Inflationary pressures cut into delivery fees, tips

By: Ann Meyer | May 18, 2023

Don’t underestimate the economy’s effects when trying to predict what consumers will value.

The shift to online ordering that took off during the COID-19 period is likely to have staying power, but demand for delivery is starting to decline as consumers place more orders for takeout food in part to save money, as tipping is down.

These two insights are explained in retail-tech firm Paytronix’ just-released “Online-Ordering Report: 2023,” which pulls together data from the retail-tech company’s work with restaurants and convenience stores, particularly those with foodservice operations.

The insights don’t surprise Gray Taylor, executive director of Conexxus, an Alexandria, Virginia-based technology-focused nonprofit business organization serving the convenience-store and fueling industries by providing technology standards, innovation and advocacy.

Many of the items convenience stores sell aren’t pricey enough to justify paying $6 for delivery, Taylor told CSP Daily News. The trend away from delivery should be good news for convenience retailers, who are strategically located to provide convenience to a community and passersby.

As more people get back to life as usual after COVID, they’re more likely to be out and about and shopping at convenience stores, so they less likely to need delivery, Taylor said.

Many consumers also won’t want to pay for delivery in an inflationary period when most items also cost more. Paytronix’ research shows the customer segment fueling the upward spending and generous tips in 2022 was older than many marketers were aiming at. Baby Boomers over 65 place delivery orders more frequently and give larger tips than younger adults, who might be feeling inflation’s pinch, the report suggested.

Young adults also are less likely to plan ahead than older adults. Less than 10% of Gen Z and Younger Millennials placed orders in advance, Paytronix said, compared with 17% of Baby Boomers. With the COVID-19 period declared over, demand for delivery from convenience stores is expected to decline, Taylor said.

A point of differentiation might become more important for convenience-store operators as new competitors emerge with the growth of electric-vehicle charging. While convenience stores are entering the EV charging space, this won’t stop other retailers and local governments from also offering charging ports. Home charging also is expected to rise.  

To remain top of mind as EVs gain market share, convenience stores will have to strengthen their brands in a new way, suggests a report from St. Louis-based retail tech firm Rovertown, which works with Newton, Massachusetts-based Paytronix and other loyalty-program providers serving the convenience-store industry.

Historically, consumers have been willing to pay more for national brands, like Starbucks or Domino’s Pizza, both of which have proven brick-and-mortar retailers can be in the forefront of mobile and online ordering, notes the Rovertown report, “Convenience Store of the Future.”

The drop in fuel demand that convenience stores felt in 2020 is an indicator of what could happen if EV transportation picks up momentum and the convenience industry isn’t prepared to meet the growing demand for EV charging, Rovertown said. The headwinds c-stores faced from lower fuel demand during the COVID-19 shutdown “should impress upon retailers the necessity of creating a convenience retailing model that’s capable of driving traffic to the store with or without fuel pumps,” according to Rovertown. Businesses must give consumers a compelling reason to visit them online.

For many convenience stores with kitchens, the reason might be new menu items.

Both Rovertown and Paytronix are optimistic that demand for online ordering will grow in the convenience industry. Digital orders rose from 9% of total orders in November 2019 to 31% in November 2022, according to Paytronix.

But consumers are cutting back where they can. As inflation pushes up the prices of individual items, guests chose not to significantly change their order basket sizes, Paytronix said.

The average item price rose about 15% from $11.30 in January 2021 to $12.61 at the end of 2022, while the average subtotal rose by about 13% to $37.87 over the same period, suggesting consumers aren’t drastically decreasing order sizes to compensate for higher prices, Paytronix said.

They’re having to spend more because products cost more, and they are trimming their budgets in other areas, such as on delivery charges and tips.

Inflation has resulted in less frequent trips to convenience retailers and restaurants as consumers wait longer between visits, Paytronix said.“The rising costs of dining at a favorite restaurant or grabbing a coffee at the closest convenience store has a cascading effect on a number of other, related categories. Most predictably, the number of days between orders increases as guests visit their favorite brands less often,” Paytronix said. “In addition, they cut their gratuities, a reversal from the rising tips of the pandemic era.”

Source: CSP