Dive Brief:

• H-E-B announced on Monday that it's restructuring its pickup service fees in a bid to secure even more of its customers' online shopping dollars.
• The Texas grocery chain, which offers curbside pickup at more than half of its locations, will no longer charge a $4.95 fee for orders. It will charge $2.95 for orders below $35 and waive the fee altogether for orders above that threshold. 
• H-E-B's altered pickup fee can help it remain competitive as grocers evolve the increasingly popular service. 

Dive Insight:

Pickup continues to build steam following surges due to the pandemic. For H-E-B, dropping the fee after customers reach an order minimum can help retain customers who would be tempted to shop at a competitor with no fee or a lower one. 

The change in the fee structure will also motivate customers to meet the $35 threshold, boosting the average order value, David Bishop, partner at Brick Meets Click, wrote in an email.

H-E-B offers pickup, which it launched in 2015, from more than 250 stores and plans to add the service to more of its stores. For shoppers to qualify for free pickup, their baskets must total at least $35 before taxes and discounts are applied.

In the announcement, H-E-B did not indicate any changes to what it charges for deliveries made in conjunction with its wholly owned Favor delivery service. Those charges include a fee that varies based on geographic location and a service fee usually ranging from 5% to 16%. H-E-B also suggests customers provide a tip that goes to the delivery person, called a “Runner.”

For shoppers, the altered pickup fee will make shopping more affordable, the retailer noted. In the announcement, H-E-B highlighted its SNAP customers, who have been able to use their Electronic Benefits Transfer cards to place online orders since late last year. SNAP funds can’t be used to pay for fees, so customers previously had to use a credit card, debit card or gift card to cover the pickup and delivery fees, which can be a barrier to people who are unbanked. Now, they can get free pickup if they spend at least $35.

Kroger also offers free pickup on orders of $35 or more and charges a fee of $4.95 for ones under that amount. At the start of the pandemic, the retailer waived the fee to boost shopper engagement. Other grocers have taken different approaches to tweaking their fees and order minimums. At the start of this year, Harris Teeter introduced a new fee structure and required that online orders be at least $25; orders under $50 have a $4.95 fee, while orders between $50 and $100 have a $2.95 fee.

Walmart offers free pickup in the U.S. In 2017, Walmart Canada made a similar move by dropping its 2.97 Canadian dollar ($2.45) fee for pickup orders and now offers free pickup for orders of 25 Canadian dollars or more. Like Walmart, H-E-B is bringing in money from its digital advertising platform, which allows it to alter its fee and, unlike Walmart, can mark up prices online to help cover the costs associated with pickup that the fee used to cover, Bishop said. 

"H-E-B can’t afford to charge customers for services that its competitors are offering for free," Carol Spieckerman, president of retail consulting firm Spieckerman Retail, wrote in an email, noting that it's a challenge for retailers to figure out profitability and also provide convenient, affordable options. 

As H-E-B gears up to bring its main banner to the Fort-Worth Dallas area — where Walmart has already established an abundance of stores — the Texas grocer should be mindful that some loyal customers will likely be willing to pay the fee for small pickup orders, but new shoppers may not. By dropping the fee for orders of $35 or more, "H-E-B was wise to remove barriers to onboarding new customers," Spieckerman wrote.