Grocery Delivery: Consider the Legal Ramifications

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, this is slowly changing.

A report from Cowen & Co. 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 percent 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.

Potential Liability for Grocers

For instance, San Francisco-based Instacart, a third-party provider of on-demand grocery delivery 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, which are then selected by Instacart workers and delivered via 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.

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

If a store enters a formal partnership agreement with a third-party delivery service, then the store potentially opens itself up to liability for the wrongful conduct of the service. There are precautions that can be taken to limit liability.

In any formal agreement, grocers should consider:

• Conduct due diligence before partnering with a third-party delivery service because your reputation could be at risk

• Requiring 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

• Requiring third-party delivery service to carry insurance coverage which names the grocery store(s) as an additional insured

• Including strong indemnification terms which provide for a full shift of responsibility to the third-party delivery service for any claims arising from a consumer’s use of the third-party delivery service services
   
• Requiring third-party delivery service and its drivers to actively disclaim any agency relationship with the store

• Requiring proof of insurance by the third-party delivery service and for any driver the third-party delivery service utilizes, including the requirement of clear vehicle ownership by the third-party delivery service driver or third-party delivery service service

• Partnering with a third-party delivery service that uses tracking technology so that the “chain of custody” can be firmly established to aid in the defense of food borne illness cases

• Including a confidentiality provision that prohibits a third-party delivery service from using or disbursing consumer information in any manner, including prohibiting the third-party delivery service from providing information to competitors

Tips for Protection against Unauthorized Services

Even if the grocery store does not officially partner with a third-party delivery service, a third-party delivery service 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 third-party delivery service. Stores must be careful, however, not to create an apparent agency relationship with the third-party delivery service. This can arise if the store performs some overt or open act that would suggest it endorsed the third-party delivery service. It can also arise through “passive permission.”

Consequently, a grocery store that knows about an unauthorized third-party delivery service would be wise to take steps to actively inform customers that it is not associated with the third-party delivery service.

There are a number of potential ways of disclosing this disassociation. For instance:

• Stores can post signs informing customers that the third-party delivery service 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

• Stores can explore placing a disclaimer in grocery bags used by the third-party delivery service upon checkout

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.