Third-party versus in-house online grocery delivery

Luke Ritchie
insight featured image
With online grocery purchases continuing to grow as we emerge from the pandemic, retailers are faced with the challenge of expanding their digital services — whether that be on their own, through a third-party delivery provider or some combination of both.

In Australia, the online grocery market is dominated by twin juggernauts Coles and Woolworths, with both supermarket retailers running their own dedicated fleet of delivery vans right to their customers’ door. Whilst this can be expensive, it also affords them control over the “last mile” and the delivery experience enjoyed by their customers.

For most other categories – like fashion, electronics, household goods and homewares – retailers use external logistics providers to manage the “last mile”. Australia Post, DHL, Couriers Please and Toll have all benefited from the surging demand for home delivery of online purchases.

A third category of online sales exists via genuine third-party online aggregators. Think UberEats, DoorDash and Deliveroo in Australia. And whilst these operators tend to focus on restaurant and take-away food delivery, they are most definitely playing a role in home delivery of traditional groceries. Just open up any one of these apps and you’ll see Grocery options including Coles, IGA and Woolworths product ranges.

Internationally, third-party delivery of groceries is far more prevalent than in Australia where the supermarket duopoly dominates. In the United States, Instacart accounts for around 30% of the total online grocery market of $120 billion.

In Asia, third-party apps are even more popular. For example, more than 50% of Thailand’s online grocery shoppers use third-party apps, even if they sometimes also use the branded app. So, what are the advantages and disadvantages for retailers of using third-party delivery apps like these?

On the plus side, supermarket brands can outsource the “costly” elements of online retail – picking, packing and delivery. Brands like Instacart employ hundreds of thousands of shoppers to literally perform your grocery shop on your behalf. This can allow retailers to focus on the core elements of their business – product range, availability and price. This can be particularly useful for new retail brands or small businesses with limited resources to quickly gain scale.

Third-party services also bring vast resources – not just digital capability, but also access to ready-made delivery drivers and vehicles. They may also bring new customers through their loyal app users, who may now avail themselves of a retailer’s products where they may not have previously shopped that brand.

However, there are several cons. Firstly, the loss of control of the delivery experience can have a dramatic impact on customer loyalty. A broken bottle or missing bag can drive a customer to switch to a competitor.

Secondly, the digital link between the customer and the retailer is broken. Valuable customer data is now captured by the third-party operator rather than the retailer. And of course, there are fees and commissions payable.

Qualitative feedback from grocery store workers also suggests the in-store shopping experience of traditional shoppers can be impacted by third-party shoppers. Driven by time pressures, third-party shoppers can be pushy, and can monopolise supermarket team members for help to find a given product. “After shoving his phone in my face, one guy said ‘I just need help finding 7 more items’”. This is not ideal.

On balance, there is clearly a place for third-party delivery operators. But the lack of control of the customer experience creates headaches and reduced customer loyalty.

On the other hand, home delivery infrastructure requires significant cost investment and associated risk. However, whilst home delivery was not a retailer core competency only two years ago, for many grocers – most certainly Coles and Woolworths – it is fast becoming a huge competitive advantage which smaller retailers cannot copy.

We are Retail

We are Retail

Read this article

Related content

View more

Subscribe to receive our publications

Subscribe now to be kept up-to-date with timely and relevant insights, unique to the nature of your business, your areas of interest and the industry in which you operate.