Grocery Stores Can't Do Curbside Pickup Profitably

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I spent part of today driving around Connecticut, looking at condos. On my way to an open house, I pulled into the parking lot of a grocery store, because I wanted to get something to eat.

The grocery store was doing curb side pick ups for those people who wanted to submit their grocery orders via an app. This is the kind of thing that makes superficial sense: there is a pandemic going on, some people don’t want to be in stores, and grocery stores want to sell as perishable goods as quickly as they can. Grocery stores are, after all, in the business of having a high asset turnover: they want to sell out of inventory quickly because, unlike, say, Apple or Home Depot, the products that grocery stores sell can spoil. And when grocers’ products spoil, that is money that they will never recoup through revenues.

So, grocers, forced to act quickly in the face of a pandemic, seized upon e-commerce. The model is beguilingly simple: put up a web site, or maybe an app, let people order what they want, similar to how one shops on Amazon. Then the grocery store would have employees pick the products, package them, and bring them to customers’ waiting cars.

However. There are a number of problems with this model. First: grocery stores have very small margins. This means that they don’t have a lot of cash to develop a robust shopping web site or app. Nor do they have a the cash to build out warehouses devoted solely to picking and packing. Grocery stores are optimized for customers to walk through, do their own picking, go to the cashier, pay, have their groceries bagged, and walk out of the store. Adding picking and packing to this is inefficient, precisely because the stores are laid out for customers’, and not pickers’ and packers’ benefits. Grocery stores are not warehouses.

This means that the amount of picking and packing that can be done per unit of time is sub-optimal, and therefore, expensive. And, again, grocers have thin margins.

I bet grocers are losing money on each web- or app-enabled order, even if they are turning over their inventory quickly enough such that the store doesn’t have to throw out spoiled produce. This strikes me as unsustainable over the long term.