The acceleration of ecommerce grocery sales during the pandemic forced retailers to add to their service options, including same-day delivery and curbside pickup, overnight. Online grocery sales grew 63.9% in the U.S. in 2020. We expect these changed consumer habits to persist. According to an AlixPartners survey, 19% of consumers are planning to spend net more on groceries compared to before the pandemic. And online is expected to make up 21.5% of total U.S. grocery sales by 2025.

To cater to rising consumer expectations, investments need to be made at every step of the process, from delivery and consumer-facing services to supply chain and technology in fulfillment centers.

As grocery retailers continue investing in and supporting digital channels, they have three main options: 1. build all capabilities in house; 2. acquire a third-party service and integrate it into existing processes; and 3. lease services to do it all from standalone grocery delivery providers, such as Instacart, DoorDash, and Shipt.

Every organization evaluates its right mix of solutions by asking questions like: Can it effectively manage a network of vendors in a cost-efficient manner that still delivers a strong customer experience? Are teams able to build and maintain a core capability that integrates well with supporting partner organizations?

While some retailers such as Target, which acquired Shipt, and Walmart, which put $14 billion in fulfillment center automation technology, can afford to spend big – most others have largely elected to lease. Other factors playing into this decision to lease are long technology development timelines and costly last-mile fulfillment hurdles. In contrast, many customers are already active on these third-party marketplaces, which offer quick and near-turnkey solutions.

However, grocery retailers must realize the opportunity costs of using third-party services. Not only do these marketplaces charge a service fee per order that can go up to 3%, but they also retain 100% of the advertising dollars spent on their site and have complete control of both the customer experience and consumer data. According to our analysis, a regional grocer in the U.S. is losing approximately $100 million every year in service fees and lost ad dollars (Figure 1):

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While it may seem like fully homegrown ecommerce solutions are not feasible for retailers with fewer than ~1,500 stores due to scale constraints, there are several long-term opportunity costs of inaction that must be considered:

Revenue risk as online channels keep growing: Because there is a lot of uncertainty around future digital revenue and its impact on margin, upfront investments in these channels seem daunting. However, it’s worth considering that consumer behavior has changed in a way that digital channels are likely to increase as a percentage of total sales. This means that continuing to rely on turnkey solutions will result in future loss of revenue.

Widening gap in technical capabilities: The technical capabilities demanded by digital channels have significant dependencies on other business units, making coordination and timely execution difficult. But this situation will only get worse as grocery retailers continue to rely on external technical expertise, exacerbating the organization’s technology and capability lag.

Risk to brand loyalty and customer experience: Retailers are rightly concerned about the possibility that there will be a non-insignificant difference in the customer experience in-store and any digital channel built in-house. This often dissuades them from making the shift. But because customers are increasingly demanding digital channels, if they don’t find a digital presence, retention can become a bigger problem.

Building the right talent pool: With labor and staffing urgent issues of the moment, retailers are keen to solve immediate needs. However, as the needs of the organization change, retailers that don’t build the right pipeline now may not have developed the internal capabilities to fulfill future needs.

Conducting a thorough business case review that considers future opportunity costs will allow retailers to appropriately consider if a move away from Instacart is advantageous. With omnichannel margins already thin, grocery retailers cannot afford to waste any unneeded dollars. However, with consumers now trained to only accept a higher level of service, the decision on how to provide it has become weightier than before. As retailers plan for 2022 and farther out, they must take an honest stock of the best option available for their situation and needs.