DELIVERING THE GOODS – RETAIL

Grocery merchants and coffee purveyors are facing increasing pressure to deliver their goods.

Starbucks in China has based their business there around the belief that customers would be forever interested in sitting down in one of their posh establishments to enjoy their daily coffee routine.  But, that has changed quickly due to a new startup, Luckin Coffee, that has developed and promoted a new kind of Chinese customer who wants their coffee delivered to their office – and quickly.  Thus, Starbucks, McDonald’s in China and Luckin are in a race to provide a delivery system that is best tuned to the “frenetic Chinese market.” (ref WSJ).  The ongoing battle to bring on-demand coffee to China indicates how important delivery has become for Western companies doing business there.  In the U.S., food delivery is fast becoming the “go to” need for merchants – both prepared food delivery and food goods.  Food delivery companies are now challenged to convert customers who first tried the service into high-value, frequent users.  The liberal use of coupons, early-on, by companies like Grubhub and Postmates, for take-out food delivery, and Shipt for food supplies were used in an effort to attract customers.  The frequent use, however, has sensitized customers, today, into the practice of waiting for the next coupon before ordering.  While the coupons, when received, often prompt customers to order-in when they receive a coupon, the practice also provides a challenge for the delivery companies to overcome over-reliance and even sole-reliance on coupons before an order is placed.  Even with the start-up problems, however, there appears to be some inroads into the practice of having food delivered – of the 1,750 customers surveyed recently, six percent say that they order restaurant delivery daily.  Food goods delivery faces similar issues, as well as similar successes. Walmart began offering delivery of fresh groceries from its North Bergen, N.J. store earlier this month.  And the orders flooded in . . . from across the Hudson River.  Walmart uses DoorDash for its food deliveries – and the drivers were reluctant to pay the $15 toll to cross into Manhattan for the food delivery.  The temporary solution to the problem was to offer drivers incentives, and then to amend the advertisements so it was made clear that deliveries were not offered across the Hudson.  Walmart’s extensive resources still haven’t stretched far enough to have a fleet of delivery people that are their employees.  Instead, they currently rely on cobbling together delivery people from independent contractors to expand delivery services “quickly, broadly and as cheaply as possible.” (ref WSJ)  Walmart and other grocery retailers continue to face increasing pressure to expand delivery service in the response to Amazon’s distinct inroads in that direction.  In a few locations, Walmart is testing using its own store employees to make the deliveries.  To that end, the employees are given devices that advise on the fastest route to the location, as well as instructions on the optimal placement of grocery items into bags.  These circumstances are representative of the growing pains for a new venture in the retail food business.  In another effort to reduce the high cost of food delivery, food companies are also trying out the use of robots (or, autonomous delivery), as we have noted in previous posts.  Fast food companies and grocery stores are teaming up with car companies like Ford, as well as startups, to perfect the practice of shuttling goods to customers.  It’s estimated that use of robotic delivery might ultimately be able to save 40% on the delivery costs.  Even though customers have become accustomed to ordering just about anything in the way of hard and soft goods online and having them show up quickly on their doorsteps, the food delivery business poses a specific difficulty.  For one thing, ordering a sandwich from Panera Bread Company assumes that the sandwich, made fresh, must come from the local store.  Thus, for a $9.99 sandwich, the cost to have that delivered to the customer within 30 minutes will be about $5, taking into account packaging, labor and gas.  However, Panera, in an effort to attract more customers, charges a flat delivery fee of $3. (ref. WSJ).  Thus, most delivery orders remain unprofitable and companies are beginning to worry about the continuing loss of revenue on a service that they would very much like to be able to offer.  Food delivery, without a doubt, has compelling features for the customers – But for the food retailers, not so much, to date – other than having the satisfaction of pleasing the customer.

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