The future of third party delivery in convenience retail

Published October 21, 2021

by Prerna Mascarenhas, Boyd Bryant and Dominque Shipley.

Convenience isn’t just the in-store experience anymore. As online delivery continues to grow in popularity, convenience store owners are searching for ways to enter the market. Creating an ecommerce system and delivery process from scratch is daunting and expensive—and that’s why store owners are turning to third party delivery.

Third party delivery can be a powerful tool for convenience stores, but it’s not right for everybody. Store owners must consider the cost, their ability to scale, and how it impacts their data collection and company branding before taking the plunge.

Why convenience stores are turning to third party delivery

Third party delivery solutions can help convenience store owners launch an e-commerce and delivery operation quickly. This grants operators access to a new market of customers.

Online delivery attracts a new customer base

The online food delivery market is expected to grow at a 10 percent clip during the next few years to a $449 billion global market. The average revenue per user is expected to be $153. That’s an enticing market for store owners to tap into.

Those users are ordering online because they are seeking the very value proposition convenience stores offer: speed and convenience.

So far, few shoppers are ordering delivery from convenience stores, according to food and beverage analytics firm Lumina Intelligence. However, the potential for growth is high. That same study shows two-thirds of shoppers didn’t even know online delivery from convenience stores was an option, and 70 percent of shoppers anticipate using convenience store delivery more in the future.

Outsourcing delivery lowers the barrier to entry

Solutions like Uber Eats, DoorDash, and Grubhub all include ecommerce platforms and delivery services in their packages. This eliminates many hurdles store owners face in launching their own online ordering strategy and makes it faster to market.

Launching an ecommerce platform and delivery service can be a costly and complicated undertaking. Store owners must create a seamless website experience and a simple checkout for customers, build an order fulfillment system, and then determine a delivery process, along with the hiring and training those new aspects of the business entail.

“If you don’t have a website already, or you don’t have an ecommerce platform already, you are going to have to start slow. Third party delivery is definitely going to be the way to go,” said Boyd Bryant, principal business consultant at NCR.

Labor costs also factor heavily into the decision to outsource delivery.

“Many convenience stores run lean, with just a few people, so that absolutely plays a role in whether you look at third party delivery, versus doing it yourself, because you have to consider if you even have the staff to fulfill orders yourself,” said Dominique Shipley, senior strategic partner for NCR.

The challenges convenience stores face with third party delivery

So, why shouldn’t every store owner partner with a third party delivery platform immediately? There are no free lunches, and third party delivery is no exception. Store owners must consider the cons and how they affect their long-term strategy for the business.

Steep commissions

Third party delivery solutions can take a serious bite out of profits, with commission rates often starting at 15 percent and climbing from there.

During the pandemic, the escalation of fees was eyebrow-raising enough to cause a backlash. Many state and local governments passed laws limiting how high those fees could go. In response, some platforms placed those fees on the customer instead.

High costs cut into a store’s bottom line and may make your prices less competitive for customers.

Fierce competition

Delivery has long played a niche role in the restaurant industry, but the proliferation of third-party delivery services has brought new players into the market, including a wider swath of restaurants, grocers, and even the delivery apps themselves.

“Many restaurants are also fulfilling delivery of grocery items that compete with convenience store offerings like alcohol, ice cream and groceries,” said Prerna Mascarenhas, Global Service Lead for Business Process Design Consulting at NCR.

Even the third-party delivery providers are becoming competitors. DoorDash, one of the largest providers, recently launched its own convenience store called DashMart.

Divided brand loyalty

When it comes to partnering with a third-party delivery service, Bryant says convenience store owners must ask themselves: “Are you building your loyalty, or Instacart’s loyalty?”

Store owners want customers to think of their brand first, not the delivery service they used to order the products. Using a delivery service also opens brands up to being blamed for errors they had no control over, like slow or inaccurate deliveries or the appearance and behavior of delivery drivers.

Of potentially greater concern is that when a convenience store opts to use a third party service for delivery, the customer data stays with the provider, not the store.

Supply chain pressures

“You really place more pressure on your supply chain once you go to any online or pickup at store or delivery. It brings your weaknesses to bear immediately,” Bryant said.

Ecommerce opens a convenience store up to a wider market, which means items can sell out faster. Empty shelves of the physical or digital variety can lead to customer dissatisfaction.

How convenience stores can make third party delivery work for them

Store owners can take steps to mitigate the challenges present in the third party delivery model and still retain the advantages.

Allow orders through your website

“Be sure to drive orders through your brand. Ensure your agreement with your platform allows you to drive orders through your website,” Bryant said.

This allows convenience retailers to retain brand loyalty and leverage data about customer buying habits.

National Restaurant Association data suggests 64 percent of customers prefer to order directly from brands, compared to just 18 percent who specifically prefer to order through third parties.

Driving orders through an owned channel like a website or app also allows store owners to offer different deals and alternate price structures for their customers based on those habits, Bryant explained.

Make sure your point-of-sale system allows you a real-time view of inventory

A sophisticated inventory management system is critical for a successful online ordering channel.

“You don’t want your shelves to run dry online or for your traditional customer base in-store either,“ Mascarenhas said. “People are also expecting fast delivery — if you don’t properly scale, people can be waiting two weeks. That won’t work in a market where Amazon is offering same day delivery.”

Store owners must invest in a system that lets them know where products are along the supply chain and when they are expected to ship and be received. A sophisticated point-of-sale system will help store owners understand what is available now and what will be available next week, a month, or even a quarter from now.

“If you don’t spend the time and money to get your supply chain in order, you can have the best, coolest website and all that, but you won’t have the experience customers are looking for because you’ll be out of stock of everything,” Shipley said.

Tailor online inventory to meet digital demands

“Offering online ordering is no longer a differentiator. Most retailers can do that now the cost of entry is not as prohibitive as before, so now you have to compete on price, assortment, quality, and delivery times,” Mascarenhas said.

Mascarenhas recommended curating what’s available by delivery slots. Store owners can tailor available items based on demand, inventory availability, and what travels well.

What people order online may be different than what the typical customer visiting the convenience store is looking for. Mascarenhas suggested digging into the data to see how purchase habits and patterns differ. Then, store owners may consider different prices and offer different deals for online customers.

What’s next for third party delivery?

The retail team at NCR Professional Services anticipates many changes ahead for the nascent online delivery industry.

Delivery services will continue to compete for market share. The battlegrounds will be in optimized delivery routes that offer benefits like speed and fuel savings.

Retailers can expect changes in services, like white label delivery options and a restructuring of prices. There may be more market consolidation ahead as well.

As the market changes, the calculations store owners must make to determine whether third party delivery is right for them will evolve. However, armed with the right questions, store owners can assess their operations to see how they can take advantage of the developing online delivery market. 

WEBINAR: Reimagine your grocery or c-store checkout experience & lower costs using your data.

See case studies & more.

Need more information?