While customers in the food and beverage industry are progressively demanding e-commerce and home delivery, grocery stores face the challenge of setting the right price for it. Efficient service, customer satisfaction, and labor needs are all variables grocers have in their mind when offering delivery – and finding the right cost balance while remaining profitable can be difficult.
Major supermarket chains such as Kroger offer customers the chance to buy groceries online and home-deliver them for a fee of $9.95 to $11.95. But in reality, delivery pricing is not all pieces of cake: In 2021, Amazon’s Whole Foods introduced free delivery within two hours – later that year, they had to step down on their offering to maintain product prices.
Smaller grocery stores are even under more pressure if they want to offer similar services with a competitive pricing strategy.
Let’s examine what grocers need to know when setting fees, minimum order quantities, and prices for subscription delivery.
Low fees or no fees?
Coresight Research found that 60.6% of online shoppers find low shipping fees to be more important than price, quality, or product availability. That’s why grocers are now testing very small fees (like $2) or even free delivery. As this makes online shopping significantly cheaper, it helps attract larger customer groups and lowers the threshold for customers to frequent orders.
However, the expenses for low or no fees are substantial for the stores, especially for independent supermarkets where customers’ shopping carts tend to be smaller. When customers don’t have to put down even a penny for home delivery, it can encourage them to buy fewer products more often. In the end, this puts more pressure on staff and the whole delivery system.
If you’re worried about breaking the bank or overburdening your staff by eliminating fees, you could instead use free delivery as a promotional tool. It’s a great marketing instrument on certain occasions, such as the holiday season or Mother’s Day. Also, free first-time order helps attract new customers.
Minimum order value
One way to encourage higher-order volumes is to set a minimum order value for online delivery. This option is quite popular in the food and beverage industry: Kroger, for example, charges a $2.99 fee and requires a $10 minimum order for 30-minute deliveries.
Yet, minima might encourage customers who enjoy ordering more frequently and placing smaller orders. But for most stores, larger orders generate more profit, while less order volume increases labor costs. For independent grocers, it is best to offer additional promotions to increase the minimum order size.
Many major chains offer subscription options to their customers, such as a $25 monthly fee for free delivery, daily specials, and other services. In Colombia, for instance, delivery giant Rappi offers a premium subscription along with an HBO video streaming service.
Subscription fees are great for retaining customers and covering delivery service costs. For stores that have lower variable expenses (due to higher volume), subscriptions may be a better option.. However, as subscriptions may not be the right tool to retain infrequent customers, you should always offer them only for your best customers. While the most preferred for frequent shopping customers, this option would be the most difficult to manage for independent grocers.
Instant delivery fees
Instant delivery may be the latest craze in the delivery industry. Though instant delivery is much more costly for stores due to higher labor utilization, it also allows setting a higher price for instantly delivered products or delivery fees.
Nevertheless, the actual customer demand for 30-minute delivery is much lower than many think – only 40% of customers view fast delivery as a priority.
From our experience, most customers prefer scheduled delivery with no items missing rather than fast delivery with missing items (such as forgotten items, out-of-stock, or low-quality products). It’s better for stores to fulfill their promise instead of overselling their capabilities: A safe one-hour delivery is much better seen than a belated 30-minute one.
Why there is no right answer
When it comes to setting the right price for your delivery options, there is no right answer for all supermarkets. Ultimately, each store must experiment with different models, test their customers’ behavior, and balance the trade-off between:
- Driving customer loyalty
- Paying for the cost of delivery
- Not overburdening the delivery staff
To fight these challenges, there is also a strong need to optimize delivery schedules and train staff properly. For example, the more customer orders staff can pick at once, the less congestion from pickers in the grocery aisles – and the more efficient and faster your delivery will be. And here’s where another correlation comes into play: The better the customer experience, the more likely customers are to pay more for the same services.
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