Inside the Delivery Derby
Consumer-centric grocers have little choice but to play in delivery, where demand is growing and the potential rewards are big. But many are hedging their bets with creative partnerships to conquer the elusive last mile.
Shed no tears for the N4 Tap Room. The subterranean pub and restaurant in Brooklyn’s hip Williamsburg neighborhood quietly closed shop recently, a victim of the catastrophic new-restaurant failure rate—or perhaps of something else.
Visitors to Whole Foods Market’s Williamsburg, N.Y., store—where the bar and bistro formerly resided between the meat and seafood counters—will now find the space maintaining a different kind of lively activity in its new guise as a staging area for Amazon Prime personal shoppers to pick and prepare online grocery orders for delivery. Where there was once customers leisurely noshing and sipping 18 locally sourced beers on tap from an adjacent kitchen whipping up Reuben sandwiches and baby kale salads is now rows of coolers and shelving, with contract shoppers wheeling orders in and out on carts.
While representatives of Whole Foods did not respond to an inquiry about the transition of the N4 space, this was a knockout victory for convenience over retail foodservice as far as grocery megatrends are concerned, and just one more indication of how delivery is changing the face of the industry.
Photograph by WGB Staff
Whole Foods’ parent company, Amazon, began transitioning the space over the summer—roughly a year after the Seattle-based e-commerce giant acquired the pioneering, albeit struggling, food retailer, as a key element of its strategy to gain a substantial foothold in grocery—as it began providing delivery through its Prime Now service. Sources say the event marked a revolutionary development in the race toward omnichannel that has since seen companies large and small join a furious battle to win the last mile through any means necessary.
The combatants have their eyes on a huge prize: The Food Marketing Institute projects online grocery will account for about $30 billion in sales by 2021. Gaining high-spending, loyal shoppers and the more intimate relationships their online shopping trips generate is also important—although doing so comes with daunting costs that can easily overwhelm any advantages to the top line, to say nothing of the potential disruption to store environments and inventories that can come with investing in a new sales channel. At the same time, customer-centric organizations have an obligation to meet their shoppers where they want to be, and for a growing legion today, that’s waiting—hopefully not long—for groceries to come to them.
“The appetite for home delivery has been awoken for consumers and retailers,” says Tamir Gotfried, global sales manager for the Israel-based delivery logistics firm Bringg. “A lot has changed over the last few years and today, almost every single grocer is getting their feet wet. They may not all be doing the right things, but they’re doing something in the delivery space, or they are thinking about doing something in the delivery space. And all of them know they need to play in grocery delivery. That’s the big thing. Overcoming the idea of saying ‘No, I’m happy with my retail locations as they are’ is a very difficult thing, but there’s been a major shift. Things started happening.”
A range of interviews conducted with retailers, consultants and vendors indicates that delivery is more than a land rush even in these early days, with retailers studying service and price as potential differentiators in the same way they would when evaluating a store.
“Ultimately, retailers are making tradeoffs between greater control and lower costs,” says David Bishop, partner with Barrington, Ill.-based consultant Brick Meets Click. “While that’s overly simplified, this is what’s been happening over the last 12 to 18 months. Longer-term, retailers will have more options to use that will help them achieve more of both.”
Putting on the ‘White Gloves’
When it comes to delivery, legacy grocers such as Albertsons Cos. can have their hands in several strategies at once. The retailer has offered online grocery delivery through a fleet of its own temperature-controlled vehicles and drivers. Albertsons touts this controlled but costly offering as a “white glove” service that strengthens its brands’ equity and differentiates through delivery drivers, which, for example, will carry orders not just to the door but also to the shoppers’ kitchen counter. This service is available for next-day or same-day deliveries and includes perks such as integration into its Just 4 U loyalty programs, which provide coupons and discounts. Delivery pricing for this offer varies, with incentives available to certain orders that aid in the efficiency of a driver routes.
“The customer is the heart of our business, so we have to take good care of them. It’s vital,” says Jewel Hunt, group VP of e-commerce for Albertsons. Hunt says the company’s delivery drivers are given a combination of classroom and on-the-job training, with new drivers accompanying experienced colleagues before getting their own routes.
“We consider our drivers our brand ambassadors,” Hunt says. “We want our customers to come to know them and see them as an extension of what we provide for them.”
At the same time, Albertsons offers a “powered by Instacart” service nationwide, touting that as “rush delivery.” These orders are typically fulfilled in less than two hours by Instacart’s contracted shoppers and drivers. Just 4 U discounts aren’t available, and the delivery ends at the doorstep.
Assuring the company can differentiate on this service is trickier, Hunt says, although she monitors metrics such as shopper ratings.
Photograph courtesy of Grocery Runners
Grand Rapids, Mich.-based SpartanNash debuted company-controlled fleet delivery services associated with its FastLane click-and-collect site a year ago, but it contracted a local delivery partner called The Grocery Runners when it sought to expand the test. Today, the company offers only employee-delivery in stores where the volume of orders is too low for its partner to efficiently serve, says Matt Van Gilder, SpartanNash’s manager of e-commerce operations. SpartanNash also offers Instacart service.
“Instacart is a great solution for retailers and customers, quite frankly because it’s much more turnkey to work with Instacart than to build out the program ourselves,” Van Gilder says. “But we pride ourselves on our FastLane program and being able to provide our customers a personal experience—really owning that relationship, having the same pickers at the same store week after week, so customers can come to rely on them. We can also leverage quite a bit from our loyalty data that we collect from our customers providing them a unique personal experience.”
The Grocery Runners was founded in 2015 with the goal of partnering with retailers like SpartanNash that are looking to build on a click-and-collect. Unlike Instacart, Grocery Runners is strictly a last-mile delivery company that is not in on the ordering or picking of grocery orders. In published materials seeking investors, the company said it is aiming for revenues of $4.7 million by 2020 by completing a half-million deliveries at an average price of $8.99 a delivery.
Although the program is still in its early days, Van Gilder says SpartanNash sees potential as virtual demand grows, pointing out that more than half of its online sales are incremental through both new customers and existing shoppers, with whom online ties are driving greater frequently and higher baskets.
“What we see is a trend of customers looking for convenience in their shopping, and delivery is a big part of that, and that’s why we’re doing all these experiments on what works best,” he says. “Delivery is not a huge majority of ecommerce right now for us. It’s not as big as click-and-collect. But it’s growing, and as the consumer gets more and more attached to not having to leave their house, we have to be ready and able to provide that to the customer, hopefully in a profitable
Taking It In-House
Sources attribute Instacart’s booming business to the relative ease and speed at which it can get grocers into the e-commerce arena—as well as the join-or-perish proposition its expansion ultimately poses for them. But it shouldn’t be overlooked that Instacart also creatively tapped into a demand for convenience that grocers may have underestimated. Instacart appears determined to leverage its crowdsourced hooks in the industry through expansion to new services and offerings such as taking on click-and-collect and making its own ties with partners by leveraging traffic to its properties—while warming to the challenge of price competition from giants such as Amazon and Walmart.
Instacart’s latest funding places its value at $7.6 billion, indicating that despite some grocery industry uneasiness over the bargain with customer relationships and data, it’s likely here to stay.
One of the industry’s last Instacart holdouts is a scrappy company in Bentonville, Ark.
Walmart—whose Sam’s Club warehouse division is an Instacart client—appears determined to own its online grocery business end to end, and it’s now testing one possible solution for that. Dubbed Spark Delivery, it marries a crowdsourced delivery solution to its booming click-and-collect business. Launched in New Orleans and Nashville in September, Spark has since expanded to addition cities in Tennessee; in Virginia, including Williamsburg, Newport News and Virginia Beach; and the metro Washington communities of Alexandria, Manassas and Fairfax.
Photograph courtesy of Walmart
Walmart isn’t going completely alone. It’s using Bringg as an “operating system” for logistics. The latter’s technology links the retailer and its deliveries so it can approach the task in a quintessentially Walmart way: It finds the most efficient fulfillment solution from a suite of options based on the order.
According to Gotfried, that could mean, for example, directing it to dispatch a contract driver for an on-demand order or an internal solution for next-day orders. In this way, he says, “Walmart is acting as their own Postmates,” referring to the delivery specialist.
The system also provides visibility into orders, such as how long drivers tend to wait to collect orders at stores, which the company can subsequently tie into data such as shopper ratings and basket sizes, he said.
Walmart is finding drivers and services for contract employees through Delivery Drivers Inc. (DDI), a Los Angeles-based firm specializing in last-mile labor solutions such as human resources insurance and pay. Though DDI grew primarily through restaurant delivery, CEO and founder Aaron Hageman says grocery’s growth trajectory is steeper: “What took Grubhub six months is taking no time in grocery.”
Walmart still refers to Spark as a “pilot,” so time will tell whether it or a further-evolved system becomes its ultimate solution. But if works, you’ll know it. Walmart executives say they’ll “lean in as only Walmart can,” when a solution—like its Online Grocery Pickup—works.
Robots to the Rescue?
Photograph courtesy of Nuro
While delivery remains a money loser, breakthrough technology improvements through automation are providing possible solutions.
In 2018 alone, the supermarket industry saw an explosion in robotics as a means of efficient picking and fulfillment: While Kroger forged an exclusive deal with the U.K.-based online retailer Ocado to roll out a series of regional warehouses in the U.S., rivals such as Walmart, Ahold-Delhaize and Albertsons announced plans to convert parts of some stores to micro-pick centers that can assemble online orders for pickup and local delivery. Another company, Common Sense Robotics, is developing an off-site micro fulfillment center and is expected to announce a deal with retail partners shortly.
Photograph courtesy of Albertsons
In the meantime, grocers are exploring fleets of self-driving cars and vans where they are permitted, some offering the promise of leveling the field between well-funded competitors that see the move to digital grocery as a huge opportunity to win share from their subscale competitors.
“Delivery is one of the largest costs for merchants, and for consumers has generally been a frustrating experience,” says Daniel Laury, CEO and co-founder of Udelv, a San Francisco-based maker of autonomous delivery vans set to provide delivery for grocers including Farmstead and Buy for Less, an Oklahoma City-based independent chain. “Smaller stores are subjected to exponentially higher delivery costs than their largest competitors because the volume of deliveries is significantly smaller and the client density sparser in the same geographical area. … Eventually, this technology will allow community retail to thrive for the benefit of local residents.”
Photograph courtesy of Udelv
Robot delivery vans may themselves have a long journey to ubiquity: They face permitting challenges in many communities, and the service they provide isn’t necessarily frictionless because they still require a human to retrieve orders after they arrive.
Laury says Udelv is at work on these challenges, noting that 36 states have now enacted legislation in favor of autonomous driving. And because delivery vans don’t need to take into account comfort or necessities for passengers, “we anticipate that ADVs will be operating on public roads before autonomous human transport vehicles do,” he says.
And given what Laury calls a “more convenient and dramatically cheaper service,” he predicts automated deliveries will help evolve beyond current paradigms that themselves aren’t ideal, citing, for example, the epidemic of package theft.
Photograph courtesy of Udelv
“The way ADV companies like Udelv can overcome this is by being able to offer a more convenient customer experience,” he says, “where the customer can choose where and when to have their delivery made, whether they’re at their local cafe at 3 p.m. or online shopping at home at 2 a.m.”
After all, it’s all about convenience.