OPINIONTechnology

Are Delivery-Provider Marketplaces the Right Approach?

Benefits around convenience, rapid deployment are attractive
Photograph courtesy of Mercatus

Consumer demand for grocery e-commerce skyrocketed during the height of the COVID-19 pandemic, prompting grocers to look for ways to scale their online presence quickly. For some time now, outsourcing e-commerce to a delivery-provider marketplace has made sense for a lot of grocery retailers. But as demand grows and more customers shift their buying behavior to online, is it still a good business decision to go the delivery-provider marketplace route? Let’s explore.

How Can Marketplaces Help?

To maintain years of hard-earned success, retailers know they must begin meeting shoppers’ demands for an efficient and convenient online experience. To quickly get an e-commerce solution off the ground, many turn to a delivery-provider marketplace, a strategy with minimum inconvenience and upfront costs. This is an extremely attractive possibility, especially as consumers’ interest in online options soars.

Being part of an online marketplace increases grocers’ discoverability as well, by riding on the coattails of a large platform with SEO configured to attract local shoppers. By appearing on the platform with other grocers, it’s even possible to convert competitors’ customers. And with newfound home delivery options, grocers are satisfying customers’ needs for convenience, time-savings and, in today’s environment, contactless shopping.

Over the short term, grocers see impressive wins, such as top-line revenue gains and a marginal increase in online market share.

What’s the Cost of Marketplace Solutions?

This strategy does come with costs—both reputational and financial.

There’s always risk attached when a third party comes between a brand and its customers. During COVID-19’s rapid influx of online orders, working with some delivery-provider marketplaces has come at an added cost to the brand experience. With canceled orders andorder mishaps, delivery providers have been scrutinized by both unhappy shoppers and workers.

While not immediately apparent, the financial costs associated with relying exclusively on delivery-provider marketplaces can be significant. Here’s how:

  • Retailers, on average, see a margin of about 18% on an in-store transaction.
  • Using a delivery-provider marketplace, that margin falls to just 5%.
  • The online marketplace could earn, on average, as much as 14% margin on that same transaction.

By these estimates, for a typical $88 order, the retailer nets $4.40 while the marketplace operator takes $12.32.

And while grocers take on additional financial burdens, including delivery fees, tips, credit card fees, administration and labor costs, the delivery-provider marketplace operator is earning CPG advertising dollars—from the grocer’s shoppers.

Who Wins the Battle for Customer Data and Loyalty?

When using a delivery-provider marketplace, every transaction, product preference and click is tracked and stored by the delivery provider. It knows exactly what and when each customer buys, and it controls the experience from start to finish. It owns this and all the data it collects from the grocer’s customers—making it more difficult for the grocer to build loyalty.

A recent survey by Morgan Stanley found that 57% of Instacart shoppers would find another retailer on Instacart if their preferred retailer was not listed. Moreover, industry commentators have expressed concerns that some delivery-provider marketplaces could themselves become retailers, marketing products directly to customers and cutting the retailer out of the picture.

Is It Time to Look Past the Delivery-Provider Marketplace?

The benefits, especially around convenience and rapid deployment of online capabilities, make delivery-provider marketplaces an attractive and reasonable route for some grocers.

For those who worry about the possible downsides discussed above, being in control of the e-commerce experience means avoiding these pitfalls. For grocers already using a marketplace, this shift does not have to mean delisting from the marketplace altogether. Instead, it’s about having the freedom to onboard additional delivery providers, reach additional markets and dictate terms of data ownership and margins rather than executing within the rules and constraints placed by another business.

Embracing online grocery options is essential for retailers who want continued success during and beyond COVID-19. By first establishing goals and exploring the options, grocers can make informed decisions about what’s right for them. And for those who wish to move beyond the delivery-provider marketplace, they can explore avenues to recapture lost profits and reclaim ownership of valuable customer data.

Sylvain Perrier is president and CEO of Mercatus Technologies, Toronto.

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