Washington D.C. – Is grocery moving online? BusinessWeek reported earlier that Walmart is said to be experimenting with online grocery delivery. At the same time, many supermarket chains are expanding their grocery curbside pickup services. SuperMarket News is reporting that Harris Teeter is slashing its shop-online-pickup-groceries-curbside-at-the-store fee from $4.95 to $1.95. At $1.95, the fee likely only covers the cost of processing the online payment for Harris Teeter. At the same time other grocers are actively testing the curbside pickup options at their stores as well. Why do it?
Benefits and costs
According to the annual report, a typical Harris Teeter store averages about $400K in sales and $119K in gross profit every week, as Harris Teeter earns a pretty typical for grocery industry 30% gross margin rate. Assuming an average shopper basket of $35, in an average week a store draws in about 11.3K customers, each bringing in about $10.50 in gross margin (again, using the 30% margin rate). But online orders that are picked up at the store are likely much larger than $35 per basket. Often seen as a convenient alternative to stocking up at warehouse retailers (Costco, Sam’s Club), and cheaper than grocery home delivery, these baskets are likely 3 to 5 larger than average. In other words, the curbside pickup customers average closer to anywhere from $105 in sales & $31.50 in margin (3x larger than average) to $175 in sales & $52.50 in gross margin (5x larger than average).
It probably takes anywhere from 25 (for $105 baskets) to 40 minutes (for $175 baskets) for in-store personnel to assemble the ordered items, bag them and deliver them curbside for customer pickup. Ignoring for a minute other expenses such as installation of the required technology to process online orders for curbside pickup, handling of payments for customers who are pulling into the parking lot to pick up their groceries, to name just a few, 25-40 minutes of clerk time translates into $5-$8 in labor costs (assuming a $12/hour average for a clerk position).
So, to review, the online-ordered baskets average $31.50 to $52.50 in gross margin, and it costs Harris Teeter $5-$8 to pick them. So, net benefit is anywhere from $26.50 to $44.50, right? Not exactly! (more…)