Photo: RetailWire
Did Trader Joe’s make the right decision to end grocery deliveries?
Running counter to one of grocery’s biggest trends, Trader Joe’s announced it is ending its delivery service in New York City on March 1 with no plans to roll out delivery elsewhere. The high costs and arrival of numerous delivery services were cited as the reasons.
“When we originally introduced delivery, we had one store on 14th Street in Manhattan, options for outside delivery services were limited and ride-sharing meant hopping into a taxi with someone else. Today, there are seven Trader Joe’s stores across Manhattan, with more on the way, and services for transporting food and people abound,” Trader Joe’s said in a statement released to media outlets.
“What hasn’t changed is our focus on providing our customers with the best-quality products for great, everyday prices,” the grocer added. “Instead of passing along unsustainable cost increases to our customers, removing delivery will allow us to continue offering outstanding values and to make better use of valuable space in our stores.”
The grocer has offered delivery in New York for 10 years.
The move comes as Walmart, Kroger and Amazon (with Whole Foods) are ramping up online grocery fulfillment options. Analysts project that U.S. grocery e-commerce will take off over the next few years due to expanded pick-up and delivery options as well as robotics-driven picking efficiencies.
An article in Bloomberg suggested delivery costs are likely much higher in New York City with fierce competition in the area from Jet.com, Peapod, Instacart, FreshDirect and Amazon.
On the other hand, some feel third-party services can still support delivery and point out that TJ’s shift places more focus on winning in-store experience.
In explaining earlier this year why Trader Joe’s landed top on its list of America’s favorite grocery stores, dunnhumby wrote that having a minimal digital approach means Trader Joe’s falls short on convenience. But the bricks and mortar-only, private brand approach “minimizes costs and keeps prices low, allowing them to reinvest in customer service, product quality and in-store experience.”
- Trader Joe’s is killing its grocery delivery program even as Walmart, Whole Foods, and Kroger spend billions to win the online grocery wars – Business Insider
- Trader Joe’s to end grocery deliveries in New York City – Supermarket News
- Trader Joe’s Bows Out of Cutthroat NYC Online Grocery Market – Bloomberg
- Trader Joe’s Kills Its Grocery Delivery Program – Food & Wine
- The Supply Side: Online grocery poised for 20% annual growth by 2023- Talk Business – Talk Business
- Researchers expect online grocery sales to continue growing fast in 2019 and beyond – Digital Commerce 360
- Walmart taps 4 more delivery companies to help it get groceries to homes – CNBC
- These Are the Grocery Stores Americans Love the Most – Thrillist
- Why Trader Joe’s plans to end its grocery delivery program – Produce Retailer
Discussion Questions
DISCUSSION QUESTIONS: Is Trader Joe’s wise to end its delivery service in New York City and plans for other markets? Will Trader Joe’s eventually need to offer e-commerce options?
Poll
BrainTrust
Min-Jee Hwang
Director of Marketing, Wiser Solutions, Inc.
Mark Heckman
Principal, Mark Heckman Consulting
Yes, they’ve been doing this for 10 years and do not find an ROI. They know what their customers value and are not willing to try to be all for everyone. More retailers could take a page from TJ and invest in the in-store experience.
Well they do not deliver in Brooklyn. I think it is more important for lifestyle grocers to deliver to places where shoppers will not carry groceries back home vs. having delivery from three blocks from your home. I can handle three blocks, not three train transfers.
With so many grocers battling it out to find ways of making home delivery profitable, it makes sense for Trader Joe’s to sit things out for a while. They have the luxury of being unique with a loyal audience who shop them for their products, so it’s doubtful they’ll lose much business. In time, however, grocers are going to have to figure out how to make home delivery work for them financially, or we may start to see other grocers abandon the concept. With grocers having expensive stores to operate, the more they keep the customers from visiting their stores the more they are going to lose sales especially from lack of impulse buying. Self-driving vehicles, another expensive investment is not the solution, but rather finding incentives for those who do shop at home to still find reasons to visit the stores even if it is only occasionally.
Grocery delivery is not a particularly profitable business. Many retailers far bigger than Trader Joe’s have tried and struggled to get the financials to work. Retailers persist with it for fear of losing sales and market share. In this context, Trader Joe’s decision makes some sense: it wants to protect its bottom line and likely feels that its strong brand, extensive own label assortment, and its good price points will ensure customers continue to visit its stores. Judging from how crowded its shops are in Manhattan, there is some logic in this position.
Tough call, and Trader Joe’s is facing difficult decisions. You have to respect the fact that they are running the business by the numbers, rather than just following the crowd. However, just dropping delivery service without a good alternative (like pickup), is troubling.
Understanding the costs of running an e-commerce part of the business, Trader Joe’s should at least look at partnerships to cover it’s bases. Co-branding for e-commerce grocery would be a unique approach, but better than just leaving digital empty.
While I’m never saying never, Trader Joe’s is not a regular grocery store and doesn’t need to be delivering. We shop there for good food, great prices, and the chance to find something new and different in a small enough environment that exploration is possible (plus the monthly-ish flyer).
Their decision makes sense for their brand, and they have enough exclusive, unique private labels to make planning a trip worthwhile. Combine this with great prices, spot-on customer service, tasty treats to try and an overall engaging store, and I think many people would agree. Also, I love that they made a decision unapologetically and gave good reasons for it…then stood by confidently. Great leadership.
The key words are “unsustainable cost increases.” Trader Joe’s is focusing on their core mission — high-quality, high-value food. Product. And they are not pretending that unprofitable path-to-purchase solutions are a path to future brand health. So maybe they are losing some business that they would lose money on. I see no problem with that. Ceding unprofitable market share? So is every retailer in the process of closing stores. I see no problem with that. Right-sizing their way to long term brand health and prosperity? Sounds like the right move to me. And of course they can keep testing and experimenting with e-commerce options.
Trader Joe’s is, and continues to be, about the shopping experience. Trader Joe’s has become a destination. The focus for Trader Joe’s in New York should be about expediting the check out process. Last time I was there the line stretched to the back of the store. Focusing on and rewarding your in-store customers should be the priority. An ever-growing pet-peeve is walking into a Starbucks and having to wait until the baristas fill drive-thru and click-and-collect orders. The customers that walk into your store should be priorities.
While I understand Trader Joe’s decision on deliveries, I do believe they should develop an e-commerce program in order to remain relevant from both expectations and relevancy.
This is not going to hurt Trader Joe’s in my humble opinion. Trader Joe’s may be that one grocery store where the customers actually enjoy the shopping experience.
After 10 years, Trader Joe’s knows best when it comes to the ROI of their delivery service. I think the location of NYC also plays a role in the decision, as the large population and surplus of options make TJ delivery a bit unneeded. Also, the brand itself with its customer loyalty and private labels makes it easier to emphasize the in-store experience than other grocers.
Trader Joe’s is a unique brand among grocery stores so if they find delivery service to be unprofitable, not adding any increased value to their customers, this decision makes sense. However, as the grocery segment gets more and more competitive, I’d expect them to evaluate potential third-party relationships to bring this back in some form if their customers start demanding it or if they see customers migrating to other brands. Grocery delivery has been quite challenging for all brands with any semblance of profitability, but consumer convenience is still king so this story is far from over!
The category defines the table stakes. As Walmart is encouraging grocery delivery, Trader Joe’s may have little choice but to try again. ROI is a moving gauge. I think Trader Joe’s runs a the risk of not being seen as avant garde as its brand promises with the cutting of delivery. Maybe they need to explore more economical models for this service.
Sound decision on Traders Joe’s part — especially for their metro stores (and perhaps their parent company Aldi). For them, brand matters. Private labels matter. Store experience matters. By stepping out of the delivery space they continue to build on the loyalty and current branding of their products and services — including the down-to-earth pictures and comments splattered across the store walls. They’ll return if/when it adds to their bottom line and when down-to-earth is synonymous with delivery.
Without knowing the financials of their delivery business, it’s hard to comment on whether their decision is wise, but I will say that it is gutsy, and I’m guessing strategically sound.
With pretty much every retailer rushing to implement delivery and click and collect services, it is impressive that Trader Joe’s is making their own business decision and not running with the herd.
Trader Joe’s ending its delivery service is caused by two realizations: 1.) the fact that consumers at a 70 percent rate still like to shop in-store or like BOPIS, and 2.) third-party options for delivery are more numerous today than when Trader Joe’s started delivery, and it can be turned back on easily in the future.
If Trader’s Joe’s competitors continue to expand their delivery options, and their customers like it to the extent that it pushes business away, Trader Joe’s will be forced to bring back delivery services.
Trader Joe’s is experiential grocery shopping without even trying. Whole Foods, Walmart, Kroger etc. and their endless flood of PR schemes and enhancements based on delivery rather than food (product) is without merit in the world of Trader Joe’s.
The dynamics in NYC have changed for Trader Joe’s and with many more locations and third-party delivery options, it appears to be a smart decision to discontinue its delivery service. The point of differentiation for Trader Joe’s is its in-store experience and with more locations, consumers can enjoy the benefits of a fun and friendly shopping experience.
As consumers’ expectations change, Trader Joe’s may need to offer online ordering and delivery, but for now, they are focused on what they do best which is keeping prices low — Two Buck Chuck and the freshest flowers at the best price point.
Trader Joe’s has made a huge investment in expanding in New York City. If delivery isn’t cost-effective for them, it makes sense to shut it off. With its strong brand loyalty and expanded physical footprint, I don’t think this will hurt them at all.
One cannot argue with the fact that Trader Joe’s built its brand on what happens in its stores. Plus despite the meteoric growth of online food shopping, research shows that 87 percent of consumers prefer to shop for groceries in stores (Vixxo, 2019). Further, 60 percent said they simply favor the atmosphere and experience of shopping in brick-and-mortar stores. The proof is in the pudding for Trader Joe’s, as it has been recognized as the favorite American grocery store.
Having said this, I still think Trader Joe’s need to consider delivery options for its customers seeking enhanced convenience. It doe not necessarily mean it should resurrect its seemingly costly delivery service. Instead, it needs to continue researching other delivery options, e.g., third parties, that could solve this problem.
Trader Joe’s did indeed make the right decision to end their grocery delivery business. Delivering groceries, especially in large cities such as NYC, is an expensive proposition, and simply not profitable. Trader Joe’s charm and unique culture are what draws customers to their stores, not their delivery businesses.
It’s extremely challenging for Trader Joe’s to compete in the delivery segment with Whole Foods, Amazon Fresh, Fresh Direct and others that have already built their economies of scale, infrastructure, fulfillment centers, and the supporting digital technologies to mitigate the last mile.
The Trader Joe’s team should continue to keep their laser focus on their positive, sometimes quirky in-store experience, and interesting assortments.
Not every retail grocer needs a home delivery offering. Just as not every retailer can be the low price leader, etc, etc. What Trade Joe’s offers is a unique in-store experience and they would be better off investing into new, strategic locations than joining costly and the now frenetic fray of unprofitable home delivery.
I get it, delivery is expensive and they certainly do have a unique store experience, but looking at retail’s past 20 year’s struggles, eventually, you start to drop footfalls to the easier, more convenient on-line counterparts. So sooner or later, hopefully sooner, they’re going to have to figure out how to get back to deliveries. “Have to” being the operative term there.
Example: we have a great casual dining restaurant my family and I would go often. Everything about it is great: service, food, environment; just like Trader Joe’s. But after Postmates came along and we got used to using it, we hardly go to that restaurant anymore. Human condition. It’s just a LOT harder to get everyone in the car, go there, park, walk in, wait, drive back, etc, etc, etc, when with the press of a few buttons, it’s brought to your door.
The same will happen to Trader Joe’s. It’s just too damned easy now to shop in different ways with just about anyone, anywhere, anytime.
What I’d like to know is, how many of TJ’s customers depend on the delivery service. It seems to me that Trader Joe’s analysis included the potential of lost revenue from those that will only buy there if there is delivery service.
If they open more stores in Manhattan, I’m sure they will reap the reward of their quality products at a great value. In the meantime, there’s nothing to stop them from re-introducing their delivery service if they see sales drop. With their focus on the in-store experience, TJ’s has harnessed the opportunity to engage their customers with products from more categories. I agree with those who believe that buying online prohibits the number of product categories and brands consumers will consider.
I’m sure those of us who grimace at the race-to-the-bottom for money losing delivery service(s) will want to applaud this move for (perceived) bravery, even if “it doesn’t make sense” in some strict strategic sense.
But does it make sense? None of us, of course, is in a position to know, but I think all of us accept that they seem to do pretty well, decision-wise, and I for one will be giving them the benefit of the doubt.
Just curious here. Has anyone besides me done a complete analysis of home delivery for supermarkets? I spent almost 2 years with a man in California going thru this, and came to the conclusion that the true cost of delivery is close to $12-$15. How can you justify a $5 fee, when it cost’s 3x that figure? This was done in 2013-14, and labor has gone up since then, so Trader Joe’s knows it can not continue to do this and turn a profit. And that my friends is the bottom line.
Even BOPIS costs 7-8 dollars, which is mostly labor, and storage, and yet many large chains are moving forward on this, as they do not want to lose market share.
Our industry has the lowest margins and to turn a profit, you must find a way to either build in higher pricing, and logistically have enough vehicles to deliver into certain neighborhoods to keep costs down, without running everywhere with one van that would keep costs high.
There are exceptions, with catering delivery being a profit center because of 60-70% gross margins, which keeps the fees lower. I’m sure many will disagree with me, and that’s OK, but making a nice profit on this is nearly impossible, and if I had a third party service that would deliver for me, that would be my only option.
Interesting decision as so many grocers are offering delivery. I like that Trader Joe’s is taking a position that is customer focused; the choice of higher prices to fuel the costs of delivery or lower prices without delivery. What’s more important to the Trader Joe’s customer? This doesn’t mean they can’t change their mind. The delivery concept to many grocery retailers is somewhat new. Watching how other retailers handle delivery, is not a bad idea. At some point Trader Joe’s may have to jump back in. For now, they will stay in “their lane” and do what they do best.
Nothing can replace the human interaction, but successful retailers will find harmony between traditional retail and technology. I, for one, hope Trader Joe’s finds the model that bridges the two and allows them provide an exemplary (and, of course, profitable) consumer experience online as it does in-store.