Supply Chain Shakeup   //   December 8, 2022

As holiday shopping takes hold, retailers like Dollar Tree and Sephora are leaning into third-party delivery platforms

As shoppers come to expect faster deliveries for their orders this holiday season, retailers are increasingly relying on third-party delivery service providers like DoorDash and Instacart to handle fulfillment.

Dollar Tree expanded its partnership with Instacart in late October to deliver products as quickly as an hour. DoorDash, on the other hand, has been growing its roster of retail partners in recent months. It teamed up with Sephora in November to deliver beauty products within an hour, and the month before that, it added Tractor Supply into its app.

DoorDash previously told Modern Retail that the company sees this convenience delivery trend permeating throughout different categories. DoorDash also formed a partnership with Dick’s Sporting Goods stores announced in mid-September.

“New verticals are growing faster than even our core business,” said Shanna Prevé, DoorDash’s vp of partnerships. “So we’re investing a lot there, and we’re seeing great results with our consumers.”

With people continuing to shop online at a high rate during the holidays, retailers are turning to third-party delivery services to keep up with the demand. E-commerce giants like Amazon offering high-speed delivery services have also raised the expectations of shoppers. Teaming up with delivery service providers allows retailers to keep up with larger competitors without spending an exorbitant amount on last-mile deliveries.

“There’s this desire to be able to deliver this same-day experience without making someone come into a store location,” said Rebekah Kondrat, founder and managing partner at the consulting firm Rekon Retail. “Amazon has over the last 10 years changed the game in customer expectations.”

Growing demand

As faster delivery options become available, 62% of people now expect their orders to be delivered in under three business days, according to a 2022 shipping report from X Delivery and the Retail Management Institute of Santa Clara University. Shoppers are also hesitant to spend over $7 for speedier delivery. The study suggests that Amazon Prime’s rise has trained people to expect rapid delivery with no extra cost.

As such, platforms have been building out subscription services to appeal to more shoppers. For example, much like Amazon Prime, DoorDash’s membership program called DashPass also waves delivery fees and provides special offers. DoorDash said DashPass has well above 10 million members. Meanwhile, Uber’s recently formed partnership with beauty brand The Body Shop also offers shoppers free delivery on orders worth a minimum of $15 if they are an Uber One member.

Dollar Tree’s partnership with Instacart comes months after it revealed plans to improve its supply chain capabilities by ramping up its use of data analytics and automation to bring products quickly to stores. Outsourcing its last-mile delivery through Instacart lets the company improve fulfillment without driving costs too high, experts said.

Growing e-commerce costs

This customer expectation could spell trouble for retailers that don’t have the resources to provide fast delivery, especially during the holidays when retailers receive an avalanche of online orders. For one, finding seasonal workers to run retailers’ fulfillment side has become more challenging over the last couple of years, said Lee Whitaker, senior manager at consultancy firm The Parker Avery Group. He added that some retailers may also not have the technological capabilities to handle rapid delivery given the number of orders they receive during this time of the year.   

“Leveraging this crowdsource distribution network is additive to their traditional distribution network,” Whitaker said. “This is just one other way of providing call it some value-added service and meeting the customer… where they do their business.”

“These types of partnerships are used for the last mile type of delivery options, which means they’ll come to your store, pick it up from the store and then take it directly to the consumer’s home,” said Hilding Anderson, head of strategy for retail in North America at Publicis Sapient. “That’s generally the least profitable segment of the supply chain, because of just the number of stops that you have to make and the fact that most orders are relatively small.”

Figuring out an e-commerce strategy that is aligned with the level of demand has grown more challenging for brands in recent months. This year, for example, more people have begun returning to stores. The number of people who visited brick-and-mortar stores this Black Friday grew 17% to over 122.7 million, according to the National Retail Federation.

Rekon Retail’s Kondrat said that being on these quick delivery service platforms also offers retailers some marketing benefits. By being on these companies’ apps, some of their products might be suggested to consumers based on their previous purchases.   

“It’s an awareness and a marketing tool,” she said. “They want more eyeballs. I mean, if you’re not making your sales goals, you got to widen the funnel.”

Despite the benefits, inking partnerships with these third-party services means giving up control over how your products are delivered, especially because these firms employ gig workers. That means they might not have received the same amount of training that workers at FedEx or USPS might have gotten. Rob Oglesby, senior director at The Parker Avery Group, also said that these quick-delivery platforms must also have timely information on a retailer’s inventory.

“The biggest risk is the lack of control over the information,” Oglesby said. “You really shouldn’t take an order for something you don’t have product for because you’re getting yourself into either a short or substitution and neither one of those is the preferred solution.”