Why doesn’t Trader Joe’s offer grocery delivery in Chicago?

07Jun10

While I was at Trader Joe’s over the weekend, I had a brief chat with the cashier about why the Chicago stores don’t offer local delivery. As a bit of background, their New York City stores have provided grocery delivery for years, but they’ve hesitated to extend the program to Chicago. In short, she said that management decided not to offer the service because the insurance costs for the delivery staff — stuff like worker’s compensation insurance and auto insurance — would exceed the revenue the service would bring in.

Whoever made this decision is thinking too narrowly about the return on investment (ROI) of providing grocery delivery. Sure, you can charge a base fee for each delivery, perhaps $5-20 depending on the size of the purchase. The Whole Foods a few blocks down the street from our Trader Joe’s charges $10-20 per delivery, I think. Let’s say the minimum cost of wages and insurance for a part-time delivery person is $2,000 per month. At face value, it seems like the store would need to do at least 100 deliveries a month at $20 each to make up the cost, or more than 3 per day. The management probably thought this goal was too high to reach, and decided the ROI wasn’t there.

Ah, but there’s more to ROI than just the direct and immediate returns you get on a project. First, it may take a few months before the volume and corresponding delivery fees ramp up to cover the costs. And by 3 or 6 or 9 months out, the fees alone could vastly exceed the cost. Second, customers who use the delivery service would probably make more frequent purchases, and spend more money each time. This means more revenue and gross margin on the actual products themselves, which is where the real ROI of a delivery service gets realized.

So the next time you’re faced with deciding if something is a smart investment for your business, be sure to think as broadly as possible about the revenues and costs of that investment. A project that seems to have questionable ROI in the first month or two when only direct fees are considered may actually turn out to be a surefire success a few months later, especially when you factor in the impact that the project will have on average spending amounts and long-term customer loyalty.



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