May 27, 2022
Retail Growth

How Retail Media Can Help You Ditch Third-Party Delivery

Sean Turner

As delivery service fees go up, your grocery e-commerce platform matters more to consumers looking to save money and find what they need.

The grocery industry is still riding the wave of a historic rise in online shopping precipitated by pandemic-era restrictions and concerns. US shoppers spent a whopping $1.7 trillion online from March 2020 to February 2022. Compared to the previous two years, this swell represented $609 billion worth of increased spending. The doubling of online grocery sales represented the retail industry’s biggest habitual shift overall.

When the pandemic unexpectedly hit, not every supermarket chain was prepared with the technology to handle the unprecedented demand for online ordering. Third-party grocery delivery providers were quick to provide a means for grocers to offer online ordering. As a result, third-party delivery orders grew 77% from 2019 to 2021. These partnerships created a dependency that often came at the expense of grocers whose profit margins were already razor thin.

E-commerce continues to rise with online grocery spending still up 15.5% and expected to reach $1 trillion this year. As runaway inflation continues driving up food and fuel prices, third-party delivery services are passing the buck to shoppers with high fees that offset savings. Grocery retailers, on the other hand, have a unique opportunity to deliver the value shoppers seek. By taking advantage and leveraging retail media tools they can help drive traffic in-store, increase basket size, and build loyalty.

A delivery service provider and a female grocery shopper are depicted demonstrating how retail media can augment the in-store shopping experience.

The Pandemic-Fueled Rise of Online Grocery and Delivery

Safety concerns and government stay-at-home orders turned tens of millions of Americans into first-time online grocery buyers, prompting 54% growth in online grocery sales  in 2020.

Even as consumers flocked back to stores, US online grocery sales were still up 43% in March 2021. By March 2022, online grocery sales were down 6% from the previous year’s record high, but the $8.7 billion in spending shows the resilience of omnichannel shopping. All told, online grocery will only account for 11% of the $1.124 trillion in grocery sales this year, but experts predict the trend isn’t going away any time soon and will reach 20% by 2026.

Whether shopping in-person or online, The Washington Post noted some differences in post-pandemic shopping trends that seem to be sticking, notably increases in:

  • Auto-ship comfort food, coffee, paper product, pet food, and shelf-stable orders
  • Money spent per trip as Americans “stock up,” with less time spent browsing
  • List-making based on tried-and-true name brand items
  • Immune-healthy probiotic yogurts and garlicky foods
  • Willingness to try private-label store brands to save money
  • Redemption of buy one get one offers, coupons, and special promotions

During the pandemic, grocery shoppers accepted third-party delivery fees in exchange for safety and convenience, but market forces will continue to shape their behaviors and preferences. Third-party grocery deliveries were up 20% in March 2022 over March 2021—mostly because shoppers liked the ease and convenience of ordering, as well as the ultra-fast shipping options. However, only 36% of consumers indicate a willingness to pay a price premium in order to buy groceries online, and two-thirds of consumers say they’d only pay a premium if it was less than 5%.

With the pressure of inflation and gas prices, customers are looking for ways to save, and they are more than willing to shop in-store if they will get the best deals and avoid extra fees.

Shoppers Adjust to Rising Delivery Costs and Low Inventory

At one time, it seemed third-party delivery companies had a firm hold on grocers who were frantic to keep up with evolving demands. By now, shoppers have learned that online shopping doesn’t guarantee they’ll get the items—or experiences—they want.

Food prices have risen markedly since the pandemic began, no matter where or how people shop. Forbes found consumers paid $32 billion more in 2020 and 2021 due to higher prices. Inflation has only gotten worse in 2022, accounting for over $3.8 billion in added costs during January and February alone.

Rising inflation, soaring gas prices, and labor shortages are putting the squeeze on third-party delivery providers who are passing the buck to shoppers in order to offset their own costs. Bloomberg reports that Instacart’s customer fees were 24% higher in January 2022 than they were in January 2021. Most of the increase stems from service fees—up 45% higher than 2020 and 61% higher than 2019.

Because delivery service fees are tied to total order spending, shoppers are responding to these higher fees by decreasing their third-party delivery basket sizes to focus on non-negotiable name brand essentials and heading in-store for most of their needs, particularly items like fresh produce, meats, and baked goods.

Online shopping was once viewed as a way to take advantage of expanded inventory. Current supply chain issues have impacted everyone—brick-and-mortar, online sellers, and third-party delivery companies—alike. This year, the number of out-of-stock messages has increased to 1 in 59, up from 1 in 200 pre-pandemic. With inventory gaps closing, shoppers gravitate to whoever can help them choose the best substitutions and find what they need amid the scarcity.

How Brick-and-Mortar Grocers Can Adapt and Thrive

Grocers interested in setting up their own e-commerce platforms—rather than relying on third-party providers for delivery—are wise to start building their solutions now in order to serve this growing tide of online shoppers.

As customer experience becomes the deciding factor on where and how people shop, grocers have more tools than ever before to analyze and anticipate consumer behavior. Unlike anonymous in-store cash transactions, a digital economy makes it easier to track what consumers are interested in browsing and buying. Maintaining digital retail loyalty will be the next frontier necessary to capitalize off the renaissance in brick-and-mortar spending.

Shoppers are looking to give business to grocers who deliver the best savings and most relevant rewards and coupons. By leveraging the right technology and retail media tools, retailers can not only drive more traffic in-store, but offer shoppers increased value that competes with the convenience of online shopping.

Consider how grocers with a robust e-commerce platform benefit consumers:

  • Mobile App Convenience: A retail mobile app allows shoppers to clip digital coupons, build and save shopping lists, check in-store inventory, and discover the latest circular deals. The latest features include the ability to order for curbside pickup or manufacturer dropship directly through the app or scan and checkout via mobile in-store.
  • Loyalty Program Savings: Offering exclusive deals through a digital retail loyalty program remains one of the most effective tactics to increase in-store traffic, basket size, and revenue. Grocers can increase savings for their loyal customer base by combining their program with CPG brand loyalty programs and by creating multi-tiered, highly personalized campaigns that offer the biggest rewards to the biggest spenders.
  • First Party Data Personalization: Shoppers are willing to hand over their first party data and allow grocers to track their shopping behavior in exchange for more relevant offers, recommendations, and in-app content. With all the information they need at their fingertips, shoppers are leaning on retail mobile apps more than ever to help them navigate price uncertainty and substitution recommendations.

Shoppers have proven, time and time again, that nothing beats a local trip to the supermarket to hand-select fresh produce, talk to the butcher, smell the fresh-baked bread, and find inspiration through store offers and displays. Now that the dust has settled from the pandemic shake-up, it’s the ideal time to consider the future with an e-commerce platform that meets today’s shoppers where they are at, while providing the convenience, savings, and personalization that’s hard for third-party players to compete against.

Looking for a solution without a long-term contract or monthly fees to get your mobile app, retail media space, and e-commerce platform up and running? Contact Swiftly to learn more.