Instacart will have to conquer the grocery-delivery business without the help of Amazon. That’s one take on the news Thursday (Dec. 13) that Instacart has begun the process of winding down deliveries to customers of Amazon-owned Whole Foods.
That wasn’t perhaps the most surprising news, given how Amazon keeps taking control of more logistical and delivery operations — an effort that many observers expect will eventually include the eCommerce operator competing head-to-head with UPS and FedEx.
But the Instacart-Amazon breakup still stands as significant news in the increasingly important work of delivering groceries to consumers — a sector in which players are all sizes are rushing to burnish their logistics chops and craft the most promising partnerships to meet consumer demand. A growing group of consumers — particularly millennials and other young shoppers — are embracing connected grocery offerings. Online and mobile food sales are projected to have a 13 percent annual growth rate in 2018, with digital supermarket sales projected to reach $100 billion by 2025.
The news that Amazon will take over Whole Food deliveries from Instacart comes almost two months after Instacart raised $600 million in new funding, giving it a valuation of $7.6 billion. Since its launch in 2014, Instacart has attracted more than $1.6 billion in capital.
Currently, Instacart operates in an estimated 4,000 cites and works with some 300 retailers. By the end of 2019, Instacart aims to make its service accessible to 80 percent of U.S. households. According to one report, Whole Foods accounted for 5 percent of Instacart revenue, down from about 10 percent in 2017.
As part of that effort, the delivery service recently announced that its new grocery pickup service will launch in cities across the United States, in many cases alongside Instacart’s delivery service. Wegmans, Aldi, Cub Foods, Food Lion, Price Chopper, Publix, Schnucks, Smart & Final, Sprouts and Tops Friendly Markets are all among the 200 retailers with which the pickup service is launching.
Instacart has attempted to win more share in the grocery delivery land grab via pricing changes. It recently dropped its delivery fee from $5.99 to $3.99 per order of $35 or more, with the 5 percent service fee and $3.99 default delivery fee still intact. A subscription to Instacart Express has also gone down in price to $99 per year compared to $149, and it offers unlimited free grocery delivery on orders of $35 or more with no service or default delivery fee. Monthly Express membership is $9.99.
Instacart won attention for those changes because that technically made its Whole Food deliveries cheaper for consumers than would be the case via Amazon. Amazon Prime offers two-hour delivery of groceries from Whole Foods for free, and one-hour delivery for $7.99 on orders of $35 or more. An Amazon Prime membership costs $119 annually or $12.99 per month.
“We’ve made grocery delivery more affordable. … Let our personal shoppers take care of your grocery shopping while you save an hour or two,” Instacart said in an email at the time.
When consumers pay for Prime, they are buying far more than quick grocery deliveries from Whole Foods — meaning that Prime represents more of a mainstream retail tool than does Instacart and its lower prices. And Prime, of course, can serves to keep consumers from veering too often outside the larger Amazon ecosystem — a point against Instacart when it comes to the future of grocery deliveries.
Ending the Whole Food delivery service — which involves some 1,400 Instacart part-timers — will take Instacart “months” to complete, according to Bloomberg. That reflects how close Instacart was tied to Whole Foods. Instacart “set up in-store shoppers and made dedicated checkout aisles for Instacart orders within Whole Foods stores,” that report noted, adding that Instacart and Whole Foods signed a delivery agreement in 2016 — before Amazon bought the upscale grocery chain in 2017, moving quickly to integrate it within the larger world of Amazon and its Prime loyalty program.
For Instacart, it’s going to get increasingly more difficult to beat or even match Amazon at the grocery delivery game. Even so, a recent report said that “Instacart is one of only a few companies with the infrastructure and capital to challenge Amazon in groceries. Instacart has more than 70,000 workers, a mix of part-time employees and contractors, who shop for groceries for its customers.” And besides the fresh capital, other signs point to Instacart continuing to be aggressive about taking more of the grocery delivery market. For instance, it hired its first chief technology officer this year, and aims to double the size of its engineering team by this time next year.
Still, it’s going to be difficult to beat Amazon, the mother of retail logistics, at its own game — logistics. And there’s another factor at play that gives Amazon an advantage besides its current logistical power and its delivery ambitions. Amazon is taking more of consumers’ grocery spending, keeping them within a single retail-and-delivery ecosystem. The eCommerce operator doubled its food and beverage sales from 2017 to 2018 after quadrupling them the year prior, according to the PYMNTS “Amazon Paycheck Index.”
That’s not to say that Instacart doesn’t have some power of its own. Grocers that work with Instacart tend to enjoy advantages that might not come from elsewhere. That’s because it gains deep insight into customer behavior based on what shoppers look for and order, resulting in what a recent Digiday article described as a “cross-competitor look at the industry that no one retailer could get on its own. If an Instacart personal shopper is in a store and finds that an item is out of stock, for instance, customer data pulled from all 300 of Instacart’s partners can be used to predict what item is best suited to take its place for that particular customer.”
That can provide a significant advantage as the competition for grocery delivery (and pickup services) heats up. Recently, for instance — and as described in the PYMNTS Commerce Connected Playbook — Walmart has partnered with startup Deliv, as well as smart locks and smart home accessories provider August Home, to test an online direct-to-fridge grocery delivery concept. Kroger has its own plans for new delivery offerings centered around removing drivers from the equation and using autonomous vehicles. Target is expanding its Drive Up curbside pickup service to 200 additional Midwestern locations, a move that gives the region’s shoppers better access to eCommerce grocery sales.
For now, Instacart will draw back from Whole Foods while moving forward with other grocers. And Amazon will continue to increase its power in grocery retail while also beefing up its control of all deliveries, including food. Uber, too, says it wants to return to grocery deliveries given its success with Uber Eats — which could potentially turn into a bigger threat in this sector than Instacart. There is no doubt that the new year will bring more experimentation and new partnerships and perhaps even pricing as this market becomes more lucrative.