How Grocers Are Taking On Amazon With Instacart

BJ’s Wholesale Club has an ambitious goal: It plans to offer same-day delivery from all of its brick-and-mortar stores by the end of April. But first it has to roll out the service up and down the East Coast, CNBC reported.

To accomplish this goal, BJ’s is expanding its existing relationship with Instacart. The move is meant to attract consumers that want a digital alternative to the in-store experience.

“The expanded partnership with Instacart gives members a new and easy way to shop the club without leaving their home,” Rafeh Masood, senior vice president and chief digital officer, BJ’s Wholesale Club, said in an announcement.

BJ’s Wholesale Club started working with Instacart in 2015. Since then, the service has caught on with BJ’s customers, Instacart’s Vice President of Retail Accounts Andrew Nodes said.

“We have seen an incredible response to the partnership and are thrilled to expand upon that partnership to be their exclusive partner, bringing same-day delivery of BJ’s premium products to even more households across the U.S.,” Nodes said in the announcement.

Customers who place Instacart delivery orders will receive “member-only pricing” and reportedly can save up to 25 percent on their groceries by shopping through the service instead of visiting a competing supermarket.

The expansion comes as consumers value the ability to use an app to buy and pay for their groceries online, with either delivery or store pickup as an option for securing the items they purchased. In fact, more than 53 percent of consumers said the feature they valued most from their favorite grocery stores was free shipping and/or delivery.

With 55 percent of consumers now shopping comfortably across physical and online channels, it’s a measure of convenience that could dent traditional grocery store business and its profits. But Instacart is one way that retailers can expand their omnichannel efforts, and, of course, face the elephant in the grocery aisle — Amazon.

The Amazon Effect

BJ’s is not the only grocer to expand its partnerships with Instacart. Kroger and German discount grocer ALDI are rolling out the platform to more of their brick-and-mortar stores too.

In 2014, Amazon’s Whole Foods became Instacart’s first national partner. But, following Amazon’s acquisition of Whole Foods, Amazon started offering its own two-hour delivery from stores in Austin, Cincinnati, Dallas and Virginia Beach in February.

Amazon’s forays into two-hour delivery continued in March, when the eCommerce giant rolled out the service to Atlanta and San Francisco. As a result, the future of Amazon and Instacart’s partnership is in question, as some are wondering if Amazon will buy out Instacart’s contract, Bloomberg reported.

For grocers, Amazon’s ventures into online groceries are creating competition. But delivery platforms such as Instacart can help grocers compete with the threat of eCommerce and delivery.

Currently, Instacart delivers groceries for the eight biggest grocers in North America, such as Albertsons and Costco Wholesale Corp.

Now, Instacart will count ALDI stores in greater Chicago — in areas as far as Rockford, Illinois — as part of its platform. ALDI tested the service in three markets — Atlanta, Dallas and Los Angeles — in August, Chain Store Age reported.

The news of both expanded partnerships comes as Kroger’s earnings last week raised analyst concerns over the Amazon Effect on Kroger and the grocery segment at large. This was evidenced by the drubbing its stock price took after Kroger CEO Rodney McMullen cautioned that future profits could soften.

Private-Label Grocery Apps

Not all of Instacart’s business will be providing delivery services to grocers. The company has gotten into the white-label grocery app business too.

In January, Instacart announced its acquisition of Unata, a Canadian company that offers a platform for grocers and their customers to interact digitally, TechCrunch reported.

Unata, which provides digital storefronts for more than 1,300 grocery locations, will still keep its own name, brand and Toronto headquarters following the deal. It will continue to operate as an independent subsidiary of Instacart. While terms of the deal were not disclosed, Crunchbase said Unata has raised a total of $2.7 million.

Instacart CEO Apoorva Mehta said the deal “represents a landmark win for retailers, who will benefit from Instacart’s scale, Unata’s highly configurable technology and the deep grocery industry integrations this acquisition will enable.”

The Road Ahead

Instacart’s Unata acquisition came a month after Target announced it had completed a $550 million cash acquisition of Shipt, an online same-day delivery platform that is growing in popularity.

At the time, the retailer said it will leverage its stores and Shipt’s proprietary technology platform and community of shoppers to bring same-day delivery to Target customers around the country.

In announcing the deal, Target said the purchase “significantly accelerates” its digital fulfillment efforts and will help the retailer bring same-day delivery to approximately half of its stores by the early part of 2018.

There is an impetus for grocers to expand their delivery efforts: According to a Food Marketing Institute and Nielsen report, 70 percent of shoppers will purchase some portion of their groceries online within the next five to seven years.

Previously, both organizations believed it would take up to a decade for consumers to become interested in buying their groceries online.

Their spending could reach $100 billion, greatly impacting grocery shopping in brick-and-mortar stores.

Still, those who think the future of groceries is exclusively online should take note: Consumers are still expected to make 80 percent of their grocery spending offline.