Delivery Dilemma

C-stores weigh the trade-offs between own-staff versus third party in the mobile order and delivery landscape.

Delivery Dilemma

September 2021   minute read

By: Terri Allan

Responding to on-demand consumer orders has been “part of our vision since 2011,” said Anne Gauthier, co-CEO and chief finance officer of Y-Not-Stop, the Louisiana chain of more than a dozen convenience stores owned by St. Romain Oil Co. Acknowledging how most millennials and young consumers grew up with technology, Y-Not Stop began pursuing the potential of mobile orders and delivery a decade ago. And with demand skyrocketing in the past year, Gauthier doesn’t see any reason to turn back. “We’re betting on mobile ordering and delivery to play an increasing role at our stores,” she noted.

C-store industry experts agreed that on-demand ordering and delivery is here to stay. “Those c-stores not providing it are at risk of being out-convenienced,” remarked John Nelson, president and CEO of Vroom Delivery, which helps provide e-commerce solutions for c-stores. Nelson pointed to increased competition from the likes of DoorDash’s DashMart concept and GoPuff.  “In the past, convenience meant first in proximity,” he said. “Today, there are more options. The meaning of convenience is changing, and those who aren’t keeping up are at risk.”

Lori Stillman, NACS vice president of research, added that in today’s environment, digital ordering and delivery “keeps retailers relevant to their customers.” In the past year, consumers have had a tremendous opportunity to access products and services digitally, she continued, “and they like it. It saves them time. It’s convenient, and it provides a value.”

We saw a massive increase in demand for delivery during COVID.

Indeed, the pandemic has dramatically accelerated retailer adoption of a number of e-commerce strategies. “The pandemic has pushed e-commerce ahead by three years,” said Nelson, noting that prior to March 2020, on-demand grocery delivery was typically valued at $1 billion a month. These days, it easily tops $7 billion.

The opportunity hasn’t been lost on c-store operators big and small. “When the pandemic hit, we saw that consumers wanted limited contact, and there was an increase in delivery orders,” remarked Art Sebastian, vice president of digital experience at Casey’s, with more then 20,000 stores. As a result, Casey’s stepped up its mobile order and delivery offerings. Similarly, single-store owner Anthony Perrine, president of Lou Perrine’s Gas & Grocery in Kenosha, Wisconsin, said, “We saw a massive increase in demand for delivery during COVID.”

The NACS research report “Last-Mile Fulfillment in Convenience Retail,” released last year, also pointed to the recent ratcheting up in on-demand services by c-stores, with 68% of North American-based store operators polled saying that they began offering last-mile fulfillment in response to the pandemic. While the study found that mobile orders for in-store pickup were the most frequently offered last-mile service, delivery is gaining ground. Third-party platforms like DoorDash and Uber Eats were the most frequent method for ordering, but delivery providers varied, with more than one-third of the stores surveyed using their own staff for delivery, according to the report.

Diverse Models

C-store partnerships with third-party delivery partners run the gamut. 7-Eleven exclusively uses third-party partners for delivery, with orders placed via outside platforms or the chain’s 7Now app. The company first started offering delivery four years ago. “In the past year we doubled our delivery footprint and quadrupled our daily delivery orders,” said Raghu Mahadevan, 7-Eleven senior vice president of digital, with much of the expansion driven by pandemic-induced consumer shopping habits. “We now offer on-demand ordering to more than 90% of our footprint, reaching 60 million households.”

Casey’s delivery method—which for years entailed largely phone-in pizza orders delivered by staff employees using their own vehicles—has transitioned during the course of the past year. According to Sebastian, the chain is utilizing a hybrid delivery model, powered by its own staff and third-party marketplace drivers, who fulfill orders either placed on the platforms themselves or via their “white label” delivery solutions. (White label platforms allow for orders to be placed on retailers’ own websites, while delivery is supported by the third party.) “We’re very pleased with the results. We’ve had highly incremental sales,” Sebastian said of the partnership with DoorDash, noting that a similar partnership with Uber Eats is in the works.

Choice Market, the upscale c-store concept now with four locations in Denver, is shifting toward a native mobile ordering and delivery system via its app, launched in September 2020. Mike Fogarty, founder and CEO, said that while the stores “still leverage third-party providers, our goal is to increasingly focus on our native model” to ensure the best customer service and reduce store fees associated with outside platforms. “We’ve seen a lot of user growth and growth in basket size,” Fogarty said of the shift. Choice utilizes electric vehicles and e-bikes when making its own deliveries and is looking into “unmanned delivery” through remote control or autonomous vehicles, Fogarty said, noting, “It’s a good fit for our model.”

Heightened Consumer Need

DoorDash has increased its emphasis on the c-store channel in the past year, after seeing a “heightened consumer need for household essentials on demand,” said Mike Goldblatt, head of grocery and convenience partnerships. Today, DoorDash has more than 21,000 c-stores on the platform, including banners like 7-Eleven, Casey’s, Circle K, E-Z Mart, GetGo, United Pacific and Wawa. Requirements and fees charged to retail partners vary by market and according to the specific set of products and services offered, Goldblatt noted. “It’s early days for the category,” he said of mobile ordering and delivery in c-stores, but it’s marked with “tremendous potential.” Also last year, DoorDash launched its own digital c-store, DashMart, in several cities around the country.

Rival Uber Eats began working with c-stores two years ago, and, again, those relationships accelerated during the pandemic, according to Matt Miller, new verticals operations lead for Uber Eats in the U.S. and Canada. Among the c-stores Uber Eats services are 7-Eleven, Circle K, Sheetz and Wawa, along with independent operators. “Given Uber’s expertise in last-mile delivery logistics and partnerships with merchants around the globe, we’re uniquely positioned to meet this need for both convenience merchants and consumers,” Miller remarked.

Third-party ordering and delivery platforms offer c-stores increased visibility to their offerings. “Our local logistics platform provides our merchant partners with the opportunity to reach new consumers, grow their businesses and benefit from incremental sales that leverage the fixed cost investments they’ve already made,” remarked Goldblatt.

Gauthier and Fogarty, who both have experience with the popular apps, agree. “They come with a built-in customer base,” said Fogarty. Other benefits include reduced labor costs and technology investments compared with store-only delivery. “They have the drivers, so there’s no liability, and you’re not paying someone to wait around to make deliveries,” explained Roy Strasburger, president of StrasGlobal, a c-store operations and consulting company. Stillman, meanwhile, noted that with the platforms, “the technology doesn’t have to be built.”

The challenges outweigh the benefits for some c-stores. Retailers and c-store experts pointed to the high fees involved with partnering with third-party providers and limited access to customer information and data as the biggest drawbacks. According to Strasburger, fees can reach as high as 30% per order. “If you’re only making a 31-34% margin, you don’t have much to work with,” he said.

Fogarty noted that one of the big reasons he pursued Choice Markets’ native platform was “to understand the customer better. We want to own the data to merchandise better and have the right products,” he said. Added Strasburger, “With third parties, you don’t own the customer. They do.” Pointing to concepts like DashMart, he cautioned that third-party platforms are now in the position to “harvest your data to use against you. So, the partnerships may only be short-term gains.”

Perhaps in an effort to address these concerns, DoorDash and Vroom Delivery recently unveiled an e-commerce program that allows c-stores to retain access to customer information. Through the platform, serviced by DoorDash, orders are processed via Vroom, giving retailers the ability to market their own e-commerce programs and reduce the high costs typically associated with third-party fulfillment. Lou Perrine’s was one of the first retailers to partner with the new program this spring, and the company planned to transition from the own-delivery service it has offered for the past eight years to the DoorDash network.

Among the other challenges of third-party providers is the inability to deliver age-restricted products—with legalities varying by state and market—syncing the technology of the platforms to that of POS systems, space constraints and the potential for adverse customer service experiences. “Retailers must do a risk/benefit assessment” before partnering with a provider, Strasburger advised.

Labor Woes

Native mobile ordering and delivery platforms also carry their share of benefits and drawbacks. According to both Sebastian and Stillman, the biggest perk is that retailers control the entire process—“from the web to the delivery driver,” Sebastian said. System integration is also minimized, Stillman noted. And when it comes to the delivery of age-restricted products, it is more common for store employees to be able to make deliveries to customers’ homes than third-party couriers.

Still, store delivery carries high costs, including labor, insurance, liability and vehicles. “It’s a static labor model,” remarked Sebastian. “You’re scheduling hours for drivers without orders,” he said, noting that Casey’s delivery personnel are compensated differently than in-store workers and utilize their own vehicles. Perrine added that it can be difficult to part with an employee to make a delivery when the store is busy. “It hinders our business to send someone out,” he said.

Discover important insights on winning trips, growing baskets and reinforcing industry leadership through last-mile fulfillment solutions. Scan the QR code to download the free NACS report “Last Mile Fulfillment in Convenience Retail.”

Delivery—whether own-store or third party—may not be right for all c-stores. “Take a look at your core competencies,” advised Stillman. “If you have the technology and footprint for a delivery model, look into it. If not, mobile orders and pickup may be a better solution.”

Both Goldblatt and Miller noted that while c-store mobile ordering and delivery is still emerging, the potential is vast. “C-stores that embrace delivery now are best set up for growth by building customer loyalty early,” Goldblatt said.

Perrine expects that in the future delivery will be just another service that c-stores provide. “It will never overtake the in-store model,” he said, “but it is a way to reach customers.”

Terri Allan

Terri Allan

Terri Allan is a New Jersey-based freelance writer. She can be reached at [email protected] and on Twitter at @terriallan.