Delivery Wars—Is Free Delivery Really Free?

A recent article in Retail Wire announced that Meijer, a retail grocery chain of more than 250 stores across the Midwest, would provide free shipping for orders over $35 through the end of January. This is a nice gesture that could help some of their existing customers and potentially bring in new ones.

Delivery options, especially related to the grocery industry, have become more than just popular since the beginning of the pandemic. They have become an expectation. Some stores use outside delivery companies, such as Instacart, to fulfill their customers’ needs.

At one point, delivery appeared to be free through some retailers. Others charged a small fee. Recently, Whole Foods, owned by Amazon, announced a $9.95 fee for each delivery. Walmart took advantage of the Whole Foods announcement and started promoting membership to its Walmart+ program, which costs $98 a year and includes free grocery delivery from local stores at the same prices customers would pay in-store, for no additional charge. That’s just one of the perks that come with the membership. Not to diminish the value of the Walmart+ program, but paying $98 means it’s not really free. It’s just really, really reasonable, provided you use it.

So, what is the convenience of delivery worth? Our customer experience research indicates that not only will customers pay more for good customer service, but they are also willing to pay even more for a convenient experience. And, when that convenience includes delivery, they will pay even more.

There was a time when delivery was truly free, at least it appeared to be. While there are many types of businesses that offered free delivery, let’s use the restaurant industry as an example. Prior to the pandemic, which began in March 2020, some restaurants provided free delivery. You would pay the same prices, regardless of eating in the restaurant or having it conveniently brought to your home or office. Then along came Covid-19, and that changed everything. These same restaurants started charging for delivery, not because they were trying to “gouge” their customers, but because it was a cost they could no longer bear, especially with the restrictions that were placed on their industry (no indoor dining, restricted occupancy numbers and more). And guess what? Customers were happy to pay the extra charge.  

Is “free delivery” really free? The short answer is that it looks like it is, but the reality is that it is not. The cost of any perk or service is often baked into the price of the product. It’s that simple. A business does not stay in business by giving away goods or services for free—or without a markup of some type.

Not charging extra is not the same as free, although it may appear to be so. The best companies have learned how to crunch their numbers to understand what they must charge in addition to the actual cost of an item to include whatever the perk is that they are offering. Some of these calculations are very sophisticated.

Let’s look at the airlines’ frequent flier program. Fly enough and you get a free trip. Who do you think is really paying for that trip? You are! It’s baked into the price of the tickets you purchased. Spend enough and they give it back to you in the form of a free ticket.

Because of the changes in the way we conduct business along with customers’ new and higher expectations, delivery has become an important offering. Just like “free shipping” that some retailers offer, customers may gravitate toward a company that promotes free delivery—or anything for free. All businesses, not just retail grocers, should look for ways to package perks for their customers that they can promote and use to compete at a higher level. Many customers will thank you—even if it means paying a little more—because it adds convenience and makes their lives easier.