The ongoing pandemic has had a significant influence on businesses and consumers alike. It has permanently revolutionized how businesses interact with end customers, and retail grocery is no exception. While the shift to online was in the works prior to 2020, the past two years have accelerated that adoption. Statista projected worldwide online buyers to top 2.14 billion by the end of 2021, while Research and Markets says the global e-grocery market will reach $550.7 billion by 2027.
It’s evident that these changes are here to stay. PayPal’s initial survey in March 2020 found only 19% of consumers had made an e-grocery order. By July 2021, that number had jumped to 49%.
Retailers Respond to E-Grocery Boom
To meet this increasing demand, retailers had to adopt new and innovative business models, and quickly. Faced with rapidly evolving consumer behavior, many opted for the easy way out by turning to full third-party delivery services that also handle in-store fulfillment. This enabled them to rapidly shift their business model without any significant infrastructure and technology changes.
Full Third-Party Delivery/Fulfillment a Quick Stand In
Opting for full third-party delivery and order fulfillment services came with many short-term advantages, allowing retailers to offer e-grocery solutions overnight. Their quick and low-cost implementation also meant that grocers could forgo hiring or training existing staff to run these additional functions.
The opportunity to tap new demographics also made the deal look sweeter for both grocers (who could still conduct business without the hassle of additional setup) and third-party delivery services (creating a business model out of this supply-demand mismatch). However, this lucrative solution may not be sustainable for grocers who intend to make online an important part of their business.
Rapid, Easy, Affordable – But Not Sustainable
While the short-term advantages of full third-party delivery and order fulfillment services may seem tempting, there are a lot of often overlooked factors with long-term consequences that can negatively impact a brand and a business. These include:
- Expensive for shoppers – This solution can increase the cost by up to 35%, which can lead to cart abandonment or drive customers to the competition.
- Expensive for grocers – This option often represents 5%-10% of the turnover generated. Since grocery margins are already razor thin, this additional cost can have a significant bottom-line impact. Moreover, full third-party delivery services solutions can be up to 2.5x more expensive for grocers than setting up their own omnichannel solution over a three-year period.
- Loss of brand control and loyalty – Outsourcing fulfillment means losing control over direct branding touchpoints and relationship with consumers, e.g., the delivery website and the overall customer experience. If they don’t meet consumer expectations, they might move onto a competitor.
- Loss of customer data authority – Full third-party delivery services now own the retailer’s customer data and can choose to use it, turning them into competitors. A recent Inmar Intelligence survey found 85% of retail brand executives think third-party digital marketplace providers are trying to compete with them to eventually set up their own distribution centers. Furthermore, since retailers don’t own their customer data, they can’t use it to curate personalized customer experiences, affecting the customer relationship long term.
All these factors make full third-party delivery services unsustainable in the long run, forcing retailers to figure out the best alternative for optimal ROI.
Your Best Foot Forward
For retailers that are looking to scale while maintaining long-term sustainability, it’s time to reconsider. While a third-party delivery and fulfillment service is a quick way to reach new markets without significant initial investment, it’s no match for a well-designed and seamless shopping experience delivered via an owned online supermarket. Third-party services may still be used to provide the actual last-mile delivery or to augment a grocers in-house delivery capability, while the grocer owns the end-to-end customer experience and fulfillment of customer orders.
More and more grocers are now coming to recognize the importance of an owned omnichannel setup. According to Inmar, 89% of retail grocery executives are actively improving in-store and online experiences for shoppers. In turn, 87% deem technology investments to upgrade their ecommerce platform as a high priority in providing more engaging shopping experiences.
To be competitive, it’s vital to maintain control over the customer experience, data and margins. The best way to do this is to choose a future-proof solution that can help achieve long-term goals while leveraging the fulfillment model that makes the most sense for you in different regions. This can include in-store fulfillment, dark stores, automated warehouses, using last-mile delivery providers or a mix of all these options.
Frank Kouretas is Chief Product Officer at Orckestra, powered by mdf commerce