart invests in efficiency through automation and fulfillment centers. Each model offers a tailored approach to balancing costs and service quality, depending on the retailer’s strengths and customer base.
BOPIS and curbside pickup are profit eaters, and cannot be offered free of charge anymore.
The easiest solution will be to establish a fee schedule. At first, consumers will kick and squeal, but if they value the convenience, they will accept it.
This is how I view the matter. We pay a fee for almost every convenience we enjoy in our daily lives. A fee is charged when we purchase sports or entertainment tickets online. Whenever we purchase goods online, or through the mail, we pay for shipping and handling, which, in truth, is a fee. We pay a fee when we use the valet parking service at a hotel. Countless examples can be cited.
Consumers who do not wish to pay a fee are always welcome to shop inside the store, select their own merchandise, walk through the checkout, or use self-checkouts, and wheel their groceries to their vehicle. Do you see how a fee might be justified for that process? -Db
Don’t get us started about the online-booking fee. (Too late!) Literally zero human labor, using the same booking engine that humans would at the venue so no additional expense to the agency. They are MORE profitable moving all transactions online even without charging the fee. Glad to see the Feds starting to go after these practices!
This story is short on the flip side of BOPIS. For every suggestion that it costs more, its unclear if those same customers are also shopping the store aisles on weekends and only using BOPIS during the week (or vice versa). In retail, stores that support a customer with convenience during the week likely wins that customers loyalty on the weekend.
Certainly, there are opportunities to tighten the BOPIS belt. The Instacart partnership works well for many grocers but the higher prices and bevy of Instacart fees can be a detourant. And, few retailers can hope to gain the logistical efficiency of Walmart but that doesn’t mean BOPIS is a loosing proposition.
It may be harder to scale BOPIS without some integration of retail automation. The manual pick in stores by employees will always be more laborious. However, if the long game is loyalty and retention then BOPIS, albeit with some technology investments, could prove an effective strategy.
These findings are not at all surprising. Yes, there is additional labor involved to prepare a BOPIS order and someone is paying that cost; the retailer. It is reasonable to assume that there is a perceived value by the consumer in the BOPIS model. If so, it is reasonable that customers will pay a processing fee for the benefit of having the order picked, packed, and staged for customer pick-up. Simple.
This was a very good idea during Covid, but perhaps the idea has run its course. There is no business model that says losing money will work. That said, customers are willing to pay for convenience. The 15% premium for using a companylike Instacart to manage the shopping experience may be a viable model. Perhaps a membership model similar to what Amazon does by providing free shipping for prime customers, could work. Somebody needs to crunch the numbers to see if it’s viable, but that may be the best short-term solution available to retailers who want to continue to offer convenience at this level to its customers.
From the first time I noticed that online orders were being picked off the shelves, I realized it was a convoluted process. The retailer pays for the products to go on the shelves and then takes them off the shelves. Why put the product on the shelf in the first place? The stores were never designed for that type of operation. Yes, a square peg into a round hole. And that doesn’t even include the disruption to in-store shoppers.
The logic of economics tells us that when the customer chooses the convenience of BOPIS or delivery, the shopper saves time. Since time has value, the customer should be willing to pay for the service. However, consumer behavior often doesn’t match the logic of economics. Does Wegman’s have less demand for BOPIS or delivery than those retailers who don’t charge?
The most efficient model is the Walmart model, where in-store shopping and fulfilling online shopping are seen as two completely differnet services, and each is designed specifically for their purpose in the most cost-saving design.
Agree completely. And, shoppers will pay extra for value received. They pay for other services that add value like Instacart, Uber Eats, etc.
Fee for service is one of the few ways to make BOPIS profitable for the average grocery retailer. David Biernbaum’s many examples he cited are spot-on. Consumers are willing to pay an extra fee for convenience, differentiated service, and uniqueness. Look at what consumers pay for speed & convenience for a better airport experience with Clear, Precheck and SkyClub access. Retailers should revisit their spreadsheets and recalibrate their calculus.
Why would a grocer try to scale an absolutely proven money losing service? They won’t. They can’t. It’s now a proven money loser. Charge a modest fee that breaks even on the added service. Let the customer decide. Customers…grow up. Extra services that save you time and money are costing the retailer. Be fair. Pay for the convenience and time saved. And when it’s possible, park your car and grab a shopping cart. Yes, you are an unpaid employee, but’s it’s saving you money at the register.
In the effort to provide differentiated services and extra convenience to customers, BOPIS and curbside pickup have emerged as a new way to drive additional revenues. However, considering that in 2023, profit margins in the grocery industry hit 1.6%, the lowest level since it was 1% in 2019, grocer executives are challenged to drive down the costs to serve and costs of goods sold.
Despite the US grocery market’s increasing revenues, the industry’s operating margins remain from 1% to 2%. This is primarily due to the significant impact of rising operating costs, supply chain disruptions, increasing labor costs, and competitive pressures on the industry’s profitability. Grocers have determined new and innovative ways to drive new revenue streams, including retail media networks. Throughout 2024, the retail media network contribution to the overall business is expected to see a 13% increase in revenue.
However, grocers do themselves a disservice if they do not charge for BOPIS and curbside pickup services. While BOPIS has proven to help drive customer engagement, increase revenues, and provide added convenience, efficiently managing BOPIS operations requires well-coordinated fulfillment capabilities, adequate staffing, and additional technology infrastructure investment.
The business case for charging for BOPIS includes:
- Mitigating the costs to serve: Charging a fee can help offset these expenses, mainly if the service requires additional resources like dedicated pickup areas, staffing, and technological infrastructure investments
- Changing the perception of BOPIS: By charging a fee for BOPIS, this can be strategically positioned as a premium add-on service, with all the convenience it offers
- Enhancing profit margins: Considering the tight operating margins, charging for BOPIS can add a new revenue stream and help to offset the additional costs
There is no “free” BOPIS has a cost, the question is whether to recover it directly, or take it out of margin. The part of the discussion that never seems to come to the surface is that BOPIS runs counter to what Retail marketing spend has tried to do forever – which is get the shopper to cross the store threshold. it’s not really Buy Online Pick Up IN store is it…..its BOPIP (buy online pickup in the parking lot).
Buy online, pickup in the parking lot is the real value. The customer doesn’t have to get out of the car, which is a true convenience and time-saver. If there is real value there, then it should be charged for.
Notwithstanding, the profitability issue noted in the article & highlighted by several BrainTrust members, the future of BOPIS is still dependent on attracting the customer into the store during the pick up process. Data indicates that online/in store shoppers buy more than those who shop only one format.
Plus, the key is to merchandise the store with higher margin impulse items that a BOPIS customer can add to an empty shopping cart. Consumers tend to view shopping cart fullness as a surrogate of spending. Empty carts are good. Such transactions can be used to offset the expense of offering BOPIS.
BOPIS should leave now and never come back. What is the point of an offering that is a margin and profit killer? And just ham many shoppers are availing themselves of this unique opportunity to inflict profit damage on their store of choice?
Just. Kill. It.
BOPIS gained popularity in 2019 but really boomed in early 2020 for obvious reasons. Retailers may have not fully exhausted all options available to refine operations and market this effectively. Perhaps there is room for more experimentation and testing. For delivery there is a sliding scale where there is a fee to be charged and any order value over a certain amount (Walmart+: $50) is free. Wouldn’t there be an opportunity to do the same here with BOPIS. Doesn’t the same economics work in alternative delivery models. So, the suggestion would be to establish the same thing for BOPIS so the small rings would have to pay a fee, but larger purchases would have no surcharge. Overall, I think option two is best, but it may need to be more nuanced.
In the current investor environment of profit-at-all-costs, it’s not surprising that more grocery stores are re-considering the value of unprofitable customers. From what I’ve seen, many brands also offer free fulfillment options with paid memberships (OG Amazon) or have unique self-branded products that can’t be found elsewhere (Ikea). This obviously requires scale and there being enough value in the membership to the shopper, but it deepens the customer relationship (and fills the pantry by grabbing share of wallet) and delivers marketing value at the expense of the extra fulfillment cost.
Besides the paid membership model, the go-forward models above make the most sense. In the past I have questioned the loss of valuable customer data to delivery services such as Instacart but if you’re mainly ceding customers that would rarely shop directly with you in-store, is the data as valuable?
Although in-store and curbside grocery pickup are a drain on resources in terms of labor costs, it’s a great way to gain customer loyalty, a challenging feat in modern retail. BOPIS and at-home delivery options cater to customer demands for convenience. What this study doesn’t address is the additional income grocery stores are likely seeing from the loyalty gained through offering these convenient shopping options, whether it’s in the form of additional add-to-cart conversions or foot traffic when loyal customers have the time to shop in store themselves. What brands should look more closely at is whether this additional income they’re seeing from customer loyalty is significant enough to justify the labor costs associated with BOPIS or curbside. If yes, then these shopping options can likely scale without the need for higher fees or charging increased prices for online shoppers.
When it comes to home delivery, the situation is a bit different. Fees are expected by consumers when groceries are being delivered directly to their homes, so there is more opportunity to experiment with different fee structures and increased prices. What brands will need to keep in mind if they decide to charge higher fees for home delivery, is that this method of grocery shopping will become a luxury that some of their customers cannot afford, and they should therefore market it accordingly.
Currently, offering services like BOPIS or home delivery for free or at low cost often results in financial losses due to increased labour inefficiencies. Without adjustments to fee structures or operational efficiencies, many online grocery methods struggle with profitability.
In the long run, automation will help reduce labour costs, though it requires a substantial initial investment.
However, these services can effectively increase customer retention and repeat purchases, which is another metric worth considering (CAC vs order profitability).
In-store and curbside grocery pickup won’t scale profitably without charging fees or higher online prices. The labor required for these services is too high to be sustainable without passing costs to customers. Most online grocery methods, including home delivery, are also too labor-intensive under current fee structures and are likely to remain unprofitable. Of the three models proposed, I think becoming more efficient at online operations, like Walmart’s approach, is the most viable. Automation and better technology can reduce costs, but grocers must be realistic about the need to charge more for convenience.
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This is a great way of winning market and customer share. The problem is that it is also a great way to lose profits. While collection from store is cheaper to service than delivery to home in grocery, it still comes with a lot of costs attached. Servicing an online grocery order requires picking and packing many items, which is usually done by hand and is extremely time consuming. If there is no additional charge for this then it saps margins. And keep in mind that grocery margins for shopping in store are only 3.6% on average. So there’s not a lot of room to accommodate these additional costs.
I agree. All is not hopeless here. What other services can you offer, that will make the revenue to invest in free BOPIS for your business?
According to FMI, the profit margin is now at 1.6% for grocery. So clearly there has to be a way to pay for some of the costs or it is a drain on what little profit exists.
The 3.6% is for store based grocery only – so sales to people who come to store. Once you factor in online grocery, that likely takes the margin down further.
There is one more approach that’s a blend of Walmart’s automation and Trader Joe’s limited assortment. Sell online what shoppers want to buy online and do so with the support of automation.
Online purchases are larger but of a limited assortment and of different item preferences than the same shoppers buy in store. But the retailer model has been to sell the store online. That’s a miss. And fulfilling from store means out of stocks, substitutions, high costs and missed delivery times. Disappointing both in store and online customers.
Focus on building an efficient online business based on online sales. Support with automation where it makes sense. You could end up with a more profitable business by eliminating the costs of store as distribution center. And online shoppers are typically your best shoppers. Don’t surrender them to a third party.
The short answer is “no”, it’s not a viable long-term business model if the market remains the same. However, many of the grocers are still chalking it up to the cost of doing business and don’t want to lose business to a grocer down the street who offers the service for free. The best ways for grocers to combat this would be: (1) as John Hennessey pointed out: move the online selection to a limited assortment that may lend itself to more efficient picking/delivery, (2) introduce an advanced loyalty program level with a moderate annual subscription price that includes the benefit for free, or (3) slightly raise prices across the board to accommodate the shift in consumer behavior. None of those are going to be received greatly by consumers who have become accustomed to the offering since COVID, but as more and more chains start to back off, then it will become more palatable. It reminds me of the various airline fees that start with one carrier and then propagate across the others shortly thereafter.
The other BOPIS issue is store associates picking orders, while blocking customer access to shelves. This is particularly pronounced at Amazon Fresh, where associates can have two or three active trolleys at a time. Sales can’t be effective if customers can’t reach the merchandise.
Trader Joe’s has the right idea: If it ain’t broke, don’t fix it. And Wegmans is smart to offer the service, but farm it out rather than burden team members with added responsibilities. Shoppers know they are going to pay more for BOPIS at Wegmans and they are okay with that.
You can’t be everything to everyone. BOPIS is a shopper favorite which means it isn’t going anywhere. Once you offer a customer perk it’s really tough to take it away. There will always be some hard feelings. At least for a while.
In-store and curbside grocery pickup are labor-intensive, requiring up to 125% more labor than traditional shopping. Without additional fees or higher online prices, these services can be unprofitable, as highlighted by Walmart’s efficiency strategies and Wegmans’ approach to cost management.
To address these challenges, BOPIS can drive foot traffic and increase in-store purchases. By leveraging online convenience, retailers attract customers who often spend more during pickup. Integrating BOPIS with targeted promotions and cross-selling can further boost sales, making it a valuable strategy for enhancing profitability.
In response to the labor and cost issues, three effective models emerge: Trader Joe’s prioritizes a strong in-store experience, Wegmans offsets costs with higher prices and outsourcing, and Walmart invests in efficiency through automation and fulfillment centers. Each model offers a tailored approach to balancing costs and service quality, depending on the retailer’s strengths and customer base.
BOPIS and curbside pickup are profit eaters, and cannot be offered free of charge anymore.
The easiest solution will be to establish a fee schedule. At first, consumers will kick and squeal, but if they value the convenience, they will accept it.
This is how I view the matter. We pay a fee for almost every convenience we enjoy in our daily lives. A fee is charged when we purchase sports or entertainment tickets online. Whenever we purchase goods online, or through the mail, we pay for shipping and handling, which, in truth, is a fee. We pay a fee when we use the valet parking service at a hotel. Countless examples can be cited.
Consumers who do not wish to pay a fee are always welcome to shop inside the store, select their own merchandise, walk through the checkout, or use self-checkouts, and wheel their groceries to their vehicle. Do you see how a fee might be justified for that process? -Db
Don’t get us started about the online-booking fee. (Too late!) Literally zero human labor, using the same booking engine that humans would at the venue so no additional expense to the agency. They are MORE profitable moving all transactions online even without charging the fee. Glad to see the Feds starting to go after these practices!
This story is short on the flip side of BOPIS. For every suggestion that it costs more, its unclear if those same customers are also shopping the store aisles on weekends and only using BOPIS during the week (or vice versa). In retail, stores that support a customer with convenience during the week likely wins that customers loyalty on the weekend.
Certainly, there are opportunities to tighten the BOPIS belt. The Instacart partnership works well for many grocers but the higher prices and bevy of Instacart fees can be a detourant. And, few retailers can hope to gain the logistical efficiency of Walmart but that doesn’t mean BOPIS is a loosing proposition.
It may be harder to scale BOPIS without some integration of retail automation. The manual pick in stores by employees will always be more laborious. However, if the long game is loyalty and retention then BOPIS, albeit with some technology investments, could prove an effective strategy.
These findings are not at all surprising. Yes, there is additional labor involved to prepare a BOPIS order and someone is paying that cost; the retailer. It is reasonable to assume that there is a perceived value by the consumer in the BOPIS model. If so, it is reasonable that customers will pay a processing fee for the benefit of having the order picked, packed, and staged for customer pick-up. Simple.
This was a very good idea during Covid, but perhaps the idea has run its course. There is no business model that says losing money will work. That said, customers are willing to pay for convenience. The 15% premium for using a companylike Instacart to manage the shopping experience may be a viable model. Perhaps a membership model similar to what Amazon does by providing free shipping for prime customers, could work. Somebody needs to crunch the numbers to see if it’s viable, but that may be the best short-term solution available to retailers who want to continue to offer convenience at this level to its customers.
From the first time I noticed that online orders were being picked off the shelves, I realized it was a convoluted process. The retailer pays for the products to go on the shelves and then takes them off the shelves. Why put the product on the shelf in the first place? The stores were never designed for that type of operation. Yes, a square peg into a round hole. And that doesn’t even include the disruption to in-store shoppers.
The logic of economics tells us that when the customer chooses the convenience of BOPIS or delivery, the shopper saves time. Since time has value, the customer should be willing to pay for the service. However, consumer behavior often doesn’t match the logic of economics. Does Wegman’s have less demand for BOPIS or delivery than those retailers who don’t charge?
The most efficient model is the Walmart model, where in-store shopping and fulfilling online shopping are seen as two completely differnet services, and each is designed specifically for their purpose in the most cost-saving design.
Agree completely. And, shoppers will pay extra for value received. They pay for other services that add value like Instacart, Uber Eats, etc.
Fee for service is one of the few ways to make BOPIS profitable for the average grocery retailer. David Biernbaum’s many examples he cited are spot-on. Consumers are willing to pay an extra fee for convenience, differentiated service, and uniqueness. Look at what consumers pay for speed & convenience for a better airport experience with Clear, Precheck and SkyClub access. Retailers should revisit their spreadsheets and recalibrate their calculus.
Why would a grocer try to scale an absolutely proven money losing service? They won’t. They can’t. It’s now a proven money loser. Charge a modest fee that breaks even on the added service. Let the customer decide. Customers…grow up. Extra services that save you time and money are costing the retailer. Be fair. Pay for the convenience and time saved. And when it’s possible, park your car and grab a shopping cart. Yes, you are an unpaid employee, but’s it’s saving you money at the register.
In the effort to provide differentiated services and extra convenience to customers, BOPIS and curbside pickup have emerged as a new way to drive additional revenues. However, considering that in 2023, profit margins in the grocery industry hit 1.6%, the lowest level since it was 1% in 2019, grocer executives are challenged to drive down the costs to serve and costs of goods sold.
Despite the US grocery market’s increasing revenues, the industry’s operating margins remain from 1% to 2%. This is primarily due to the significant impact of rising operating costs, supply chain disruptions, increasing labor costs, and competitive pressures on the industry’s profitability. Grocers have determined new and innovative ways to drive new revenue streams, including retail media networks. Throughout 2024, the retail media network contribution to the overall business is expected to see a 13% increase in revenue.
However, grocers do themselves a disservice if they do not charge for BOPIS and curbside pickup services. While BOPIS has proven to help drive customer engagement, increase revenues, and provide added convenience, efficiently managing BOPIS operations requires well-coordinated fulfillment capabilities, adequate staffing, and additional technology infrastructure investment.
The business case for charging for BOPIS includes:
There is no “free” BOPIS has a cost, the question is whether to recover it directly, or take it out of margin. The part of the discussion that never seems to come to the surface is that BOPIS runs counter to what Retail marketing spend has tried to do forever – which is get the shopper to cross the store threshold. it’s not really Buy Online Pick Up IN store is it…..its BOPIP (buy online pickup in the parking lot).
Buy online, pickup in the parking lot is the real value. The customer doesn’t have to get out of the car, which is a true convenience and time-saver. If there is real value there, then it should be charged for.
Notwithstanding, the profitability issue noted in the article & highlighted by several BrainTrust members, the future of BOPIS is still dependent on attracting the customer into the store during the pick up process. Data indicates that online/in store shoppers buy more than those who shop only one format.
Plus, the key is to merchandise the store with higher margin impulse items that a BOPIS customer can add to an empty shopping cart. Consumers tend to view shopping cart fullness as a surrogate of spending. Empty carts are good. Such transactions can be used to offset the expense of offering BOPIS.
BOPIS should leave now and never come back. What is the point of an offering that is a margin and profit killer? And just ham many shoppers are availing themselves of this unique opportunity to inflict profit damage on their store of choice?
Just. Kill. It.
BOPIS gained popularity in 2019 but really boomed in early 2020 for obvious reasons. Retailers may have not fully exhausted all options available to refine operations and market this effectively. Perhaps there is room for more experimentation and testing. For delivery there is a sliding scale where there is a fee to be charged and any order value over a certain amount (Walmart+: $50) is free. Wouldn’t there be an opportunity to do the same here with BOPIS. Doesn’t the same economics work in alternative delivery models. So, the suggestion would be to establish the same thing for BOPIS so the small rings would have to pay a fee, but larger purchases would have no surcharge. Overall, I think option two is best, but it may need to be more nuanced.
In the current investor environment of profit-at-all-costs, it’s not surprising that more grocery stores are re-considering the value of unprofitable customers. From what I’ve seen, many brands also offer free fulfillment options with paid memberships (OG Amazon) or have unique self-branded products that can’t be found elsewhere (Ikea). This obviously requires scale and there being enough value in the membership to the shopper, but it deepens the customer relationship (and fills the pantry by grabbing share of wallet) and delivers marketing value at the expense of the extra fulfillment cost.
Besides the paid membership model, the go-forward models above make the most sense. In the past I have questioned the loss of valuable customer data to delivery services such as Instacart but if you’re mainly ceding customers that would rarely shop directly with you in-store, is the data as valuable?
Although in-store and curbside grocery pickup are a drain on resources in terms of labor costs, it’s a great way to gain customer loyalty, a challenging feat in modern retail. BOPIS and at-home delivery options cater to customer demands for convenience. What this study doesn’t address is the additional income grocery stores are likely seeing from the loyalty gained through offering these convenient shopping options, whether it’s in the form of additional add-to-cart conversions or foot traffic when loyal customers have the time to shop in store themselves. What brands should look more closely at is whether this additional income they’re seeing from customer loyalty is significant enough to justify the labor costs associated with BOPIS or curbside. If yes, then these shopping options can likely scale without the need for higher fees or charging increased prices for online shoppers.
When it comes to home delivery, the situation is a bit different. Fees are expected by consumers when groceries are being delivered directly to their homes, so there is more opportunity to experiment with different fee structures and increased prices. What brands will need to keep in mind if they decide to charge higher fees for home delivery, is that this method of grocery shopping will become a luxury that some of their customers cannot afford, and they should therefore market it accordingly.
Currently, offering services like BOPIS or home delivery for free or at low cost often results in financial losses due to increased labour inefficiencies. Without adjustments to fee structures or operational efficiencies, many online grocery methods struggle with profitability.
In the long run, automation will help reduce labour costs, though it requires a substantial initial investment.
However, these services can effectively increase customer retention and repeat purchases, which is another metric worth considering (CAC vs order profitability).
In-store and curbside grocery pickup won’t scale profitably without charging fees or higher online prices. The labor required for these services is too high to be sustainable without passing costs to customers. Most online grocery methods, including home delivery, are also too labor-intensive under current fee structures and are likely to remain unprofitable. Of the three models proposed, I think becoming more efficient at online operations, like Walmart’s approach, is the most viable. Automation and better technology can reduce costs, but grocers must be realistic about the need to charge more for convenience.