Published January 15, 2021
COVID-19 spurred a boom in online ordering and delivery services, with businesses of all stripes adding contactless pickup and same-day drop-off to serve their homebound customers. And experts say consumers are unlikely to give up their demands for the convenience of digital channels, even as hopeful vaccines offer a glimpse of a new normal up ahead.
Brick-and-mortar businesses that want to keep their loyal customers and win new fans should heed these lessons from the recent explosion in third-party, tech-enabled delivery services.
Brick-and-mortar businesses need to embrace digital channels to stay connected to their customers. After all, it’s no secret that e-commerce competitors are capturing a larger share of consumer spending every year.
Boston Consulting Group (BCG) estimates that global online sales grew 10 times more quickly than in-person retail between 2017 and 2019. BCG also projected—even before the pandemic shifted consumer habits—that e-commerce would account for more than 20 percent of worldwide retail sales by 2023.
Digital tools like mobile apps give merchants a ready-made channel for tapping into that growth. But there are other benefits to digital tools aside from that advancement: Digital tools can capture valuable marketing data and build customer loyalty.
Putting more resources into digital tools can give brick-and-mortar businesses an edge over competitors who are lagging behind. In a recent survey, consulting firm McKinsey found more than a third of consumers had seen none of their most desired uses of tech, such as mobile payments or app-based ordering, available when they were shopping—what the firm called “a clear disconnect between what consumers desire and what retailers have delivered.”
Although many online delivery services started with a focus on food, they’ve quickly branched out into new categories of at-home staples. Brick-and-mortar retailers should have a plan to address customer demands for digital ordering, pickup and delivery, no matter the product.
National delivery services such as Instacart and Shipt already offer products from retailers like Target, Costco, CVS and Office Depot. Instacart and restaurant-focused DoorDash have also expanded into convenience stores, competing with startups such as goPuff. Beer, wine and liquor are even available for delivery in certain markets through services like Drizly.
Delivery companies are now showing just how quickly digital services can lower barriers to market entry by expanding into entirely new categories of retail. What’s next?
COVID-19 restrictions forced many consumers to rethink their routines and for businesses to pivot their operations on the fly, and shoppers rewarded businesses that gave them easy ways to make the changes. And experts think they could last well beyond the pandemic.
Boston Consulting Group reports that U.S. e-commerce sales in March were nearly 60 percent higher than the year before, driven by lockdowns in effect in many cities. Apptopia, a mobile app research company, reported that average daily downloads of grocery-delivery apps had doubled or even tripled in just a month.
The trend wasn’t just driven by more spending from existing customers who were stuck at home. Critically, new consumers also made the leap to digital services: BCG found that a fifth of purchasers surveyed in March were driven to online grocery orders for the first time.
Analysts think those habits are likely to stick around for the long term.
A McKinsey survey found that 75 percent of consumers tried a new way of shopping during the pandemic—a new brand, a new store or a new method such as delivery or curbside pickup. Perhaps the most unexpected result of the survey is that most consumers said they intend to continue those new behaviors after pandemic-era restrictions are lifted. That shift to digital, according to Boston Consulting Group, will affect “virtually every product category, no matter how large the online sales are now.”
Consumers want a good deal (especially in an economy struggling to come back from historic setbacks). But for customers, the simple joy of finding the right products and getting them quickly could be even more important now. So, if brick-and-mortar retailers expect to compete, they’ll need to offer deals on products and services consumers want—and deliver them quickly.
McKinsey research indicates that 46 percent of U.S. consumers have switched to new retailers or brands during the pandemic. Those who have tried new brands rated availability as the leading reason they had recently tried a new brand, with convenience coming in second.
Pandemic stresses have likely changed customers’ expectations to boot. A series of surveys from before and during pandemic restrictions found that “customers have been less forgiving during the pandemic,” according to University of Pennsylvania marketing professor Thomas Robertson. Robertson’s research also found that loyalty programs aren’t a cure-all if the underlying product or service isn’t up to snuff, with loyalty program members having higher expectations for service and support.
To make sure your digital experience is living up to expectations, NCR recommends that restaurant owners survey their customers before developing a mobile app and ensure that menu items are easy to navigate, with additional items and special product bundles integrated seamlessly.
Fast-growing digital services have faced pressure from regulators and industry advocates to change their payment structures and labor practices. Brick-and-mortar retailers should keep an eye on the latest legal questions as they evaluate new partners and sales channels.
Delivery startups, for example, have often used a non-traditional contractor labor force, also known as “gig“ workers. But that working arrangement has faced serious questions in the U.S., with critics asking whether the workers are treated fairly.
Voters in California recently approved a law, supported by gig-economy companies such as Uber and DoorDash, that exempts them from providing some employment-related benefits. But policies in other states are not settled and may differ from California’s approach.
The fees that delivery providers charge restaurants have also come under scrutiny. Officials in Washington State and Washington, D.C., for example, have capped delivery service commissions at 15 percent.
New tech services like online delivery aren’t a one-size-fits-all solution for traditional retailers. Brick-and-mortar businesses should experiment with different approaches and different partners to find the mix that works for their market and their brand.
As the National Retail Federation (NRF) said, “The moment is quietly being defined by retailers testing and expanding digitally driven options that haven’t necessarily been on consumers’ radar until now.” COVID-19 has prompted some third-party delivery providers to offer assistance to their retail partners, including lower fees, quicker payouts and marketing support.
Some businesses instead prefer to partner with local delivery services that can compete on price, while others see their own in-house delivery systems as a key differentiator that is too important to outsource. Another group might choose hybrid models that use delivery companies as an online storefront that sends orders to their own drivers. DoorDash has embraced that model through its “self-delivery” service, for example.
And while restaurants may have initially struck exclusive deals to keep fees low, they’re increasingly moving toward multiple partnerships to find the biggest upside—a shift that COVID-19 has accelerated, according to J. P. Morgan.
Brick-and-mortar retailers will have to craft nimble strategies for integrating digitally enabled delivery and ordering experiences that can stretch far beyond the effects of COVID-19.
That’s because experts expect more change to come in the sector, particularly as more companies become publicly traded—DoorDash recently went public, and investors expect Instacart to conduct an initial public offering in the coming months.
What could those changes look like? J.P. Morgan analysts think that, as workers return to the office, some companies could “remove cafeterias entirely and offer employees a discount on every online food order.” Delivery providers could also likely see further waves of mergers and acquisitions, potentially driving the number of major companies in the U.S. market from four down to two as investors look for profits.
Through it all, delivery services will need brick-and-mortar partners to thrive. That means retailers need to stay informed about this rapidly evolving market as restrictions ease and the U.S. settles into a new normal.