The pros and cons of third-party online grocery providers

As online grocery continues to grow during the coronavirus pandemic, retailers are faced with the challenge of expanding their digital services — whether that be on their own, through a third-party fulfillment provider or, more frequently these days, a combination of both.

A Supermarket News webinar on Wednesday, “Market Expands for E-Grocery Delivery Players,” took a look at the pros and cons of partnering with companies such as Instacart, Shipt and other last-mile delivery partners, as well as the ongoing expansion of these e-commerce specialists in the retail grocery arena. (The webinar, sponsored by Agilence, is available on-demand here.)

To help navigate the landscape of online grocery delivery players, Supermarket News was joined by two of the industry’s leaders in research and analysis — Bill Bishop, chief architect at Brick Meets Click, and Tory Gundelach, senior vice president of retail insights at Kantar Retail. Senior Editor Russell Redman moderated the session.

Established online grocery players Instacart and Shipt have kept up their expansion both before and since the pandemic and seen sharp growth in online transaction share. Meanwhile, last-mile delivery specialists, including DoorDash, Uber Eats and others have jumped into the fray, widening the playing field for third-party online grocery delivery.

Related:Retention of online growth looks strong, but a COVID-19 recession looms ahead

There are two main benefits for retailers and consumers to use these grocery delivery platforms, according to Gundelach (left). “One is that it gives retailers the ability to scale really quickly,” she said. “We saw big retailers like Aldi basically overnight go from no online capabilities to delivery. Clearly they couldn't have built that out on their own.

“The other benefit to retailers is it gives them the ability to deliver to places that would be inefficient or not close to a retail location.”

The draw for shoppers, she added, is that third-party delivery creates availability. “Today the majority of the U.S. population has grocery delivery available,” she said, “and that’s mainly due to third party.”

Bishop pointed out that, in addition to the ability to scale up, the leading third-party delivery platforms can offer retailers “a kind of zero-cost, zero cap ex requirement, which is pretty attractive. And there also are circumstances where going with a third party will actually generate incremental sales for the retailer.”

Whether customers even know or care whether their groceries are being delivered by the store or a third party is another question. Still, for retailers, the branding issue could be critical — who gets the praise when a delivery is successful, and who gets the flack when it’s not?

“I think a lot of times people don't really care until something goes wrong,” suggested Gundelach. “Because third-party relationships work differently with different retailers, it's hard for customers to keep track of where in the process things changed hands.” While an online customer may never have left the grocery retailer’s site, she pointed out, their order may have.

In those cases, blame for a bad experience can come back to both parties. “Depending on who the shopper is, they may place more blame in one area than the other,” she said. “I think there's just a reputation risk for all involved.”

Even as grocery retailers continue to build out their own online delivery platforms, Bishop (left) believes that there is still more opportunity for third-party services. “I don’t think we’ll ever get to the point that retailers move away from third-party services,” he said. “It’s not a core competency of retailers. It represents additional investment of capital expense, and frankly, there's a significant amount of risk associated with running these kinds of operations. So I think retailers are going to want to always kind of offload those responsibilities with third parties.”

Both Gundelach and Bishop agreed that the growth of the online grocery market is here to stay beyond the pandemic, though at a more sustainable pace.

“It’s hard to post triple-digit growth on top of triple-digit growth,” said Gundelach, “which is pretty much what we’ve been seeing. But you have to remember the base for online grocery was relatively small when you talk about total grocery. I think the growth will significantly slow in 2021 and beyond to a moderated piece that is maybe more similar what we had seen before the pandemic. We’ll just slow down how fast we’re accelerating.”

View the entire "Market Expands for E-Grocery Delivery Players" webinar on-demand.

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