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Technology/Services

The Direct Sell

As on-demand delivery upends retail, here’s how c-stores can take part in the revolution

Consider a pint of ice cream. For most c-stores, it’s a decent category, solidly in the top 30.

For goPuff, it’s the top seller. And when the temperature drops, sales increase by 80%.

“People still want ice cream [in winter],” says Rafael Ilishayev, co-founder of the Philadelphia-based online delivery service. “They just don’t want to go out and get the ice cream.”

Also, e-commerce is a judgment-free zone.

“Imagine walking to a 7-Eleven on campus and in the back freezer you see 30 pints of ice cream,” says Ilishayev.

“You want three of them, but you’re only going to get one.”

The goPuff customer is definitely springing for three.

Service by service, category by category, the convenience store is being replicated—and, some would argue, improved—on smartphones and online through on-demand, direct-to-consumer offers.

Need something to drink or snack on? Place an order with goPuff, InstaCart, Peapod or Drizly. How about a hot meal? Just tap that UberEats, Grubhub or DoorDash app. Maybe you could use a smoke? Yummy.com will have a pack to your door in 30 minutes. Car needs a top-off and wash? Luckily, you have Booster Fuels or Filld for the fillup, and Spiffy and Washos can provide that cleanup.

“Convenience is going to a new level,” says Scott DeGraeve, a former executive for online grocer Peapod and principal with Scott DeGraeve Consulting LLC in Chicago.

“It used to be a convenience store on every corner and being able to pop in and out quickly, get what you want with a few items. But now … you can deliver it to me. That’s even more convenient, and if you can get it to me in an hour or so, that’s really great.”

Consumers are clearly primed.

“The fact that these businesses exist signals that there is some kind of white space in the marketplace that we didn’t see before,” says Erik Thoresen, principal with Technomic, Chicago. “A lot of that’s enabled by technology, which wasn’t feasible 10 years ago.

“Because consumers are interested in doing something new, they’re willing to take a chance on a marketplace that doesn’t really exist yet,” he continues. “And when they find that those providers in that marketplace meet their needs in a new and better way … they’re totally open to changing their behavior.”

And the consumers most likely to use delivery are the younger set. Already, 48% of Gen Z consumers say they order food for delivery at least once a week, compared to 23% of consumers overall, according to Technomic’s 2017 Consumer Direct Study, powered by Ignite. Sixty percent of consumers say they would consider using grocery delivery in the future.

Brick Bypass

Of course, there are trade-offs related to consumer-direct shopping. For one, many of the providers are startups with little to no brand equity. The consumer is more familiar with Shell than Filld, more experienced buying apples from Aldi than Amazon. But this layer of insulation will last only so long as online retailers add physical touch points—with no better examples than Amazon’s test of AmazonGo and its 2017 acquisition of Whole Foods Market [CSP—Feb. ’17].

“Ordering groceries online is on some level conceptual: You don’t see the products, the facility, a lot of things until it comes to your door. That is a little scary to people,” says Barnaby Montgomery, founder of online grocer Yummy.com, Los Angeles. Hence, he says, Amazon’s recent playbook. “The building, product and people in the community have a relevant impact on the demand online.”

This dynamic is why Yummy.com, which offers online deliveries in 30 minutes or less, decided to open six brick-and-mortar neighborhood markets in the Los Angeles area after the launch of its online delivery service. Each site is 5,000 square feet with 3,000 SKUs of fresh produce, meat, beer, wine, snacks, deli sandwiches, general merchandise and tobacco. But Yummy.com’s competitive differentiation is not necessarily this brick/click model, but rather the ability to be better—read: more convenient—than a trip to the grocery store, thanks to fast delivery.

And soon, it hopes to be less expensive too.

Montgomery doesn’t consider Yummy.com to be a convenience store. He doesn’t even believe the channel is his competition. Rather, he’s targeting traditional grocers and Amazon. But other on-demand delivery services do have their sights dead set on c-stores.

“Not only are we taking market share away from the convenience store, we’re creating this whole new market that didn’t exist before for people [who] want the goods but can’t get them,” says Ilishayev of goPuff, which allows customers to shop on its mobile app for everything from snacks to phone chargers and laundry detergent. It delivers in 30 minutes for a $1.95 delivery fee, which is waived for orders over $49.

Ilishayev and fellow co-founder Yakir Gola were your typical college kids driving their car-bereft friends to nearby c-stores for snacks and other supplies. They thought it would be easier if a business could bring the c-store to the customer, and so goPuff was born. Today it operates in 21 markets, with plans to be in 24 by the end of the year and “an aggressive expansion platform” planned for 2018, says Ilishayev.

GoPuff heavily targets millennials—in particular, college students—with its marketing. For example, the beverage section of the goPuff app is called “Dranks,” and the deals section is “Cheap Sh**.” “It’s what makes people love goPuff,” Ilishayev says.

So while convenience stores may feel their prime locations, impulse mastery and quick in-and-out protect them from the on-demand delivery revolution that is rocking the grocery world, they should not get too comfortable.

“ ‘Convenience’ is increasingly meaning delivery, and convenience stores aren’t necessarily geared there,” says Bill Bishop, chief architect of retail consultancy Brick Meets Click, Barrington, Ill. “They’re geared to be visited, not to be delivered from.”

“The challenge for people who are in the convenience space right now is to figure out: What are these new definitions that we don’t understand that are enabled by technology?” says Thoresen. “Laziness—for lack of a better word—suddenly becomes a new part of convenience.”

This doesn’t mean c-stores can’t deliver on this new definition of convenience. But it does mean they must master the on-demand delivery model—or, in some cases, fill in its gaps.

Delivering Data

Behind on-demand delivery’s quick-fulfillment shine is a carefully plotted, well-honed logistics framework.

Yummy.com’s six stores serve as warehouses for its delivery service, with all online orders picked from their shelves. About 40 local distributors supply the chain. Each store is assigned its own mini fleet of delivery trucks, which head out with one to three orders per route.

“Because we deliver in 30 minutes, the routing of the order is a very important way to achieve our service promise,” Montgomery says. “You can’t overload a driver with too many orders where they can’t fulfill the promise.”

Yummy.com’s delivery fee is $6.87, with a minimum order of $14.99. For orders $100 or greater, delivery is free. While the retailer offers everything from cigarettes (with age verification occurring upon delivery) to deli sandwiches and cleaning products, 15 of its 20 most purchased items are fresh produce. Montgomery believes that this fact, along with its most popular delivery window being 6 to 9 p.m., shows that customers are using Yummy.com to buy meal components.

Because customers place orders online at Yummy.com, this interface also serves as an inventory-management tool, helping the company track to the unit level at each of its stores.

GoPuff has a warehouse positioned in the epicenter of each 2.5-mile-wide delivery zone to help it fulfill its 30-minute delivery window. It also has access to advanced technological tools such as artificial intelligence and machine learning. These tools allow it to analyze everything from driver behaviors to traffic patterns so it can continue to optimize deliveries.

GoPuff is also building a database of customers’ spending habits, including their purchasing and sampling behavior and baskets, which is highly valuable to its supplier partners. Much of the data’s value comes from the unique nature of the online consumer, who makes different purchasing decisions than one who visits a brick-and-mortar c-store.

Case in point: all that ice cream.

GoPuff opened its first warehouse in Philadelphia while its founders were still undergraduates at Drexel University. From there, it expanded to Boston and Washington, D.C.

The company looks for college towns and areas with high population density when searching for growth markets. Sometimes it opens multiple locations near each other to ensure proper coverage. For instance, it recently launched services in Evanston, Ill., a suburb just north of Chicago, where goPuff already had a location.

For on-demand fuel delivery services, building density to make routes efficient and the offer profitable is key. Filld, Mountain View, Calif., does this by charging different delivery fees based on the preferred delivery window. On days and times when there are few orders, delivery may be free as a way of building demand, while the busiest days get the highest delivery fee.

As volumes increase, Filld expects it will be able to anticipate demand within 5%, Chris Aubuchon, co-founder and former chief technology officer, told CSP this year.

Others, such as Booster Fuels, Burlingame, Calif., contract with companies to fill up employee vehicles in their parking lots, which minimizes the amount of driving its employees need to do. The company also has expanded its services to fleets, which keeps trucks busy at night.

Three’s a Crowd

Beyond the pure-play operators such as goPuff and Filld are third-party delivery services that act as an extension for traditional retail brands, connecting them with the on-demand economy.

In the grocery and big-box space, San Francisco-based Instacart offers one-hour delivery for retailers such as Costco, Target, Wegmans, Aldi, CVS Pharmacy and Whole Foods. Its delivery fee varies by the size of order and delivery time. Shipt partners with national and regional grocery chains such as Kroger, Meijer, Publix, H-E-B and Harris Teeter. It also provides deliveries in as little as one hour, with a membership pricing model.

Because each of these third-party services represent retailers’ brands, customer service—as executed by their shoppers—is a critical element.

“Our shoppers are really the bread and butter of what we do,” says Julie Coop, outreach and events team leader for Shipt LLC, Birmingham, Ala., which operates in 69 cities. The company hires about 10% of applicants for shopper positions, screening for understanding of produce quality and customer-service experience.

“If a customer doesn’t have an excellent customer-service experience, then the chances of them reordering drastically decreases when that shopper leaves their homes,” says Coop. Shipt coaches its shoppers on best practices—such as how to pick the ideal avocado or communicate effectively with members—and rewards those who do well.

“Communication is a big one,” including calling the customer during the shopping trip, Coop says. “That’s as simple as a shop per saying, ‘Hi, I’m shopping at the store; is there anything else you want?’ Or, ‘They don’t have X; would you like Y instead?’ ”

Members can rate and tip their shopper on the Shipt app and point out if an item picked was incorrect or unsatisfactory. Shipt will give them a credit to cover that item’s cost on the next order.

Coop says that for now, the grocery segment is providing Shipt with plenty of room to expand nationwide, so Shipt does not have immediate plans to sign on convenience retailer partners.

In the foodservice space, operators such as Grubhub, DoorDash, Postmates, Foodler and Seamless provide consumers with the ability to order hot, prepared food, beverages and more from a variety of local menus.

Sheetz has partnered with OrderUp from Groupon to deliver food from its Morgantown, W.Va., and State College, Pa., stores, which are located near universities. Customers use the OrderUp app to choose items and pay for the order. These can include its made-to-order subs, pizza, breakfast items, burritos and snacks.

“It reflects the same values and priorities that we have at Sheetz: getting what you want, when you want and how you want it,” said Ryan Sheetz, director of brand strategy for Altoona, Pa.-based Sheetz Inc., at the October 2016 launch.

Uber tested its own UberFresh food-delivery service in 2014 as part of its on-demand ride app. It later relaunched it as a separate offer, UberEats, in 2015.

“UberEats started out with this concept that if you could push a button and get a ride, what else could you get at the push of a button?” says Laura Zapata, a spokesperson for the San Francisco-based company.

The UberEats app provides a marketplace of restaurant partners, which today number more than 60,000 in 112 cities in 28 countries, including fine-dining, fast-casual and quick-service restaurants. McDonald’s is a client, as well as c-store operators with developed foodservice programs.

Restaurant partners pay UberEats a percentage of sales, which varies by market, on every dish they sell. In return, restaurants get an iPad to track orders and manage their delivery menu, as well as get advice from UberEats on maximizing their operations.

It also offers customer feedback tools to help guide operators in perfecting their menus and offer.

“If you’re testing a new dish, you can put it on UberEats to see what customers like and don’t like,” says Zapata, who points out that operators can also use it to test entire restaurant concepts. “We’re expanding the reach of restaurants, allowing technology to help them experiment, improve their business in house, show them how to set up their kitchen and think about prep time.”

DeGraeve encourages c-store retailers to partner with third parties, whether for software to execute delivery from the store or to provide delivery services, especially as the channel’s foodservice savviness grows.

“This is something that could be of value to consumers,” he says. Millennials have more open minds about the c-store industry’s quality offer, he says. “What’s a cost-effective way to partner with some third parties to pull this together?”

Well-executed third-party deliveries are especially important for restaurants, because 44% of consumers blame a negative third-party delivery experience on the restaurant, according to Technomic’s Consumer Direct survey.

“There will be a component [of third-party delivery] that’s competitive, but there also could be a component that is synergistic,” says Bishop, who cites Instacart’s partnerships with grocery retailers. “It’s reimagining your business in the light of your growth in this new business model.”

Corner The Market

roving that the on-demand marketplace isn’t just for restaurants and grocers—nor high-density urban areas—are two strategic c-store players. Casey’s General Stores, which has built its business on small, rural towns, offers online ordering of pizza, along with delivery from 550 of its 1,950 stores—both executed in-house. Within its first year of availability, the delivery service boosted sales of whole pizzas by up to 40%.

Single-store operation Lou Perrine’s Gas and Groceries, Kenosha, Wis., launched a general delivery service five years ago.

Customers place orders over the phone or at louperrine.com (with a mobile-ordering app coming soon) for delivery within 45 minutes, within the hours of 10 a.m. to 6 p.m. Monday through Friday, and 10 a.m. to 4 p.m. on Saturday. Everything in the store is available for delivery for a $5 fee, including tobacco but not beer and liquor.

The service had its fits and starts as owner Anthony Perrine worked through the kinks of logistics and marketing. Determining that $5 delivery fee was an exercise all its own.

“I thought, what is it going to cost me for fuel if the order hits the farthest point in Kenosha?” says Perrine. “And then, if I’m paying an hourly employee, what is the minimum amount of orders it’s going to cost me to cover their wage?” His goal: two deliveries an hour. Perrine hopes the upcoming Wisconsin winter will drive more traffic to his delivery service so he can hire a full-time delivery driver, because the work is now split among existing employees.

Perrine expanded his delivery offerings to include food from two local restaurants: a family-owned Mexican establishment leasing space at the back of his c-store, and a nearby breakfast, burger and hot-dog restaurant. Most of his customers are the elderly, who prefer to order by phone, and millennials. For everyone else, making the direct sell for average c-store items can be tough.

Lately, Perrine has been increasing his local marketing efforts, namely with billboards, and is working to secure another restaurant as part of the delivery service.

“People are still kind of like, ‘Am I that lazy to order a pack of cigarettes and a 2-liter of Coke? Have I reached that point in my life?’ when in reality they have,” says Perrine. “They’re ordering stuff off Amazon all of the time.”

C-store retailers also can intersect with the online economy without making a single delivery or even handling an order. Plaid Pantries Inc., Beaverton, Ore., added Amazon lockers to 71 of its 110 locations in 2016.

Amazon customers use its mobile app to select which locker they would like their package delivered to, and they receive an email notification upon delivery with a code that allows them to unlock the locker and retrieve the order.

Amazon originally asked Plaid Pantries about placing the 6-foot-by-2-foot lockers at all its sites, but because of store footprint, landlord or other constraints, 39 stores did not make the cut. For the rest, Plaid Pantries was eager to see whether the lockers could win new customers.

“It was more about driving traffic from a customer we probably didn’t have, getting folks in stores who may not otherwise walk through them,” says Jonathan Polonsky, president of Plaid Pantries. This includes everyone from millennials to the elderly who might be concerned about having packages left on their doorsteps.

Thanks to Amazon’s data-collection capabilities, Plaid Pantries can measure store traffic growth through the pilot. Each site averages about 200 Amazon Locker visits made by 15,000 people per month. Polonsky acknowledges that Plaid Pantries is not converting all Amazon Locker customers into c-store shoppers. But anecdotally, managers tell Polonsky that some customers, after a third or fourth locker visit, do buy something in the store. And a different, unexpected customer base grew out of the pilot.

“The delivery people who put packages in the lockers absolutely are our customers—they’re always buying something from us,” he says.

With his one-year contract with Amazon having reached its end, and now proceeding month by month, Polonsky would like to see the partnership continue. And despite Amazon’s forays into brick-and-mortar retail, he is not worried about the online behemoth stealing his customers.

“At the end of the day, we have irreplaceable corner locations that are just that: They’re irreplaceable,” he says. “People will always have a need of wanting to go to a very convenient corner to pick up an instant consumable.”

Whether it’s partnering with a third party, forging a symbiotic relationship with an online retailer or diving straight into on-demand delivery, c-store retailers are in the privileged position of having a choice, says former Peapod executive DeGraeve.

“It’s the opportune time to try to get out ahead of it instead of just waiting,” he says. “A lot of grocers waited, and now they’re scrambling. It’s better to be opportunistic and get out in front of it.”

“In my experience, if retailers are reluctant to pursue options and solutions that are better than a trip to the store, it’s because they have stores—they don’t want to disrupt the marketplace by offering things better than their current business,” says Montgomery of Yummy.com. “I totally understand that. However, the marketplace is changing, and we can’t be left behind.”


On-Demand Data Toolkit

The many startups pioneering the on-demand delivery space are an innovative group, harnessing technology and data to supercharge the shopping transaction:

  • To maintain a high-quality customer-service experience, Shipt encourages retailer members to score their transaction on everything from shopper communication to order accuracy.
  • UberEats offers its restaurant partners the ability to test new menu items and even restaurant concepts by harnessing customer feedback tools in its app.
  • GoPuff uses artificial intelligence and machine learning to analyze orders and improve delivery route planning.
  • Yummy.com’s online ordering interface acts as an inventory-management tool, providing the retailer with a real-time snapshot of stock down to the unit level at its warehouses/stores.

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