News & Trends

How Instacart is boosting sales for grocery stores

Posted by: Josh Weinkranz Josh Weinkranz
on September 6, 2017

It’s hard to ignore the constant news about Amazon and Whole Foods combining Amazon Prime with Whole Foods’ existing customer and store bases. Amazon already saw a $500,000 increase in its online grocery ordering in the first week of Whole Foods ownership. Wal-Mart, who is already the largest seller of grocery items in the U.S., is already quickly expanding their online grocery business by piloting a program with Uber and Lyft as well as rolling out “drive-in pickup” at over 900 locations and starting grocery deliveries through its Jet.com subsidiary.

But what about all the other grocers? How will they compete in this new world? Enter Instacart!

While it’s true that the most successful shopping centers have a grocery component, it’s impossible to ignore the increasing popularity of Instacart. Grocery delivery companies are not new. Many grocers have built their own types of “deliver to your door” programs, including Peapod by Giant, Safeway, Harris Teeter, and many others across the country. These delivery services are great examples of how those retailers that adopt omni-channel practices will thrive, or at least survive.

But Instacart seems to have found the perfect equation. Its goals are lofty. The company aims to have the ability to deliver groceries to the doorsteps of 80 percent of all U.S. households by next year. For a company founded in 2012, this is an incredible scale in a short period of time. Yet they are already offering same-day delivery in 105 markets and growing fast. For $5.99 per delivery, or $149 per year for unlimited deliveries, the service works for intermittent users and die-hard fans alike. Compare this to Amazon Prime at $99 per year. A $50 difference in annual fees could be a small price to pay to have same day, or even same hour, delivery.

My personal forecast is that the regions with higher incomes will adopt Instacart as a habit first, which makes sense that Instacart partnered with Whole Foods early on. This partnership will clearly now end, but it helped get Instacart on the map. More on this in a bit.

You would think that an online shopping app would worry retail real estate owners like Kimco. In fact, Instacart is the exact type of new technology that helps brick-and-mortar retail instead of hurting it. In 2015, Instacart changed its business model from marking up groceries through the app to get their profit, to partnering directly with grocery stores and charging the retailers a small charge for each order filled.

That move paid off. Today, the company is worth $3.4 billion and the biggest names in grocery are partnering with Instacart, including Giant, BJ’s, Acme, Petco, CVS, H-Mart, and most recently, Aldi. The Aldi partnership is particularly interesting as shoppers can’t currently purchase groceries on Aldi’s website. Aldi is using this partnership to gauge consumer interest for an expanded online presence.

Here are further keys to Instacart’s success:

1.) Ease of use. Instacart takes a chore, in this case grocery shopping, and makes it effortless. Shoppers only need to submit their shopping list through Instacart’s app, and groceries show up at their door on the same day, and in many markets, within an hour. Instacart analyzes traffic, weather, and store variables to ensure that groceries are delivered at the right time. That means no more soggy bread or melting ice cream sitting on your front door.

2.) Fulfilling orders through local businesses. Instacart’s business is lean and depends on local retailers. The company doesn’t house groceries and household goods in big warehouses that require trucks and other logistics to deliver the final product. Instead, it employs “shoppers” that go to the stores to buy the list’s items and deliver them right to a customer’s door with their own vehicles.

3.) Direct communication with shoppers. The company reaches shoppers directly through their blog, which plays on their logo with the tagline “If you carrot all about news.” Content varies from sharing consumer trends through analyzing their data—did you know that Tito’s Vodka is the most purchased alcohol through the Instacart app?—to offering special discounts for General Mills products to celebrate back to school, how-to’s on getting the most out of the app, to Mother’s Day Instagram contests that gave away free delivery for a year to the first 1,000 people that took a photo with moms and used the hashtag #InstacartMoms.

Keep an eye on the business for the next few years. It’s a great idea. Local grocers don’t lose customers, and shoppers can support local businesses without compromising their busy schedules. At Kimco, we welcome with open arms any new company that works with brick-and-mortar retailers, not against them.

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