Can C-stores Deliver the Goods?

It was during these halcyon days that it looked like home delivery was going to become the future of retailing and could, quite possibly, replace brick-and-mortar stores.

[Read more: C-store Operators Face a New Convenience Imperative]

Coming out of the pandemic, a lot of people (including me) were talking about the importance of having home delivery services for convenience stores. The rapid adoption of the technology surrounding online ordering by consumers made it look like home delivery was going to continue as a viable consumer trend. Ordering was convenient, and customers seemed to have the time and money to place their orders, pay the delivery fees and wait for their items to arrive.

In addition, there was a generational change in the use of the smartphone. Millennials and the tech-savvy iPhone generation were much more at ease ordering products without actually talking to a person. These digital natives drove the online access of everything — from shopping to outsourcing services to ride and accommodation sharing — by touching one or two buttons on their phones.

However, while I still believe home delivery can be a viable business model and an important part of a retailer's omnichannel marketing strategy, I now know it's not for everyone.

We experimented with home delivery programs in our stores by using various apps, and we found that the service was not economically viable for small stores. The biggest problem is the fees that companies such as Uber Eats, Grubhub and DoorDash charge for making the deliveries. These fees can range from 15% to 30% of the transaction price of the items, plus other fixed delivery fees.

These fees can take a large bite out of the convenience retailer's gross profit margin. Typically, c-stores only get between 25% and 35% gross profit margins on the items they sell in the store. For a lot of convenience store operators, the store's profitability comes from selling gasoline (which is another concern for the industry and an entirely different discussion).

This meant that every time we sold an item using these delivery services, we lost money on the sale once our operating costs, including the labor costs of fulfilling the orders in the store, were factored in. To make matters worse, we were not gaining any other advantages from the home delivery sale. The customer experience was solely dependent upon how the third-party delivery service performed — if the delivery was late, it was because the third-party driver had other priorities; it was not something within our control.

We didn't gain customer loyalty because, first of all, the transaction was completely digital and impersonal, so we never had the chance to establish a personal relationship with the customer and, second, there were so many digital apps that it was very easy for us to get lost in the crowd and for the customer to choose somebody else.

It also made competitive pricing a real issue as prices were very transparent and a customer's buying decision was swayed by an item being a few cents cheaper, or the fact that a company was subsidizing the delivery fee. Some decisions were based upon the expected delivery time which, again, was out of our control because it was being handled by a third-party operator.

The Right Conditions for Home Delivery

I do think home delivery can still be a competitive edge for a small operator, but the program must be very tightly focused. The conditions where a small operator can compete, and possibly thrive, by offering home delivery are as follows.

First, you need to focus on what is being delivered. Low-margin items in the store will never be profitable once you add the cost of providing home delivery with either a third-party delivery fee or your labor picking the order and having someone within your store deliver it. Therefore, foodservice is really the only c-store category that can provide the margins necessary to sustain a home delivery program.

If you are offering a food program that is compelling, home delivery is a viable option. Of course, delivering foodservice has its own challenges — food safety, packaging, maintaining temperature, etc. — but these issues can be overcome. There may also be a few items in the store that you can combine with your foodservice program to increase your gross profit dollars, such as bundling the food offer with chips or drinks, which will increase the total purchase price.

Most importantly, your food must be so good that your customers will think of you when they are hungry. The food has to be restaurant quality with top-shelf ingredients because your competition is restaurants, including fast-food restaurants.

The second thing you need to consider is your method of delivery. There are a couple of ways you can approach this. The easiest, and most expensive, is using a third-party operator such as Uber Eats and DoorDash. These are recognized names and they provide a professional service, but they are costly and you don't have access to the customer information. The upside is they may introduce your store to a new customer base.

An alternative is to do the delivery yourself with someone on your staff delivering the food. The foodservice challenges I mentioned earlier still apply, but you will have much more control over the delivery cost and customer satisfaction than when using a third-party delivery program, and you will be able to harvest the customer information for future marketing opportunities. There are apps that provide online ordering, such as Square, Olo and Toast. All you have to do is provide the food and the transportation.

If you're planning to go down the self-delivery route, be sure to calculate the cost of having labor available to make a delivery, determine how the transportation will be provided (a company vehicle or the employee's vehicle), and consider the general liability insurance ramifications of having one of your employees driving and delivering food.

The third thing you must consider is your delivery area. Make sure it is a viable delivery area. Ideally, you need to be in a densely populated area so that the delivery times are short, and you have many customers available in a small area.

Last, but not least, you must have a good local marketing plan to get the word out that you have a home delivery program and offer promotions specific to home delivery — something that will take more time and money for you to put into place.

Your customers have to know about you and the service you are offering. They need to know how to find you and how to order from you because when they go on their phone, they will have multiple delivery services available to them and many of your competitors to choose from. If you have a loyalty program in place, getting the word out will be much easier.

Advertise in-store about what you're doing and come up with inexpensive ways of informing your customers that you have the service available. Use local mailers, put up leaflets and promote your service in the community newspaper to get the word out.

Home delivery can be a viable option, but it's not for everybody. For it to be successful and profitable, small operators must be laser-focused on providing the best product and service.

When the doorbell rings, will your store be able to deliver?

Editor's note: The opinions expressed in this article are the author's and do not necessarily reflect the views of Convenience Store News.