How to Deliver on the New Definition of Convenience. P. 36

THE BUSINESS OF CONVENIENCE RETAIL OCTOBER 2017 | CSPDAILYNEWS.COM

THE DIRECT SELL How to deliver on the new defnition of convenience. P. 36 As on-demand delivery upends retail, here’s how c-stores can take part in THE the revolution BY SAMANTHA DIRECT OLLER AND JACKSON LEWIS SELL ILLUSTRATIONS BY GUY SHIELD

Retailers shouldn’t let the consumer-direct movement pass them by.

36 CSP OCTOBER 2017 ervice by service, category by cate- equity. The consumer is more familiar with “Not only are we convenience space right now is to fgure out: onsider a pint of ice gory, the convenience store is being Shell than Filld, more experienced buying What are these new defnitions that we don’t replicated—and, some would ar- apples from Aldi than Amazon. But this layer taking market share understand that are enabled by technolo- cream. For most gue, improved—on smartphones and online of insulation will last only so long as online from the c-store, gy?” says Thoresen. “Laziness—for lack of a through on-demand, direct-to-consumer retailers add physical touch points—with no we’re creating a better word—suddenly becomes a new part c-stores, it’s a decent ofers. better examples than Amazon’s test of Am- of convenience.” Need something to drink or snack on? azonGo and its 2017 acquisition of Whole whole new market.” This doesn’t mean c-stores can’t deliver Place an order with goPuf, InstaCart, Pea- Foods Market [CSP—Feb. ’17, p. 28]. on this new defnition of convenience. But it category, solidly in pod or Drizly. How about a hot meal? Just tap “Ordering groceries online is on some does mean they must master the on-demand that UberEats, Grubhub or DoorDash app. level conceptual: You don’t see the products, delivery model—or, in some cases, fll in its the top 30. Maybe you could use a smoke? Yummy.com the facility, a lot of things until it comes to plans to be in 24 by the end of the year and gaps. will have a pack to your door in 30 minutes. your door. That is a little scary to people,” “an aggressive expansion platform” planned For goPuf, it’s the top seller. Car needs a top-of and wash? Luckily, you says Barnaby Montgomery, founder of for 2018, says Ilishayev. have Booster Fuels or Filld for the fllup, and online grocer Yummy.com, Los Angeles. GoPuff heavily targets millennials—in DELIVERING DATA And when the temperature Spify and Washos can provide that cleanup. Hence, he says, Amazon’s recent playbook. particular, college students—with its mar- ehind on-demand delivery’s “Convenience is going to a new level,” “The building, product and people in the keting. For example, the beverage section quick-fulfillment shine is a care- drops, sales increase by 80%. says Scott DeGraeve, a former executive community have a relevant impact on the of the goPuff app is called “Dranks,” and fully plotted, well-honed logistics for online grocer Peapod and principal with demand online.” the deals section is “Cheap Sh**.” “It’s what framework. Scott DeGraeve Consulting LLC in Chica- This dynamic is why Yummy.com, which makes people love goPuf,” Ilishayev says. Yummy.com’s six stores serve as ware- “People still want ice cream go. “It used to be a convenience store on ev- ofers online deliveries in 30 minutes or less, So while convenience stores may feel houses for its delivery service, with all on- ery corner and being able to pop in and out decided to open six brick-and-mortar neigh- their prime locations, impulse mastery and line orders picked from their shelves. About [in winter],” says Rafael quickly, get what you want with a few items. borhood markets in the Los Angeles area af- quick in-and-out protect them from the 40 local distributors supply the chain. Each But now … you can deliver it to me. That’s ter the launch of its online delivery service. on-demand delivery revolution that is rock- store is assigned its own mini feet of deliv- Ilishayev, co-founder of the even more convenient, and if you can get it Each site is 5,000 square feet with 3,000 ing the grocery world, they should not get ery trucks, which head out with one to three to me in an hour or so, that’s really great.” SKUs of fresh produce, meat, beer, wine, too comfortable. orders per route. Philadelphia-based online Consumers are clearly primed. snacks, deli sandwiches, general merchan- “ ‘Convenience’ is increasingly meaning “Because we deliver in 30 minutes, the “The fact that these businesses exist sig- dise and tobacco. But Yummy.com’s com- delivery, and convenience stores aren’t nec- routing of the order is a very important way nals that there is some kind of white space in petitive diferentiation is not necessarily this essarily geared there,” says Bill Bishop, chief to achieve our service promise,” Montgom- delivery service. “They just the marketplace that we didn’t see before,” brick/click model, but rather the ability to be architect of retail consultancy Brick Meets ery says. “You can’t overload a driver with says Erik Thoresen, principal with Technom- better—read: more convenient—than a trip Click, Barrington, Ill. “They’re geared to be too many orders where they can’t fulfll the don’t want to go out and get ic, Chicago. “A lot of that’s enabled by tech- to the grocery store, thanks to fast delivery. visited, not to be delivered from.” promise.” nology, which wasn’t feasible 10 years ago. And soon, it hopes to be less expensive too. “The challenge for people who are in the Yummy.com’s delivery fee is $6.87, with the ice cream.” “Because consumers are interested in do- Montgomery doesn’t consider Yummy. ing something new, they’re willing to take a com to be a convenience store. He doesn’t Also, e-commerce is a chance on a marketplace that doesn’t really even believe the channel is his competition. exist yet,” he continues. “And when they fnd Rather, he’s targeting traditional grocers and judgment-free zone. that those providers in that marketplace meet Amazon. But other on-demand delivery ser- their needs in a new and better way … they’re vices do have their sights dead set on c-stores. totally open to changing their behavior.” “Not only are we taking market share “Imagine walking to a And the consumers most likely to use away from the convenience store, we’re delivery are the younger set. Already, 48% creating this whole new market that didn’t 7-Eleven on campus and in the of Gen Z consumers say they order food for exist before for people [who] want the goods delivery at least once a week, compared to but can’t get them,” says Ilishayev of goPuf, back freezer you see 30 pints 23% of consumers overall, according to which allows customers to shop on its mo- Technomic’s 2017 Consumer Direct Study, bile app for everything from snacks to phone of ice cream,” says Ilishayev. powered by Ignite. Sixty percent of consum- chargers and laundry detergent. It delivers in ers say they would consider using grocery 30 minutes for a $1.95 delivery fee, which is “You want three of them, but delivery in the future. waived for orders over $49. Ilishayev and fellow co-founder Yakir Gola were your typical college kids driving you’re only going to get one.” BRICK BYPASS their car-bereft friends to nearby c-stores for f course, there are trade-ofs relat- snacks and other supplies. They thought it The goPuf customer is ed to consumer-direct shopping. would be easier if a business could bring the For one, many of the providers c-store to the customer, and so goPuf was defnitely springing for three. are startups with little to no brand PHOTO COURTESY OF GOPUFF born. Today it operates in 21 markets, with GoPuff delivers alcohol in at least 12 markets. Drivers check IDs using their goPuff app.

38 CSP OCTOBER 2017 OCTOBER 2017 CSP 39 BRICK CLICK a minimum order of $14.99. For orders $100 or greater, delivery is free. While the retailer ofers everything from cigarettes (with age verifcation occurring upon delivery) to deli sandwiches and cleaning products, 15 of its 20 most purchased items are fresh produce. Montgomery believes that this fact, along with its most popular delivery window being 6 to 9 p.m., shows that customers are using Yummy.com to buy meal components. Because customers place orders online at Yummy.com, this interface also serves as TRAVEL. According to Alexandria, Va.- BROWSE. The home screen of an inventory-management tool, helping the based NACS, 42% of fuel customers go into the goPuff app includes an average the c-store, and most make a purchase. of 1,800 to 2,000 SKUs. company track to the unit level at each of its stores. GoPuff has a warehouse positioned in the epicenter of each 2.5-mile-wide delivery zone to help it fulfll its 30-minute delivery window. It also has access to advanced tech- nological tools such as artifcial intelligence and machine learning. These tools allow it to analyze everything from driver behaviors to trafc patterns so it can continue to optimize deliveries. GoPuf is also building a database of cus- SHOP. According to State College, Pa.- CHECK OUT. The consumer places items tomers’ spending habits, including their pur- based VideoMining, about 20% of trips in a digital “cart” before purchase and chasing and sampling behavior and baskets, last fve minutes or more. picks a payment method (cash or credit). which is highly valuable to its supplier partners. Much of the data’s value comes from the unique nature of the online consumer, who makes diferent purchasing decisions than one who visits a brick-and-mortar c-store. Case in point: all that ice cream. GoPuf opened its frst warehouse in Phil- adelphia while its founders were still under- graduates at Drexel University. From there, it expanded to Boston and Washington, D.C. PAY. The average c-store basket RECEIVE. Once the order is placed, a The company looks for college towns and size is 2.4 units and $6.92, according delivery driver arrives at the consumer’s areas with high population density when to VideoMining. door within 30 minutes. searching for growth markets. Sometimes it opens multiple locations near each other to ensure proper coverage. For instance, it re- cently launched services in Evanston, Ill., a suburb just north of Chicago, where goPuf already had a location. For on-demand fuel delivery services, building density to make routes efcient and the ofer proftable is key. Filld, Mountain View, Calif., does this by charging diferent delivery fees based on the preferred delivery CONSUME. According to NACS, 83% of ENJOY. GoPuff charges a fat window. On days and times when there are food or beverage purchases made at a delivery fee of $1.95, which is waived few orders, delivery may be free as a way of c-store are consumed within one hour. for orders of $49 or more. building demand, while the busiest days get the highest delivery fee.

OCTOBER 2017 CSP 41 As volumes increase, Filld expects it will be able to anticipate demand within 5%, Chris Aubuchon, co-founder and former chief technology ofcer, told CSP this year. Others, such as Booster Fuels, Burlin- game, Calif., contract with companies to fll up employee vehicles in their parking lots, which minimizes the amount of driving its employees need to do. The company also has expanded its services to fleets, which keeps trucks busy at night.

THREE’S A CROWD eyond the pure-play operators such as goPuf and Filld are third-party delivery services that act as an extension for traditional retail brands, connecting them with the on-demand economy.

PHOTOCOM COURTESY. OF YUMMY In the grocery and big-box space, San Francisco-based Instacart ofers one-hour Yummy.com’s brick-and-mortar stores provide incremental sales to its online business. delivery for retailers such as Costco, Target, Wegmans, Aldi, CVS Pharmacy and Whole Foods. Its delivery fee varies by the size of per saying, ‘Hi, I’m shopping at the store; town, W.Va., and State College, Pa., stores, order and delivery time. Shipt partners with is there anything else you want?’ Or, ‘They which are located near universities. Cus- national and regional grocery chains such don’t have X; would you like Y instead?’ ” tomers use the OrderUp app to choose items as Kroger, Meijer, Publix, H-E-B and Harris Members can rate and tip their shopper on and pay for the order. These can include its Teeter. It also provides deliveries in as lit- the Shipt app and point out if an item picked made-to-order subs, pizza, breakfast items, tle as one hour, with a membership pricing was incorrect or unsatisfactory. Shipt will burritos and snacks. model. give them a credit to cover that item’s cost “It refects the same values and priori- Because each of these third-party ser- on the next order. ties that we have at Sheetz: getting what you vices represent retailers’ brands, customer Coop says that for now, the grocery seg- want, when you want and how you want it,” service—as executed by their shoppers—is a ment is providing Shipt with plenty of room said Ryan Sheetz, director of brand strategy critical element. to expand nationwide, so Shipt does not have for Altoona, Pa.-based Sheetz, at the Octo- “Our shoppers are really the bread and immediate plans to sign on convenience re- ber 2016 launch. butter of what we do,” says Julie Coop, tailer partners. Uber tested its own UberFresh food-de- outreach and events team leader for Shipt In the foodservice space, operators such livery service in 2014 as part of its on-de- LLC, Birmingham, Ala., which operates in as Grubhub, DoorDash, Postmates, Foodler mand ride app. It later relaunched it as a 69 cities. The company hires about 10% of and Seamless provide consumers with the separate ofer, UberEats, in 2015. applicants for shopper positions, screening ability to order hot, prepared food, beverag- “UberEats started out with this concept for understanding of produce quality and es and more from a variety of local menus. that if you could push a button and get a customer-service experience. Sheetz has partnered with OrderUp from ride, what else could you get at the push of “If a customer doesn’t have an excel- Groupon to deliver food from its Morgan- a button?” says Laura Zapata, a spokesper- lent customer-service experience, then son for the San Francisco-based company. the chances of them reordering drastically The UberEats app provides a marketplace decreases when that shopper leaves their of restaurant partners, which today number homes,” says Coop. Shipt coaches its shop- more than 60,000 in 112 cities in 28 coun- pers on best practices—such as how to pick “Laziness—for lack tries, including fne-dining, fast-casual and the ideal avocado or communicate effec- quick-service restaurants. McDonald’s is a tively with members—and rewards those of a better word— client, as well as c-store operators with de- who do well. suddenly becomes veloped foodservice programs. “Communication is a big one,” including Restaurant partners pay UberEats a per- calling the customer during the shopping a new part centage of sales, which varies by market, on trip, Coop says. “That’s as simple as a shop- of convenience.” every dish they sell. In return, restaurants

OCTOBER 2017 CSP 43 get an iPad to track orders and manage their built its business on small, rural towns, ofers delivery menu, as well as get advice from online ordering of pizza, along with delivery UberEats on maximizing their operations. from 550 of its 1,950 stores—both executed It also offers customer feedback tools in-house. Within its frst year of availability, to help guide operators in perfecting their the delivery service boosted sales of whole menus and ofer. pizzas by up to 40%. “If you’re testing a new dish, you can put Single-store operation Lou Perrine’s Gas it on UberEats to see what customers like and Groceries, Kenosha, Wis., launched and don’t like,” says Zapata, who points out a general delivery service five years ago. that operators can also use it to test entire Customers place orders over the phone or THE CONSUMER- restaurant concepts. “We’re expanding the at louperrine.com (with a mobile-ordering DIRECT reach of restaurants, allowing technology to app coming soon) for delivery within 45 help them experiment, improve their busi- minutes, within the hours of 10 a.m. to 6 OPPORTUNITY ness in house, show them how to set up their p.m. Monday through Friday, and 10 a.m. to kitchen and think about prep time.” 4 p.m. on Saturday. Everything in the store is DeGraeve encourages c-store retailers available for delivery for a $5 fee, including to partner with third parties, whether for tobacco but not beer and liquor. software to execute delivery from the store The service had its fts and starts as owner or to provide delivery services, especially as Anthony Perrine worked through the kinks the channel’s foodservice savviness grows. of logistics and marketing. Determining that $100,000+ “This is something that could be of value to $5 delivery fee was an exercise all its own. Average household income for consumers,” he says. Millennials have more “I thought, what is it going to cost me today’s consumer-direct customer, open minds about the c-store industry’s for fuel if the order hits the farthest point or 19% of U.S. households quality ofer, he says. “What’s a cost-efec- in Kenosha?” says Perrine. “And then, if tive way to partner with some third parties I’m paying an hourly employee, what is the to pull this together?” minimum amount of orders it’s going to cost Well-executed third-party deliveries me to cover their wage?” His goal: two deliv- are especially important for restaurants, eries an hour. Perrine hopes the upcoming because 44% of consumers blame a nega- Wisconsin winter will drive more trafc to tive third-party delivery experience on the his delivery service so he can hire a full-time restaurant, according to Technomic’s Con- delivery driver, because the work is now split , sumer Direct survey. among existing employees. $50000+ Projected average household “There will be a component [of third-par- Perrine expanded his delivery oferings income for consumer-direct ty delivery] that’s competitive, but there also to include food from two local restaurants: customers by 2025, or 52% of U.S. could be a component that is synergistic,” a family-owned Mexican establishment households says Bishop, who cites Instacart’s partner- leasing space at the back of his c-store, and ships with grocery retailers. “It’s reimagin- a nearby breakfast, burger and hot-dog ing your business in the light of your growth restaurant. Most of his customers are the in this new business model.” elderly, who prefer to order by phone, and millennials. For everyone else, making the direct sell for average c-store items can be CORNER THE MARKET tough. roving that the on-demand market- Lately, Perrine has been increasing his 60% Consumers who would consider place isn’t just for restaurants and local marketing efforts, namely with bill- using grocery delivery in the future grocers—nor high-density urban boards, and is working to secure another areas—are two strategic c-store restaurant as part of the delivery service. players. Casey’s General Stores, which has “People are still kind of like, ‘Am I that lazy to order a pack of cigarettes and a 2-li- ter of Coke? Have I reached that point in my life?’ when in reality they have,” says Per- rine. “They’re ordering stuf of Amazon all “The marketplace of the time.” C-store retailers also can intersect with 56%

Technomic Consumer Direct survey, February 2017, powered by Ignite Consumers who would is changing, and we the online economy without making a sin- consider using third-party

can’t be left behind.” gle delivery or even handling an order. Plaid Source: delivery in the future

44 CSP OCTOBER 2017 through them,” says Jonathan Polonsky, president of Plaid Pantries. This includes everyone from millennials to the elderly who might be concerned about having packages left on their doorsteps. Thanks to Amazon’s data-collection ca- pabilities, Plaid Pantries can measure store trafc growth through the pilot. Each site averages about 200 Amazon Locker visits made by 15,000 people per month. Po- lonsky acknowledges that Plaid Pantries is not converting all Amazon Locker customers into c-store shoppers. But anecdotally, managers tell Polonsky that some customers, after a third or fourth locker visit, do buy something in the store. And a diferent, unexpected customer base grew out of the pilot. “The delivery people who put packages in the lockers absolutely are our customers—

they’re always buying something from us,” PHOTO COURTESY OF SHIPT Shipt coaches its shoppers on best practices to ensure a high level of customer satisfaction. he says. With his one-year contract with Amazon having reached its end, and now proceeding Pantries Inc., Beaverton, Ore., added Ama- about placing the 6-foot-by-2-foot lockers month by month, Polonsky would like to see zon lockers to 71 of its 110 locations in 2016. at all its sites, but because of store footprint, the partnership continue. And despite Ama- Amazon customers use its mobile app to se- landlord or other constraints, 39 stores did zon’s forays into brick-and-mortar retail, he lect which locker they would like their pack- not make the cut. For the rest, Plaid Pantries is not worried about the online behemoth age delivered to, and they receive an email was eager to see whether the lockers could stealing his customers. notifcation upon delivery with a code that win new customers. “At the end of the day, we have irre- allows them to unlock the locker and retrieve “It was more about driving trafc from a placeable corner locations that are just that: the order. customer we probably didn’t have, getting They’re irreplaceable,” he says. “People will Amazon originally asked Plaid Pantries folks in stores who may not otherwise walk always have a need of wanting to go to a very convenient corner to pick up an instant On-Demand > UberEats offers its consumable.” restaurant partners the ability Whether it’s partnering with a third par- Data Toolkit to test new menu items and ty, forging a symbiotic relationship with an even restaurant concepts online retailer or diving straight into on-de- The many startups pioneering by harnessing customer mand delivery, c-store retailers are in the the on-demand delivery feedback tools in its app. privileged position of having a choice, says space are an innovative former Peapod executive DeGraeve. group, harnessing technology > GoPuff uses artifcial “It’s the opportune time to try to get out and data to supercharge intelligence and machine ahead of it instead of just waiting,” he says. the shopping transaction: learning to analyze “A lot of grocers waited, and now they’re orders and improve delivery scrambling. It’s better to be opportunistic > To maintain a high-quality route planning. and get out in front of it.” customer-service experience, “In my experience, if retailers are reluc- Shipt encourages retailer > Yummy.com’s online tant to pursue options and solutions that are members to score their ordering interface acts as an better than a trip to the store, it’s because transaction on everything inventory-management tool, they have stores—they don’t want to disrupt from shopper communication providing the retailer with a the marketplace by offering things better to order accuracy. real-time snapshot of stock than their current business,” says Montgom- down to the unit level at its ery of Yummy.com. “I totally understand warehouses/stores. that. However, the marketplace is changing, and we can’t be left behind.”

46 CSP OCTOBER 2017