Online Grocery Delivery Challenges

How to Overcome the Biggest Online Grocery Delivery Challenges Facing Retailers Today

This article was originally published with the title “Online Grocery Delivery Challenges that Retailers Must Solve to Stay Ahead of the Curve” on June 20, 2022. It was updated on December 16, 2024.

Deep delivery discounts are driving online grocery sales—but are grocers paying the price?

Walmart, Instacart, and other eGrocery powerhouses have been attracting more customers than ever to online grocery shopping through steep discounts on delivery subscriptions. While this surge has resulted in unprecedented eGrocery growth, grocery retailers aren’t seeing the same results as the grocery industry’s biggest players.

For many grocers, delivery has always been a tricky option to fulfill—let alone at a discount.

The high cost to serve delivery orders can quickly erode profit margins, making it challenging for smaller retailers to compete with the deep pockets of online grocery industry giants. Focusing on delivery also strips local grocers of their key advantages: proximity to customers and superior, personalized service that fosters loyalty.

Grocers can't afford to ignore these online grocery delivery challenges.

The Online Grocery Market

As delivery demand grows across the online grocery market, grocers are left wondering: Can we be both profitable and competitive with grocery delivery?

This article aims to help answer that question by identifying eight of the biggest challenges related to online grocery delivery and offering practical solutions and recommendations for each.

By tackling these obstacles head-on, grocers can enhance their delivery services, optimize operations, and deliver the type of exceptional grocery shopping experiences that keep customers coming back.

Technical Capabilities

The first challenge is simply having the capability to efficiently fulfill online orders.

To compete as an online grocery business, grocers need more than just a website or app—they need the technical infrastructure to seamlessly connect online and in-store operations.

That means an infrastructure that supports real-time inventory management, consistency across promotions, and synchronized online grocery shopping experiences. Creating a basic eCommerce platform is only the beginning. The real challenge lies in developing an integrated system that ensures smooth operations from end to end, allowing retailers to deliver on customer expectations.

However, building and maintaining the technical sophistication required for an online grocery business comes at a substantial cost, which can be a difficult hurdle for regional grocers already operating with thin margins. Investing in the right technology is crucial, but it can take time before these efforts produce a measurable return on investment.

Fortunately, grocers don't have to do it all themselves.

By partnering with reliable eCommerce technology providers that offer scalable solutions, retailers can manage their entire online order fulfillment process without the burden of building everything from scratch. 

This allows them to focus on meeting customer needs and driving growth, all while keeping costs under control.

Third-party Marketplaces 

Despite the advantages of integrating an eCommerce system, a lot of grocers are understandably turned off by the costs and complexity associated with it. 

As a result, many look to third-party fulfillment providers as a quick solution for handling online orders and delivery logistics.

While this approach may seem like an easy way to get into the game, it comes with its own set of grocery delivery challenges that need to be weighed carefully.

In the short term, using a third-party platform, such as Instacart, allows grocers to get their online operations up and running quickly without the significant upfront investment of developing proprietary technology. It also helps retailers tap into an existing customer base that’s already familiar with these platforms.

However, partnering with third-party providers comes at a steep cost that can significantly erode profit margins. Grocers lose out on valuable customer data, in-store advertising opportunities and retail media revenue when customers purchase through third-party platforms instead of directly through their own systems.

On top of this, grocers lose control over their customer experience, pricing, and brand when everything is being handled by a third party. Ultimately, this reliance diminishes their ability to drive omnichannel growth and strengthen customer loyalty.

To build a more sustainable online grocery business, retailers need to consider shifting towards developing their own technology platforms and managing their operations internally. By doing so, grocers can reclaim control over their customer relationships, preserve profit margins, and retain valuable vendor dollars.

For those looking to leverage online grocery marketplaces strategically, balancing the short-term benefits with long-term sustainability is key. That might mean a strategy initially designed to wean customers away from the third-party provider and toward the services a grocer offers in house, like pickup.

Pickup is Preferred for Online Shopping

Even with the rise of delivery sales over the last several months, pickup remains the most preferred method of fulfillment among online grocery shoppers in the US today.

We touched on this earlier, but this is a critical area for grocers to fully leverage.

Despite pickup being the overall preference, it falls to second place among the supermarket segment, where online grocery delivery is favored. This isn’t ideal for grocers, as delivery undermines some of their core strengths: proximity to customers and the high-quality, personalized service for which they’re known.

As we mentioned earlier, the deep discounts from big players like Walmart and Instacart only make things worse by setting unrealistic expectations for cheaper delivery services. This puts additional pressure on local grocers, making it even harder to compete profitably on delivery.

That’s why grocers should lean into pickup services. Pickup plays into the strengths grocers have traditionally excelled at: maintaining direct relationships with customers and delivering personalized, high-touch service. By enhancing their pickup offerings, grocers can transfer these strengths into the online grocery shopping experience.

Improving pickup services—such as offering more flexible time slots, reducing wait times with technology like geolocation, and bundling pickup with loyalty perks—allows grocers to create a compelling, cost-effective alternative to online grocery delivery.

Doubling down on pickup helps grocers keep costs in check while offering the convenience today’s shoppers demand, all without sacrificing profitability or their unique customer relationships.

Meeting Expectations

Whether the majority of orders to an online grocery business are for pickup or delivery, the level of service being provided to customers is of the utmost importance.

Customer experience is critical, and how effectively a grocer fulfills orders directly impacts that experience. Timely, accurate, and efficient order fulfillment not only meets customer expectations but also strengthens trust and loyalty.

Meeting customer expectations starts with improving the efficiency of your fulfillment operations. By fine-tuning how online grocery orders are picked, packed, and delivered, grocers can not only increase efficiency but also provide the timely, high-quality service customers expect.

Here are three strategies for online grocery stores to do exactly that:

1. Bag As You Go

Instead of staging grocery items for later bagging, pickers should bag items as they pull them from shelves. This reduces handling time and speeds up order assembly, resulting in quicker pickups and grocery deliveries for customers.

2. Optimize In-store Routing

Train pickers on the most efficient routes through the store or use mapping software to cut down on unnecessary steps. Faster navigation reduces fulfillment time, leading to shorter wait times and more satisfied customers. Today, route optimization software exists for exactly this purpose.

3. Implement Batch-picking

Have pickers fulfill multiple orders in a single trip to reduce the number of store passes needed. This increases efficiency, opens up more delivery and pickup slots, and ensures faster service without sacrificing accuracy.

By implementing these strategies, grocers can improve the overall fulfillment process, ensuring they meet customer expectations for timely and accurate service. When customers receive their orders quickly and correctly, whether through online grocery delivery or pickup, their trust in the retailer grows—and so does their loyalty.

As an added bonus, a more streamlined process will also reduce labor costs for online grocery businesses.

Additional Staffing Requirements

It’s a common misconception that eGrocery can’t be profitable.

This belief stems from the combined operational costs of implementing the necessary technology and hiring additional staff to manage the increased workload. Many grocers find the expense of extra staffing overwhelming, but labor doesn't have to be a profit-killer.In the previous section, we discussed three key strategies: bag as you go, optimize in-store routing, and batch-picking. Each of these tactics can significantly reduce inefficiencies, but they all hinge on one fundamental principle: minimizing unnecessary steps and touches in the picking process.

The Rule of 3s in The Picking Process

On average… it takes 3 seconds each time a product is touched and each product is touched three times (selecting, staging, bagging). Here’s how that adds up over time…

Every step a picker takes in the store and every time a product is handled directly translates into labor costs. If pickers spend too much time navigating the store or handling products multiple times, those inefficiencies can add up quickly and eat into already tight margins.

For example, handling a product takes approximately three seconds each time. That’s three seconds to pull an item from the shelf and place it into a cart. If that cart is taken to a staging area, another three seconds are spent moving the item onto a table. Then, when the product is finally bagged, it’s touched again for another three seconds.

In total, each product is handled at least three times, consuming nine seconds per item. For an average order of 32 items, that amounts to nearly five minutes of handling time alone. However, by minimizing these touches through a strategy like bag as you go, two-thirds of that time can be eliminated.

Over the course of 20 orders, this simple change can save an hour of labor, directly reducing operational costs associated with shopping online.

Now, apply this same mindset to other areas of in-store picking—like finding products or handling orders one by one when multiple orders are in the queue. Reducing the time, steps, and touches required to fulfill orders can significantly lower labor costs.

By refining these processes, grocers can reduce labor expenses and ensure that their online grocery operations remain profitable.

Temperature Control

Of course, not all products are the same. That's why maintaining freshness, especially for perishable items, can add a wrinkle to operational processes.

Many grocery items on a shopper's list may require temperature-controlled environments. Grocers need to balance the cost of preserving product quality with the need for efficient order fulfillment.

The infrastructure required for proper temperature management presents a significant challenge.

Grocers can address this by investing in temperature-controlled infrastructure that fits their operational scale. They can retrofit existing facilities with temperature zones for order staging and equip grocery delivery vehicles with insulated bags and coolers to maintain product quality.

For grocers with higher online grocery delivery volumes, building micro-fulfillment centers aways from brick-and-mortar, physical stores may offer a strategic advantage by positioning products closer to customers.

Investing in this infrastructure will pay off in the long run as it helps build customer loyalty through consistent product quality, ensuring that freshness is maintained from the store to the customer’s door.

Inventory Management 

Even with the greatest operational process in the world, it's important for online grocery stores to recognize that inventory volatility and substitutions are inevitable.

It's equally important to understand that substitutions and canceled orders can be a major source of frustration for customers.

If their chosen items are unavailable and substituted poorly, it can impact their overall experience, eroding loyalty and trust. This is especially critical for customers relying on urgent online grocery delivery orders, where getting the right product matters even more.

To mitigate these issues, grocers need a real-time inventory management system that seamlessly connects in-store and online operations. This ensures that inventory management is constantly updated, reducing the chances of stockouts and unnecessary substitutions.

Additionally, grocers can implement a real-time communication system between pickers and customers, allowing shoppers to approve substitutions on the go. This empowers customers with control over their orders, replicating the in-store experience and improving their satisfaction.

Optimizing inventory management in this way not only minimizes errors but also enhances the overall customer experience for online grocery businesses.

When problems do arise, offering proactive solutions—like quickly rescheduling grocery deliveries or offering compensation for the inconvenience—can turn a negative experience into a positive one that enhances customer satisfaction.

By addressing issues directly with personalized communication, grocers can retain existing customers and win back those who may have had a poor experience. 

Scaling Online Grocery Shopping

Many of the online grocery delivery challenges related to delivery are centered on meeting rising customer expectations while managing complex fulfillment operations.

Even with the best delivery processes in the world, achieving this requires more than just a smooth workflow. Without a centralized fulfillment platform, grocers risk inefficiencies, longer wait times, and poor communication—all of which negatively impact customer satisfaction.

Managing fulfillment without integration can result in slower online grocery delivery times, increased costs, and operational bottlenecks.

That's why grocers need a centralized fulfillment platform that integrates all aspects of the process, from order picking and packing to real-time communication with customers.

This platform should scale with changing customer demands and include features like optimized routing for deliveries, geolocation to reduce customer wait times, and inventory management to ensure stock accuracy.

By leveraging advanced technology and seamless integration, grocers can provide a superior customer experience while streamlining internal operations, ensuring that they can handle growing order volumes efficiently and with precision.

Partner with Mercatus to Grow Your Online Grocery Business 

By implementing the strategies outlined in this article, grocers can overcome the challenges of online grocery delivery and turn their eCommerce platforms into powerful engines of growth and profitability.

But you need more than just tactics—you need a technology partner that helps you outpace the competition and capitalize on your strengths. That’s where Mercatus comes in.

At Mercatus, we don’t just offer the technology grocers need—we provide a partnership.

We understand that launching an eCommerce platform is only the beginning. That’s why we’re dedicated to helping you optimize your operations, increase customer satisfaction, and improve profitability.

By providing expert support, industry-leading training, and best practices tailored specifically for grocery retailers, Mercatus empowers grocers to take control of their fulfillment services. To learn how Mercatus can help you drive efficiency, cut costs, and deliver an unmatched customer experience with your online grocery platform, reach out to us today.

Headshot of Mark Fairhurst

Mark develops global growth strategies for Mercatus and leads the Marketing, Sales, and Customer Experience teams.