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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%.