Cost of Convenience for the Grocery Industry: On-Demand Grocery Delivery Service Presents Possible Legal Ramifications

By: Damien A. Orato, Suzanne A. Singer and Chase Hattaway

11.20.17

Amazon, Uber, Peapod and FreshDirect have changed the way people shop, travel and order food. Until recently, consumers continued shopping in brick-and-mortar stores for their groceries.  However, with the advent of third party food delivery services (“TPDS”) this is slowly changing.  A report from Cowen & Company found that U.S. online grocery sales totaled $34 billion in 2014 and estimated that sales could reach $177 billion by 2022.  It also found that approximately 12% of grocery shoppers in the United States bought groceries online during the past year.

The shift in the way consumers purchase groceries creates potential liability questions for grocery stores.  Unlike the shipment of merchandise, the delivery of perishables from grocery stores creates unique liability issues that should be considered. 

How On-Line Grocery Delivery Services Work

            InstaCart, an on-demand grocery delivery service valued at $3.4 billion, is but one example of convenience offered to consumers. InstaCart customers order groceries through a smartphone app, choosing items they want from their preferred grocery store. The app then relays grocery orders to workers, who shop for the products and deliver them using their own vehicles in as little as an hour or two. The company takes a cut from a delivery fee and gets an undisclosed amount from retailers that customers buy groceries from through the app.

Potential Liability for Grocers

What happens if a TPDS driver contaminates food and causes a customer to become ill? What happens if a TPDS driver is involved in an auto accident while delivering groceries?  What if a TPDS driver harms a consumer?  The answers to these questions may differ depending upon whether the store officially partners with the TPDS. 

Formal Agreements and Tips for Protecting Grocers from Liability

            If a store enters a formal partnership agreement with a TPDS, then the store potentially opens itself up to liability for the wrongful conduct of the TPDS.  There are precautions that can be taken to limit liability. Stores should consider the following provisions in any formal agreement:

  • Conduct due diligence before partnering with a TPDS because your reputation could be at risk;
  • Require compliance with industry standards for safe food handling, including  temperature maintenance and procedures to follow in case a customer is unavailable to take delivery of the groceries  at the time specified;
  • Require TPDS to carry insurance coverage which names the grocery store(s) as an additional insured;
  • Include strong indemnification terms which provide for a full shift of responsibility to the TPDS for any claims arising from a consumer’s use of the TPDS services;
  • Require TPDS and its drivers to actively disclaim any agency relationship with the store;
  • Require proof of insurance by the TPDS and for any driver the TPDS utilizes, including the requirement of clear vehicle ownership by the TPDS driver or TPDS service;
  • Partner with a TPDS that uses tracking technology so that the “chain of custody” can be firmly established to aid in the defense of food borne illness cases; and
  • Include a confidentiality provision that prohibits a TPDS from using or disbursing consumer information in any manner, including prohibiting the TPDS from providing information to competitors.

Tips for Protecting Grocers from Unauthorized TPDS

            Even if the grocery store does not officially partner with a TPDS, a TPDS may still purchase groceries from the store.  Under these circumstances, a store is much less likely to be held liable for the wrongful conduct of a TPDS.  Stores must be careful, however, not to create an apparent agency relationship with the TPDS.  This can arise if the store performs some overt or open act that would suggest it endorsed the TPDS.  It can also arise through “passive permission.” 

            Consequently, a grocery store that knows about an unauthorized TPDS would be wise to take steps to actively inform customers that it is not associated with the TPDS.  There are a number of potential ways of disclosing this disassociation:

  • Stores can post signs informing customers that the TPDS is not affiliated with the store;
  • Stores can periodically post disclosures in advertisements;
  • Stores can post a disclaimer of any relationship on its website and social media pages; and
  • Stores can explore placing a disclaimer in grocery bags used by the TPDS upon check-out.

Considerations for Grocers Providing Delivery Services

Grocery stores have the option to provide customers with in-house delivery services.  By doing so, stores have more control over maintaining high standards.  However, this option may be more for customer convenience than revenue driven with logistics being a nightmare.  There is also a high cost to entry when establishing an on-line service which still represents a small fraction of purchases.  And impulse purchases can significantly contribute to a store’s bottom line.  These considerations must be weighed before grocers decide to enter into delivery service. 

 
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