Small Merchants Struggle to Provide Delivery Affordable Enough for Consumers

With the high labor costs of delivery, smaller merchants are struggling to find ways to compete on convenience without excessively compromising their margins and without alienating customers.

National Retail Solutions (NRS), a point-of-sale (POS) company providing systems geared toward independent retailers, said Thursday (June 6) that its “first-of-its-kind free delivery service,” part of its NRS Ecommerce add-on, connects small retailers with various delivery partners to handle their orders without the high fees that other delivery services might charge.

“NRS Ecommerce and complimentary delivery services have grown with our retail partners and their customers,” NRS CEO Elie Y. Katz said in a press release. “We aim to empower retailers with cost-efficient services, enabling them to serve their communities better and compete successfully against larger chains offering delivery and online retail.”

Participating delivery services include DoorDash, Uber, Point Pickup and Relay.

In fact, it seems the cost of delivery can be make or break for small retailers. A Spectrum News 1 report in April, for instance, told the story of Muddaddy Flats, a quesadilla restaurant in Troy, New York, which had to close after 11 years, partially because of the rising fees charged by third-party delivery aggregators such as Grubhub. Owner Dan Frament told the outlet that the Chicago-based delivery provider took a 29% cut, on average.

“Right now we are making pennies on the dollar. Restaurants tend to make a 3-5% profit margin; we don’t have the room,” Melissa Fleischut, president and CEO of the New York State Restaurant Association, told the news outlet. “We don’t have the room to give away 20, 30%. But on the other hand, do you have the ability to turn away that customer that wants to get delivery and doesn’t want to come into the restaurant that night?”

Restaurants can hardly pass the cost onto consumers either, or they risk losing customers who want the convenience of delivery but who are not willing to break the bank. Findings from the study “Connected Dining: Rising Costs Push Consumers Toward Pickup” show that 58% of takeout customers choose to pick up their meals to avoid the delivery fee. Further insights from the Connected Dining series indicate that, among individuals who do not use aggregators, 50% believe the services are too costly.

“We have a long-standing commitment to supporting restaurant partners and offer merchants a range of options to build and maintain their own loyal base of diners, through their own channels and the Grubhub Marketplace to expand their marketing reach,” a Grubhub spokesperson responded. “Merchants do not pay Grubhub anything unless they receive orders made through our platform, and we offer flexible options with marketing rates as low as 5%.”

Digital features may be key to small merchants’ success. PYMNTS Intelligence’s “2024 Global Digital Shopping Index: SMB Edition,” commissioned by Visa Acceptance Solutions, found that small businesses offer fewer digital features than larger merchants. The study found that, in the United States, large merchants offer consumers 26 digital features on average, while small and medium-sized businesses (SMBs) offer only 19 on average — a decrease of 27%. Relatedly, the report revealed that U.S. shoppers 70% more satisfied with their purchasing experiences with large merchants than SMBs.

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