Fueled by a rise in on-demand services and heightened consumer expectations, supermarkets are under increasing pressure to offer grocery delivery services. While there are several business models to choose from, each has risks. Supermarkets and grocers must wade into delivery services carefully to protect their stores from liability claims and lawsuits.
On-demand delivery services are well established in the restaurant industry with many restaurants partnering with third-party delivery services such as UberEATS, the trend toward convenience is now taking root in the supermarket world.
A report by the Food Marketing Institute and Nielsen found about 25% of Americans purchase groceries online. That is up from 19% in 2014. The report projected that about 70% of American households will buy groceries online by 2025.
On-demand business models
For supermarkets looking to expand into delivery services, there are currently several business models available.
Customer pickup: Supermarket retailers such as Walmart and Target have been offering pickup services for several years. Patrons shop on the store’s website. Store employees locate the items, bag them, and deliver them to the customer who waits in specially designated areas in the store parking lot.
In-house delivery: With an in-house delivery service, the consumer shops through an online application. A store employee gathers the items and delivers the groceries to the consumer’s residence. One supermarket retailer has employed the use of self-driving vehicles to make grocery deliveries. According to Supermarket News, the Kroger Co. launched autonomous vehicle delivery service in Flagstaff, Arizona, at the end of last year.
Third-party delivery services: Third-party delivery service companies, such as Instacart, are among the most common business models. Consumers order groceries through their application from their preferred grocery store. The order is then sent to Instacart workers who use their vehicles to shop for the items and deliver them within a couple of hours.
These third-party delivery services companies may work independently from a supermarket retailer or under a contract.
The downfalls of on-demand grocery delivery
As supermarket retailers begin to wade into the on-demand world, they must be aware of the risks and liabilities that arise. Here are some of the most common concerns:
Food spoilage or contamination: Suppose a delivery driver gets stuck in a traffic jam and a prepared food product becomes spoiled or contaminated. A consumer then eats it and becomes ill.
Harmful actions of a driver: What if a delivery driver loses his temper and harms a customer or other driver while making a delivery?
Automobile accidents: Vehicle accidents are a top concern. What if a driver is rushing to make a delivery within their designated time window and causes an accident?
Contracts with third-party delivery services and mitigating liabilities
A supermarket retailer who enters into a formal agreement with a third-party delivery service assumes the responsibility for wrongful acts of the service. Supermarkets should enter into such contracts carefully. Follow these tips to decrease the potential of liability claims and lawsuits:
- Protect the supermarket’s reputation by selecting a third-party delivery partner carefully
- Investigate the company to ensure they comply with safe food handling procedures
- Require the third party to furnish proof of insurance and name the supermarket as an additional insurer
- Partner with a third-party who utilizes tracking technology in the vehicles to assist in the case of a food-related illness
- Ensure the third-party vendor has a thorough confidentiality agreement in place to limit its use of customer data
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Mitigating liabilities with unauthorized third-party delivery services
If a supermarket retailer chooses not to partner with a third-party delivery service, they are still open to liability due to an assumption of partnership. If such a partnership can be assumed, the supermarket can be held liable for the acts of the delivery service.
Ensure consumers don’t make a false association between your store and the third party delivery service by following these guidelines:
- Post signs informing consumers the delivery service is not associated with the supermarket
- Publish a disclosure statement in the weekly sales circular
- Post disclosure statements on the supermarket website and social media pages
Dive in with caution
With consumer expectations for on-demand delivery services growing, it’s tempting for supermarket retailers to dive in and answer the call. But to do so without full awareness of the increasing liabilities and a solid plan to mitigate those liabilities, supermarkets put themselves at risk of lawsuits stemming from the wrongful acts of a third party.
After all, a single car accident can propel litigation in the millions, surpassing the limits of many commercial general liability (CGL) coverages. Securing an excess or umbrella coverage plan before diving into delivery services — whether in house or with a third party — is a smart way to manage risk.
McGowan Excess & Casualty (MEC) is a Program Administrator and Specialized Insurance Broker that provides customized and innovative product solutions. We are staffed by industry experts. Our Umbrella Program has the coverage your supermarket clients need to protect themselves as their operations evolve and risks change.