Connected CommerceNovember 13, 2020

Delivery Services Boost Grocers’ Bottom Lines

By MARK R. SMITH | CONTRIBUTING WRITER‍
When retail insiders discuss the heightened profile of grocery delivery services during COVID-19 with Katherine Cullen, senior director for industry and consumer insights for the Washington, D.C.-based National Retail Federation, she has ready answers.
 
“We send out a national survey with Prosper Insights & Analytics to more than 7,000 consumers every month to do a deeper dive into industry trends,” said Cullen, “and we’ve seen the growth in the online grocery market. Overall, it’s grown from 11 percent at the start of 2020 to 18 percent for October, for all online grocery orders, including pick-up, curbside and home delivery.” 
 
And nine percent of grocery shoppers were using pre-scheduled home delivery services, such as Instacart, at the start of 2020, she said, with that number rising to 15 percent by October.
 
So while most shoppers still want the in-store experience, Cullen said the home delivery trend is “here to stay. It’s another option along with curbside and pick-up in-store, and we’ll see more growth in that area.”
 

Third Party Time

Among the various services, Cullen cited Instacart, in-house services provided by grocery chains and others that are membership-based, like Shipt (from Target) and Prime Now (Amazon). “Some might offer the same prices online you would get in-store,” she said.

As for the ascent of Instacart, “it isn’t just addressing instant gratification for consumers, it’s also a hedge as major delivery carriers, such as UPS and FedEx, reach capacity going into the holiday season,” said Carol Spieckerman, founder and national retail consultant with Spieckerman Retail, of Bentonville, Ark.

How hot is this trend? Even “retailers such as 7-11 are building portfolios of third-party delivery providers like Instacart, Uber Eats and Grubhub, rather than limiting their options,” Spieckerman said. “Doing so increases the likelihood that shoppers will do business with a retailer, regardless of their individual app preferences.”

 

Photos courtesy of Instacart

 
These services also drive digital awareness. “Shoppers can get confused by the proliferation of options,” she said, “yet those who have accounts with Instacart receive notifications when new retailers are added to the service and prompts for promotions.”
 
The next move by Instacart will be expanded beyond its grocery base. “Its deals with Petco, Walmart and Sephora, in Canada [among other retailers] are steps in that direction,” Spieckerman said. “Multi-category retailers, like Walmart, have a vested interest in building bridges to higher-margin, discretionary categories, like home and apparel, with customers that prefer not to shop in stores.” 

 

Watch Walmart

It’s not just superstores and national and regional chains that are surfing the Instacart wave. Such services “have helped many independent grocers offer grocery delivery when they might otherwise be hard-pressed to do so,” said Jim Dudlicek, director, communications and external affairs, for the Arlington, Va.-based National Grocers Association.
 
However, other independent operators have developed delivery services, too, “often in partnership with platform solution providers, allowing them to offer e-commerce under their own brands,” said Dudlicek. “Still others may utilize both methods, leveraging third parties to extend their reach while offering proprietary service to drive loyalty.”
 
Kelly Cofer, CEO of The Retail Coach, of Tupelo, Miss., cited the new service from Walmart as the sterling example in the industry. “It costs $98 per year,” Cofer said, “and will skip curbside and focus on delivery, because Buy Online, Pick Up In-Store is where the corporation is seeing its highest profit margins.”
 
That’s in spite of what is often an extra cost for the consumer. “[Home delivery] isn’t for the price sensitive. Walmart is the leader due to its lower prices, followed by Target, and both have quick access to distribution centers,” said Paula Rosenblum, managing partner with Miami-based RSR Research. “Other grocers have done well with top line revenues, but not bottom line, after various costs.”
 

New Horizons

As for the COVID-19 angle, “It really just accelerated the public’s already strong reaction to online delivery,” Cofer said. With the pandemic evolving, he reflected on previous recessions and how retailers reacted as the market improved.
 
“Most don’t do what they say they’ll change, but they need to understand that today’s market is all about the customer not having to come inside,” he said. “People who prefer to shop inside can still do so. Many find it enjoyable and even therapeutic.”
 
And the future is looking brighter, given that “retailers are finally leasing new spaces,” he said. “So, we’ll know in 12 to 24 months what this new landscape will look like.”