Should grocers leave delivery to third-party providers or do it themselves?
Through a special arrangement, presented here for discussion is an excerpt of a current article from Frozen & Refrigerated Buyer magazine.
Only the major players — Walmart, Safeway, Kroger, Amazon and Target (through its Shipt subsidiary) — along with a handful of others have brought grocery delivery in-house. But some industry observers think it might be time for others to join that club, citing the need to maintain control over the transaction from start to finish.
“The customer expects the retailer to support the entire order lifecycle, including last mile delivery,” explains Ken Morris, managing partner Cambridge Retail Advisors. If third-party delivery goes wrong, consumers will hold the retailer responsible — not Instacart or DoorDash.
Retailers also don’t get a lot of data on transactions that go through third-party providers, leaving them without valuable insights into a growing portion of their business, and they potentially share data with a future competitor, as well.
Despite the drawbacks, most retailers have partnered with third-party delivery providers at one time or another due to the cost of in-house delivery and the time it takes to develop. Third-party providers’ built-in infrastructure and staffing enabled many chains to launch delivery practically overnight during the pandemic.
And despite fears over delivery quality, many third-party providers have built in incentives for employees to provide excellent service. For example, the higher the customer rating, the more access associates have to larger, more lucrative orders.
Plus, after operating for several years now, these companies know what they’re doing.
“Third-party providers like Instacart and DoorDash have quite a bit of experience at this point,” says Carol Spieckerman, president of Spieckerman Retail.
Many retailers have adopted a hybrid approach, allowing consumers to order through either platform, doing the picking themselves but leaving delivery to a third party, or using the third party only for certain deliveries.
Explains David Bishop, partner at Brick Meets Click, “As the online segment continues to grow, it’s very challenging for a grocer to control their operating costs when relying only on a third-party provider.”
A third of online grocery sales in 2021 was delivery, versus pick-up (45 percent) and ship-to-home (22 percent), according to Brick Meets Click. While far from a profit center, delivery promises to grow, especially if newer models such as ultrafast delivery and Walmart’s InHome delivery service gain traction.
DISCUSSION QUESTIONS: Do you think an in-house, third-party or hybrid approach makes the most sense for grocery delivery now and in the future? How would you lay out the pros and cons of each approach?