Shoppers are no longer frequenting the grocery store for their weekly stock-up like they did pre-COVID. Instead, they’re using grocery delivery or curbside pickup, causing retailers to rethink their space, customer experience, and last-mile delivery.
And the gap for those who have adopted versus those that haven’t will only get bigger. A recent study found that 74 percent of consumers said they made at least one online grocery purchase in the past 12 months. Experts are saying consumers will be spending $100 billion a year in online grocery by 2022.
With online grocery shopping growing, so are customer expectations. As more and more shoppers expect same-day delivery, stores have been forced to adapt to the changing needs of shoppers.
Many have turned to gig economy companies that can provide flexible staff or last-mile delivery. These companies have only been around for a few years, but have already disrupted many industries - and the retail sector is one of them. But it’s proven to not be as simple for grocers.
While gig economy companies can be a great stopgap to remain competitive, they’re short-sided and unlikely to be in your best interest - let’s learn why.
What is a Gig Economy Company
Gig economy companies are defined as a company who provides a (typically) digital platform to connect short-term, freelancers with clients for project-based services.
In today’s gig economy, people can request services for everything from grocery and food delivery from Instacart and DoorDash - to renting a room on Airbnb - to simple home repair via TaskRabbit. A customer’s order or service might even be fulfilled by a gig economy company without the consumer even knowing it - as many of these providers white label their solution for big box grocery chains.
This is how it typically works for grocery gig providers:
- A customer goes online to make a grocery order to be delivered to their home
- Once the customer has made their purchase through the website or app, the gig company sends the order to a temporary, flexible staff member
- The staff member picks the items in your order
- Your groceries arrive sometime later
It’s pretty straightforward, but there are pros and cons for grocers considering using a gig economy company for their buy online, pick up in-store and curbside solutions.
Disadvantages of Gig Providers
So the question is, as a grocer, should you use a gig economy company like Instacart and Shipt?
Industry executives say online purchases are less profitable than those made in-store because of the extra costs associated with fulfilling orders for customers. Instead of the customer picking the order themselves, the grocer has to pay their own staff to pick and package items on shoppers’ behalf. In fact, delivery typically adds $8 per order to grocers’ costs when compared to pickup.
While gig economy companies allow you to have more flexibility because you have an on-demand staff you don’t have to worry about salaries or benefits for, that flexibility might be costing you more than you think.
You're Giving up Control of Your Customer Data
Data is king. So why are so many grocers giving it up?
When grocers use a gig company, what they might not initially realize is that they're giving up control of their customer data. With consumers buying your products through these gig providers, Instacart owns the channel and - therefore - all your customer data. So not only are you losing money to Instacart, you’re losing a ton of critical customer data.
What's more - once a customer makes two purchases on your website and gives you their personally identifiable information (PII), the odds of that customer returning for additional purchases is basically certain.
But without owning the storefront, you don't have the customer at all.
While you might think you’re saving on benefits and salary, gig companies do not come cheaply. In a time of hazard pay, high turnover, and an ever-fluctuating need for labor, grocers are desperate to find cheap, reliable solutions to their workforce problem. So they turn to gig providers... but should they?
When compared to pick up, delivery typically adds $8 per order to grocers’ costs. Gig companies like Instacart charge as much as 10% per transaction. With the average order value being ~$95, these additional fees cut into grocers’ already narrow thin margins. It's just not sustainable.
Delivery adds approximately $8 per order to grocers’ costs.
These solutions are also expensive for your customer. Companies typically charge a fee + percentage on your customers order value. A smart consumer might look at their receipt and consider cheaper options from your competitor.
You're Putting your Future in their Hands
You're also relying on their reputation and business acumen. Instacart and DoorDash have been in the headlines for worker protests and effectively pocketing tips (a policy that has since been revised). This sort of negative attention can rear consumer scrutiny in your direction for doing business with them.
In the same vein, you're relying on their strategies and long-term plans to align with your own so you're not left high and dry if the tides change.
They’re not Invested in Your Brand
Lastly, with gaining the flexibility of contract workers, it might come at the cost of lowering your standards.
First, gig workers do not have to follow your standards for employee grooming - like having neat facial hair or white sneakers.
Next, these gig workers are lacking product knowledge. This makes them less adept at making smart substitutions on out-of-stock items or help your guests throughout the store - in fact, their presence might even cause confusion.
Finally, gig employees don’t work directly for you, they’re not invested in your brand or reputation. If they pick an incorrect or inadequate item you’re left holding the bag when your customers come back upset. With in-house employees, you can invest in training that will improve their speed, accuracy, and ability to deliver an awesome customer experience.
Why You Should Bring Order Fulfillment In-House
After understanding all of the risks and costs of using a gig company, many retailers are deciding that an in-house solution for order picking and last-mile delivery is the way to go.
It doesn’t have to be time-consuming or expensive process. Ox can help grocers brands implement a customized, agile solution using machine learning technology and artificial intelligence. With Ox’s augmented reality tech integrated into your retail system, picking efficiency among workers will improve, the customer will enjoy a seamless click-to-collect process, and your retail brand will experience increased sales and revenue growth.
If you want to enjoy faster order fulfillment, fewer order mistakes, increased customer satisfaction, and more revenue, you need Ox.
Customers’ expectations for fast, seamless service is growing. In a recent survey, 63% of respondents said they would like to be able to use curbside pickup and 56% wanted merchandise delivered to the trunk of their cars. In another study, 61% of consumers say a same-day delivery option would increase their loyalty to a brand. Which means if you’re not offering delivery - or curbside and BOPIS at the very least, your competitors are likely absorbing some of your customers.
As grocery chains devote more of their floor space to fulfill digital orders in response to customers’ increased food consumption at home and their growing reliance on online shopping, it’s important for them to optimize the space and workforce efficiently and strategically.
While gig companies like Instacart and Shipt were good crutches amidst an ever-changing 2020 environment, there are solutions out there that allow you to keep your customer data, leverage your existing workforce efficiently, and - most importantly - exceed your customers’ expectations.