The Next Big Gig for Delivery Companies Is Your Groceries
Wall St. Journal
Oct 02, 2019
Food-delivery companies are adding supermarkets and convenience stores to their order queues.
DoorDash Inc. and Postmates Inc. are among the companies striking deals beyond restaurants to expand their reach and revenue. In doing so, they face competition from rising food sales at Amazon.com Inc., from grocery-delivery specialist Instacart Inc. and from online supermarkets such as FreshDirect LLC and Koninklijke Ahold Delhaize NV’s Peapod.
U.S. consumers spend more on groceries than they do at restaurants on average annually, according to the Labor Department, making delivering groceries an opportunity for companies that have mainly focused on restaurants until now.
“We view food as the wedge,” Postmates Chief Operating Officer Vivek Patel said in an interview.
Postmates said Wednesday that it would start making deliveries from 174 Walgreens and Duane Reade stories in Manhattan and Brooklyn. Postmates said it hopes to take the partnership with the owner of those chains, Walgreens Boots Alliance Inc., nationwide.
Walmart products are also available for delivery on DoorDash and some regional services. DoorDash in August signed an agreement with e-commerce platform Mercato Inc. to make same-day deliveries from about 750 independent grocers in 22 states.
Uber Technologies Inc.’s Uber Eats division is testing grocery delivery in Australia and is in talks with some European and North American chains, executives said.
Grocery delivery is growing, but many customers have reported problems with the online-ordering systems and with receiving the deliveries. As a result, customers are hesitant to make a habit of paying more than they would at the supermarket. A Bernstein survey of 1,037 shoppers this summer found that 56% don’t shop for groceries online more often because they believe prices are lower if they go to the supermarket themselves.
Grocery orders tend to be bulkier than restaurant takeout, and drivers often have to wait longer for them to be prepared at stores. Grubhub Inc., one of the biggest food-delivery companies, has decided to stay focused on expanding its service from restaurants rather than add grocers.
And delivery companies that until now focused on restaurants face tough competition from established grocery services and expanded offerings from supermarkets themselves. Kroger Co. is investing millions of dollars in a network of warehouses to be run by Ocado Group PLC that it plans to use to expand its delivery reach.
Instacart, Target Corp.’s Shipt Inc. and Amazon have worked for years on ways to more efficiently prep grocery orders and get them delivered. Amazon executives have said their 2017 purchase of Whole Foods was motivated in part by plans to use the natural grocer’s stores as bases for grocery deliveries.
“It’s actually hard to do groceries well,” Instacart’s chief business officer, Nilam Ganenthiran, said in an interview. Instacart delivers from more than 300 supermarket chains, and was valued at around $7.8 billion when it raised $871 million last year.
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DoorDash is working to tailor its operations at supermarkets to best suit deliveries, said Casey North, a company vice president.
But the upside for delivery companies that figure out grocery delivery is high, said Robert Mollins, an analyst at Gordon Haskett Research Advisors. Adding supermarkets to their pickup lists could help delivery companies make more efficient use of their fleets because supermarket orders tend to come in earlier in the day than the evening rush for restaurant orders, he said.
Nadia Graham, a 24-year-old intern at a Denver marketing company, orders groceries via Amazon about three times a week because she trusts its drivers more than those from other services. She says drivers for delivery apps often bring her the wrong foods or try to leave the delivery at the entrance to her apartment complex.
“The reason we get food delivered is so that we get food delivered to our door,” she said.