Don’t Be Out-Convenienced on Delivery
By John Nelson
DoorDash’s recent move should raise a few eyebrows.
The third-party delivery platform may partner with retailers such as Wawa, Casey’s General Stores, and Circle K, but it appears to have larger ambitions. The company has quietly deployed “dark convenience stores” to six major cities: Chicago, Phoenix, Minneapolis, Dallas, Columbus, and Redwood City.
Similar to restaurant ghost kitchens, these “dark convenience stores” are warehouses without a physical storefront. Consumers access their products from a brand on the DoorDash app called “The Convenience Store.” When an order is placed for toilet paper, soda, chips, or any of a few thousand other essentials, a delivery driver will visit the warehouse, take possession of the order, and deliver it to the customer.
This move is hardly surprising. Convenience retailers generated $251.9 billion worth of in-store sales in 2019—their seventeenth year of record sales growth. From the perspective of venture capitalists and disruptive technology platforms, this is a honeypot that’s difficult to ignore.
To be fair, convenience retail is notoriously difficult to disrupt. I’m familiar with this since my family once operated multiple convenience stores in Texas. Amazon may ship goods tomorrow or even later in the day, but that doesn’t really help someone who wants a can of soda and a bag of chips right now. Convenience retailers make it easy to get what you want, at the moment when you need it.
But so does goPuff. With a promise of delivery within thirty minutes or less, the goPuff app has now expanded its reach to more than 500 markets using a network of approximately 200 warehouses. The fees are reasonable: $1.95 for orders under $49 and free for anything beyond that. A $5.95 monthly subscription will waive the fees entirely. To put it in perspective, you’ll often pay more in delivery fees for a single restaurant order than it costs for goPuff to waive their fees.
GoPuff ’s early marketing strategy is of particular interest since they targeted convenience retailers. Consider this tweet from 2018.
“Hey, Indianapolis. Say goodbye to the (in)convenience store. Get snacks, ice cream (yes), and more delivered to your door. Use code DELIVER10 for $10 off your first purchase.”
Similar language used to exist on their website: “Goodbye convenience store, hello goPuff.” The fact that they’re able to do this suggests that maybe being on the corner with 2,000 SKUs is no longer the definition of convenience.
Whether by goPuff, DoorDash, or even delivery from the local grocers, convenience retailers are at risk of being out-convenienced. The only question is what to do about it.
Although this industry took a “wait and see” approach over the past few years, the pandemic forced many large brands to implement delivery solutions within days or weeks. They typically cozied up to the third-party platforms. The large fees were a hard pill to swallow, but it was a quick and easy way to respond.
Now that the dust has settled, they’re realizing that the third-party platforms aren’t the answer. Retailers not only have to raise their prices to offset the fees, but these platforms require customers to pay service fees of 10% to 15%. Altogether, this makes retailers non- competitive with a company like GoPuff that does its own delivery at a fair price.
Retailers are also realizing that these platforms were designed for restaurants—not convenience stores. GrubHub is not designed to expose 2,000 SKUs or accommodate frequent promotions and price updates. One major retailer’s GrubHub listing only has a limited selection of RedBull and Monster rather than the full energy drink category. What if someone drinks Bang or Reign?
It’s also difficult to ensure consistent coverage across a brand. Third- party platforms limit delivery to densely populated areas, and they cannot serve retailers who exist outside of their service area.
Perhaps most concerning is the inability of these platforms to sell age-restricted products. Most states allow alcohol delivery, but they typically restrict it to first-party delivery—meaning you have to do it yourself. And while the third-party platforms may technically be able to deliver tobacco, it’s unlikely that they ever will.
The Vroom Delivery team recently analyzed sales data from the retailers who use our platform, and we found that alcohol and tobacco account for 38% and 24% of the average basket, respectively. At first glance, that means the average order of $39.28 is more than halved without those products. In reality, it’s even worse. Many orders start with age restricted products and won’t happen if they’re unavailable.
The path forward for retailers is an effective multi-channel approach. The issue isn’t physical versus digital, but rather how retailers can offer multiple pathways to access their brand. Delivery is a key component of this.
The Vroom Delivery team is proud to help retailers navigate this issue. We leveraged our retail and technology experience to create the first platform designed specifically for convenience stores. We’ll continue to do our part and help the industry avoid being out- convenienced.