Owned vs. Third-Party Delivery
While nearly all grocery retailers have found some way to deliver orders to consumers, there are a couple of different approaches to take. Grocery retailers have invested in their own delivery services or outsourced to third-party delivery service providers — and some have done both.
“Food retailers may use contract workers/outsourcing for grocery delivery simply because the labor costs are lower in the short-term compared to hiring grocery delivery employees,” says Cara Rasch, research analyst, food & beverage, with Packaged Facts. “This is also one reason why many grocers are using third-party delivery companies such as Instacart.”
Instacart is an attractive partner to retailers for a few reasons, including the convenience of its app for consumers to order from multiple venues in one place, the ability to help smaller businesses with less capital to build out their own services, and its Instacart Express membership that comes with free delivery on orders over $35 for a monthly or annual subscription fee, according to Rasch.
“We had already been moving in the direction of using third-party vendors for grocery delivery as early as late 2019; however, the pandemic required us to implement these partnerships very quickly so we could serve the needs of customers who chose to move to our e-commerce platforms to have their groceries, meals and medical prescriptions delivered,” Hy-Vee’s Buzynski says of the retailer’s strategy.
DoorDash, which added grocery delivery services to its platform in 2020, is another one of the top service providers for retailers and is used by Hy-Vee.
“Currently we [at Hy-Vee] use DoorDash as our delivery partner in nearly all our markets,” Buzynski says. “Using a third party allows us to focus our resources on giving all our customers our complete attention — whether we are meeting their needs in the store, filling online orders and preparing them for pickup or delivery, and ensuring our store shelves and cases are fully stocked at all times.”
The decision to build out their own delivery services or leverage third-party vendors is based on cost, convenience and ability to deliver on demand. Mass retailers that can make bigger capital investments are more likely to build out their own delivery services than smaller, regional players.
“In the long run, direct delivery services will be less expensive than third-party delivery services. Direct control will also be better for retailers due to full ownership of the online shopping and delivery experience and being able to provide better customer service,” Rasch says. “Grocers know that they need to offer online shopping options to remain competitive and build up market share now as online sales are expanding rapidly. This is why big players with the capital, such as Kroger and Walmart, have made massive investments to gear up for online grocery shopping and in-house order processing, picking, packing and delivery.”
However, most retailers won’t shut out the third-party delivery service providers. Companies offering both types of delivery capabilities are likely serving a bigger base of potential online grocery shoppers. Even if Kroger, for example, offers its own delivery services, there are some customers who will always use Instacart as their go-to for delivery orders.