Third-party delivery partners were a must for grocers during the pandemic. Such relationships allowed retailers to stay afloat, offer an in-demand service to customers, and hold onto valued clients in volatile times. What happens next is where things get interesting. Nearly 22% of U.S. grocery sales are expected to be made online by 2025. That trend comes with a price tag for traditional grocers—reliance on third-party delivery partners introduces a significant risk of losing control of client relationships and data. The time for grocers to take back control of their digital strategy is now.
This article by stor.ai outlines three steps for grocers looking to ramp up their digital offerings to include delivery. Content includes:
- How to determine how much of the process you want to own.
- Best practices for engineering a timely transition, both for your business and your customers.
- Strategies for building and maintaining customer loyalty.
Bringing in third-party delivery partners such as Instacart or Shipt was a welcome Band-Aid for grocers at the start of the pandemic. Retailers could offer an in-demand service to valued customers, and customers could continue shopping at their preferred grocer while choosing the fulfillment method that made the most sense for their convenience and comfort.
Fast-forward a few months, and demand for these alternative fulfillment methods continues to grow, to the point where online grocery purchases are expected to account for 21.5% of total U.S. grocery sales by 2025. For many grocers, a third-party delivery provider made sense when it only made up 3% of revenue — but it doesn’t make sense now that it’s rising into double digits.
In fact, a recent report from Barclays highlights the most urgent considerations for retailers today:
- Using Instacart introduces the significant risk of losing control of customer and vendor relationships, as well as valuable data and profitable vendor allowances.
- Outsourcing digital/tech competency to Instacart creates a significant risk of remaining disadvantaged on tech sophistication.
- Instacart customers are increasingly identifying Instacart as the provider of the goods, leverage that can backfire in the future.
“[Building] your own delivery function is expensive. The downside to it is that you really lose control. Sometimes there are price differentials on the Instacart sisiteyou obviously don’t have control over the customer service levels that are delivered, and you don’t have control over the staff that are doing the picking.” – NEIL SAUNDERS, Managing Director of GlobalData Retail4
As grocers emerge from the pandemic, third-party partners are no longer a short-term necessity but a strategic choice to be made. Many grocers are in a position to stop and think through their digital strategy and make a new decision: Do we continue down this road where a third-party partner owns our data and customer relationship? Or do we explore our alternatives?
“All projections expect the demand for delivery and alternative fulfillment to continue to rise in the next decade,” said Orlee Tal, CEO at Stor.ai. “Grocers need to ask themselves if their current setup makes sense when those third-party partners are bringing in 25% or more of their revenue. Or, as an industry, if we want to leave our customers in the hands of companies that are becoming more and more powerful — and that may eventually turn into direct-to-consumer competitors.”
Grocers that want to own their digital strategy and maintain control over their customer relationships and data must make a new plan for the future, and it starts with these three steps:
THREE STEPS TO OWNING YOUR DIGITAL STRATEGY
- Decide how much of the process you want to own.
- Engineer a timely, seamless transition for your customer data and relationships.
- Understand and act on customer data to build loyalty.
Decide how much of the process you want to own
For many retailers, the biggest obstacle is the operational challenge of taking on the high volume of orders currently being carried out by third-party partners such as Instacart, Shipt, DoorDash, and more. Depending on the size of the brick-and-mortar store and demand for delivery, this could mean taking on thousands of transactions a week overnight. Or, as Malki Levine, store manager and director of business development at Evergreen Kosher, put it, “At the height of the pandemic if we had opened 2,000 delivery slots a day, we would have sold 2,000 slots a day.”
Shifting operations from a third party all to a store-owned model is a huge undertaking and covers everything from building a new ordering platform and transitioning customers into it, hiring pickers and drivers, and organizing the entire last-mile delivery. It’s a lot to handle, which is why there’s so much inertia for retailers to leave their customer relationships and data in the hands of would-be competitors.
What many retailers are learning is that they need these skills on their team, and it has become easier to take on all the operations internally versus having to use a third-party partner. You can work with a partner with a platform that allows you to own your customer data and strategically choose which parts of the fulfillment process you own and which parts you outsource — ultimately retaining control over your customer data, the customer experience, and your brand’s reputation. That’s why but retailers must start building their technological and logistical sophistication.
For Levine at Evergreen Kosher, the store already had a robust last-mile delivery team and a fleet of 14 vans handling as many as 400 deliveries a day. It found the most benefit from partnering with a provider that could help it customize its e-commerce shopping features and recruit and train store shoppers that would meet its high standards for complex product picking.
“Because of our unique product selection and high customer expectations for quality and selection, we wanted to train our own shoppers who could really understand what our customers want,” Levine explained. “We valued having the choice of who we trusted with our product picking — and it wasn’t the hobby Instacart shopper picking up an extra shift on the side.”
“As a specialty food store, we pride ourselves on going high and low to find the food of the world and bring it to our customer’s table. Our first experience with outsourcing the delivery of those products did not go well, and it showed in the customer feedback we received. We quickly sought out a solution that would allow us to own customer satisfaction right up to the moment the product is delivered so that we could maintain our own high standards from start to finish.” – MIKE KARASI, Chief Information Officer at NetCost Market
- Easy integration with any current eCommerce solution
- 10 minutes to train your picker
Optimized Operational Efficiencies:
- Streamlines the complete in-store picking process
- Increase Units Per Hour (UPH)
Increased Basket Value:
- More accurate product availability
- Upsell recommendations
Better Customer Satisfaction & Loyalty:
- Real-time communication with your customers
- Personalized, AI-based product replacements
- High Availability
- Automatic scalability that enables optimized performance even during peak traffic periods
Engineer a timely, seamless transition for your customer data and relationships
Once you’ve decided what kind of digital customer experience you want to provide, you’ll need to determine how you want to provide it. This can be achieved internally or with partners or a mix of both, but the two key components of this transition are the customer purchase history and customer relationship data.
Customer purchase data relates to information around their purchase history and product preferences, including lifestyle or dietary needs. Customer relationship data puts this information into action, connecting customer data to customer behavior to uncover jumping-off points to build on your relationship with customers outside the store.
The goal of using both of these types of data is to build a single, seamless experience for a customer whether they buy in-store or online, and to use all of their histories to improve their shopping experience through better suggestions, advertising, substitutions. This is what will allow your platform to make their customer experience one that stands out.
- CUSTOMER PURCHASE DATA: Porting information such as purchase history, receipts and product preferences
- CUSTOMER RELATIONSHIP DATA: Connecting customer data to customer behavior to maintain or build on 1:1 relationships outside the retail store
The key is that this is only possible with a truly flexible strategic partner that can quickly facilitate two-way POS integration with your online store, automate inventory and catalog management to make sure your store is merchandised correctly, and flexibly integrate under your existing technology.
Stores that own the end-to-end customer experience and their data have higher sales, alternate revenue opportunities, and long-term customer loyalty because they can connect with customers directly. This seamless experience takes place whether a customer is using the store website, text, email, or digital marketing — and it all feeds back into your customer dataset to continue to improve that experience.
“Being able to own customer satisfaction has been paramount to our success,” said Mike Karasik, chief information officer at NetCost Market. “Communicating with customers based on what they buy, what they don’t buy, and how often they do or do not buy it has allowed us to create an effective and sophisticated customer loyalty program. It has been an awesome feeling to be able to deliver what our customers need in whatever modality they’re best served by. Because it’s their choice, and at the end of the day we’re here to serve our customers.”
“As supermarket developers and owners, we must keep an eye on the future of the grocery space and develop our stores in the right direction. The data we collect with our strategic partner helps us understand our shoppers and predict what’s going to be important for them in the future so we can plan and make changes and upgrades to our store accordingly” – MIKE KARASI, Chief Information Officer at NetCost Market
Understand and act on customer data to build loyalty
One more trend was accelerated by the coronavirus: the increasing fragmentation of customer loyalty. Before COVID-19, customers shopped around; Supermarket News reported that 83% of shoppers surveyed regularly shopped at four to nine chain stores over the course of a year. But after COVID-19, the inclination to try new stores and new products has become even more prominent. According to McKinsey & Company, “consumers across the globe have responded to the crisis and its associated disruption to normal consumer behaviors by trying different shopping behaviors and expressing a high intent (65 percent or more) to incorporate these behaviors going forward,” primarily focused on value, convenience, and availability.
This is where third-party partners can truly undermine customer loyalty to existing stores. When surveyed by Instacart about what customers would do if a grocery or retail store left the partner, 43% of shoppers indicated they would simply switch retailers.7 Your customers’ willingness to try new grocery retailers creates a lot of pressure to meet their expectations for value, convenience, and selection. The grocers that have the most information about their customers the most will be in the best position to meet those needs — and that’s why understanding and acting upon customer data will be a critical part of owning your digital strategy.
“With a fulfillment process fully customized to your grocery store, you can then zero in on the customer data that’s most important to you and invest in building long-term, loyalty-driving relationships,” Tal explained. “You’re also solving many other parts of the customer experience equation, like more accurate inventory management, better product-substitution algorithms, and full control over how customers experience your brand.”
When you have an effective process to analyze and act on customer data, you can make choices that lead to …
- Improved order accuracy.
- Enhanced personalization.
- Larger average basket value.
- Fewer returns.
We can see how popular our e-commerce options are for our customers, so much so that we’re building out a new room in our store just for the e-commerce department. Growing at the pace the market is demanding, and it’s hard to keep up technologically. Especially in retail, which has historically been behind the curve in digital transformation. We’ve really appreciated having a partner that is welldeveloped, forward-thinking and constantly pushing to develop itself to meet our needs.” – MALKI LEVINE, Store Manager and Director of Business Development at Evergreen Kosher
The New Landscape of Customer-First Commerce
The expectations customers bring with them into the grocery store come from all their consumer experiences, including those from advanced technology companies such as Amazon and Google. Here’s a brief look at today’s version of the ideal retail grocery experience:
- Pricing that balances value and quality
- Personalized recommendations based on order history
- One-click recipes that add all necessary items to your cart
- Multiple fulfillment options, such as home delivery, BOPIS, curbside
- Intelligent substitution recommendations based on food preferences and dietary concerns
- Real-time communications with customers during the fulfillment process
- Increased order accuracy and UPH for pickers with enterprisewide dashboards
- Pricing and product availability at a store level
- Incorporate trade promos and shopper marketing into their experience based on current category as shopping or their purchase history
Online grocery shopping has developed separately from the in-store experience, marked by disparate touchpoints that fracture the shopping experience. Moving into a post-pandemic grocery landscape, grocers must own their digital strategy and maintain tight reins over their hard-won customer relationships. That’s simply not possible in an environment where you’ve handed over your data, customer experience, and customer satisfaction to a third-party fulfillment partner. True leadership and strategy will come from looking beyond today’s transactions to see what will ultimately serve your brand and your customers in the years to come — and the answer lies in partnering with strategic technology that empowers you to own your process, your data, and your customer relationships.