Making Third-Party Delivery Work for C-stores
Consumers’ growing appetites for delivery show no sign of slowing down, particularly among younger demographics. According to the National Restaurant Association, 53 percent of adults say purchasing takeout or delivery food is essential to the way they live. They’re bringing the expectations they formed while ordering from restaurants to prepared-food ordering from grocery and convenience stores — and increasingly, non-food items as well.
The marketplace is responding. 7-Eleven Inc. recently added a subscription option to the home delivery program it launched in 2018. BP announced a partnership with Uber Eats to offer delivery service via more than 3,000 locations globally by 2025.
Third-party services from Grubhub to DoorDash to Postmates not only offer delivery from retail brands including 7-Eleven, Walgreens, Wawa, QuickChek and The Ice Cream Shop, but also compete with their own convenience item delivery services. DoorDash’s DoubleDash even allows customers to piggyback convenience store runs on top of their restaurant orders.
Partnering with a third party for delivery enables a c-store to satisfy customer expectations without adding the labor costs, liability and extra insurance associated with employing drivers. Many delivery companies argue that their platforms also expose the c-store brand to a larger audience and create a new revenue stream.
But that doesn’t mean third-party delivery is a slam dunk for every c-store. At the top of the list of challenges is identifying ways to make third-party delivery profitable. C-stores also struggle to operationalize order fulfillment in their locations, integrate delivery services seamlessly into their backend systems, and ensure a good brand experience when part of the service is out of their control. Many c-stores are finding their engagement with third-party delivery providers is still a work in progress.
“I think you’d have a hard time finding one [c-store retailer] that says [third-party delivery is] working well and doesn’t need improvement,” says Perry Kramer, managing partner of Retail Consulting Partners, based in Boston.
OVERCOMING DELIVERY SERVICE CHALLENGES
Despite the many challenges, c-store brands are finding a path forward by learning from restaurants’ experiences and leveraging emerging best practices and technologies to meet the growing customer expectations for a delivery option.
Making Delivery Profitable
Many c-stores are finding that the costs and business practices of third-party delivery firms, which charge a commission as well as customer fees, make it tough to drive a profit. Sylvania, Ohio-based Stop and Go Stores (S&G) has faced challenges “making the math work where the margin made offsets the expense of the third party as well as internal labor needed to fulfill the orders,” notes Neal Frandsen, vice president of marketing.
However, he adds: “We are aware that if we want to remain relevant in the convenience store arena, we need to have an active food program and a delivery service to support that program.”
Stop and Go is currently in talks with a no-commission, flat-fee delivery service broker, Lula, to meet this demand, with a possible pilot in the works.
Other strategies to minimize costs and drive profit include limiting orders to busier stores and those with a foodservice offering, where the volume and margin may offset the additional costs. Some restaurants have tried raising prices for delivery items, although this has been met with customer backlash.
Experts urge c-stores to own as much of the ordering process as possible and then dispatch the delivery component to a third party, rather than relying exclusively on orders created in third-party apps such as those offered by Google or delivery companies. This not only gives the c-store more control, but also allows them to take a hybrid approach to delivery, using in-house drivers during the busiest hours and cross-training them on other tasks for slower times.
“You’ve got to do first-party ordering, where you own the client. It’s cheaper, you get more data, and you can provide a better personalized experience,” advises Andrew Robbins, CEO and co-founder of Paytronix Systems Inc., a provider of customer engagement solutions and loyalty programs. “If all they do is one marketplace, they’re going to get results that disappoint them.”
Ensure Smooth Operations
Commissions are not the only costs associated with third-party delivery. The right operations processes, staffing and technology are needed to help ensure orders are prepared, packed and tendered correctly.
A dedicated space to collect outgoing orders is a good start, but to ensure efficiency and accuracy, some c-stores are using mobile devices for order picking; printers to generate a QR coded label that also seals the bag for safety; and scanners to ensure the right order gets to the right driver. Without such an approach, “we’ve seen nightmares where the delivery guys have taken orders that were supposed to be picked up by customers, and customers have taken the delivery orders,” Kramer pointed out.
Dissatisfied customers will blame the c-store brand, not the delivery company, for any delivery issues, so it’s important to give store managers control over how orders are managed and dispatched. Access to a dashboard can help them manage flow, including choosing whether to accept incoming orders at a given moment based on labor, inventory and other factors. Store staff should also be trained on how to manage customers’ delivery complaints.
Conquer Integration Challenges
Customers expect a similar experience when ordering for delivery as shopping in-store, and that means accessing promotions, loyalty points, and accurate inventory. But this can be challenging when some orders are going through the third-party delivery company’s ordering platform.
Without integration of these platforms into the point-of-sale (POS), stores are stuck dealing with a lineup of separate tablets crowding the counter, and a less-than-satisfying customer experience due to out-of-stocks, inventory errors, and challenges redeeming coupons or using loyalty rewards. Locally sourced goods and age-restricted items add to the complexity, as does adding non-food items to orders.
But not all POS systems can be easily linked to third-party delivery platforms. “The level of effort to integrate a third-party application is directly related to the age and architecture of the existing systems,” says Kramer. “More modern systems have an architecture that is built to integrate to third-party systems, including delivery, ordering, loyalty and payments.”
It can be tough to fund such an upgrade, particularly when franchisees must be convinced of the return on such an investment at a time when there are lots of demands on their IT budgets.
New Albany, Ohio-based Englefield Oil’s Duchess Stores is excited that the recent extension of the partnership between BP and Uber Eats to the eastern United States may result in an upgraded POS system to address this issue.
“We’re hoping that those orders would actually come into the cash register that a team member might be standing at. That’s so much easier for a team member to manage than having to go to different pieces of equipment,” says Nathan Arnold, director of marketing for Duchess Stores.
Some operators are adopting software that enables them to set up and control how their menus are published to delivery aggregators, manage inbound orders through a single tablet or POS system, ease integration with the POS, and manage inventory. Tighter integration with the POS, inventory, first-party ordering and loyalty programs ensures a more seamless customer experience and the ability to execute more complex promotions, such as prompting the customer to increase the order size to get their next reward.
“You need to connect your inventory management system to your first-party ordering and your marketplaces,” says Paytronix’s Robbins, so the system can access and update inventory levels by store. “It’s got to be connected to your loyalty program as well, so it’s easy to sign up and easy to do the same promotions that you do in-store.”
First-party ordering, he says, is key to making delivery viable for most c-stores.
Ensure a Strong Brand Experience
Convenience store operators are also concerned about ensuring a great customer experience when a part of it is out of their control, particularly for prepared foods.
Instilling expectations into the contract is one way to address this, says Kramer. “You want to build a strong contract with service levels in it upfront before you pick your partner. And have penalties for services that are not up to your standards,” he recommends.
Duchess Stores takes extra steps to ensure the quality of orders for its in-house brand, Tic Tac Taco, as it hands them off to DoorDash drivers. “We will often double bag or put extra material around a product inside just to ensure that it is sitting flat. We also [seal] the bag for food security,” says Arnold, who noted that the retailer has placed orders itself to see how they arrive, such as checking to see if the order is cold because the driver took on multiple deliveries.
Arnold also has concerns about orders being cancelled because the third-party delivery companies may be struggling for workers, particularly in more rural markets.
ANSWERING DEMANDS FOR DELIVERY
Despite the financial and operational challenges, analysts agree that convenience stores must consider how to respond to burgeoning customer demand for delivery.
Already, 39 percent of convenience stores offer third-party delivery, according to Convenience Store News’ 2022 Forecast Study — a number many expect to grow.
Making third-party delivery successful is all about taking control, setting the terms and service levels that best fit a c-store’s unique business, empowering store associates with the right processes and technologies, driving traffic to first-party ordering platforms, and investing in software, integrations and quality assurance that ensure a seamless customer experience.
By Andrew Robbins, Paytronix
The pandemic permanently changed how people order food. That’s the key finding of the 2022 Paytronix Order & Delivery Report. The process of technological change that had been underway for a long time received a huge boost when the country was sent into lockdown in 2020. Now that we’re emerging from what we hope is the worst of the pandemic, we’re finding that consumers have embraced the digital revolution by using new technology to continue their connection with their favorite brands.
Paytronix data shows that a third of all food orders in March 2022 came in digitally, compared with just 12 percent pre-pandemic. What’s more, we’re seeing takeout emerge as preferred to delivery.
Still, third-party delivery services play a key role in the overall digital ecosystem, and savvy brands have embraced these technologies, along with other tools that enable them to simplify operations. A report from Paytronix and PYMNTS found that since the start of the pandemic, 42 percent of consumers have used at least one delivery aggregator. This is true even as consumers know they pay more to use that service.
There is evidence that this trend might be changing, though, as consumers opt to order directly when possible or, as seen in our data, opt to pick up rather than get food delivered.
This new trend becomes evident when consumers are asked about what drives their choice of an eatery. Convenience is a major factor, influencing 47 percent of purchases, with 19 percent of customers saying convenience is the most important driver of choice. Generation Z consumers are the most likely cohort to cite convenience as a motivator: 24 percent say it is the most important factor when choosing a place to eat. Similarly, 46.5 percent rank “convenient to pick up” as either “most important” or “important” when it comes to making eatery choices.
Increased digital orders have also opened the door for more guest reviews. Customers want to share their feedback and, in turn, feel they are heard. This provides brands with a huge opportunity to influence future customer visits and lifetime value by proactively responding.
The proliferation and growth of digital ordering means operators need more information on the front line. So often, delivery can go wrong, and this error is compounded by the difficulty of correcting mistakes off-premises.
When something does happen, getting the information quickly and directly to the manager so that he or she can intervene on behalf of the guest is the difference between winning a guest back and increasing the customer lifetime value (CLV) or losing them forever.
Paytronix data shows that customers leaving a 1-star rating are as likely to return as those leaving a 2.4-star rating. In fact, 13 percent of customers who left a 1-star review can be attracted back with a coupon, and that coupon results in a 4-times increase in CLV. Also, negative comments can lurk in 4-star ratings, and artificial intelligence (AI) can help surface negative sentiment at the right time to take corrective action.
As companies look to the future, there are exciting opportunities to explore programs that drive sales by learning and adapting to customer behavior. This is where artificial intelligence can play a key role. AI can drive individual customer action by providing superior customer experience, which translates into increasing top-line revenue for restaurants and c-stores.
Specifically, AI can recommend menu items tailored to individual customers. By understanding behavior segments within online ordering audiences, technology can quickly motivate subsequent orders to increase order size. For example, customers who order delivery are incredibly loyal, with 31 percent of delivery orders coming from repeat customers. They tip better and more often, too. Offers targeted at this group may not need to cost as much compared with other groups.
The future of digital ordering, based on AI, will enable a better customer experience, and that’s a bright future for c-store brands that embrace the technological change.
Andrew Robbins is CEO and co-founder of Paytronix Systems Inc.