Pickup points for online orders continue to expand, but on-demand delivery is crucial for grocers that want to compete successfully for online sales, experts say.

The grocery industry and venture capital investors are becoming very interested in the “last-mile” delivery of your tomatoes and canned peas.

The integration of online grocery ordering became a more urgent priority for food retailers after Amazon.com Inc. acquired Whole Foods Market last year. Now, the race is heating up to attract customers who want to skip the store altogether and have their online grocery orders delivered.

Some recent activity includes:

  • On April 10, Amazon launched free two-hour delivery of Whole Foods products in the Los Angeles area via Amazon’s Prime Now. Prime Now delivery from Whole Foods, first launched in February and expanded in March, is now available in seven metro areas.
  • Target is testing a new loyalty program called Target Red in the Dallas-Fort Worth area which allows consumers to buy a year of unlimited Shipt same-day deliveries for $49.99 compared with the usual $99. Shipt is a  grocery-delivery startup acquired by Target in December.

All this is just the beginning of an increasingly fierce battle for grocery delivery dominance.

Walmart’s deal with Postmates follows an announcement in March in which the retail giant said it would expand its grocery delivery services to more than 100 metro areas during 2018, up from the current six markets. Walmart’s goal is to offer grocery delivery to more than 40% of U.S. households by the end of the year.


Target (No. 20) acquired Shipt for $550 million to improve its same-day grocery delivery capabilities. Target says its goal is to use Shipt to expand same-day delivery of groceries and other goods to about half of its 1,834 stores by this summer and to a majority of its stores in time for this year’s holiday season. Currently, it is available at about 440 stores.

In addition to a discount on Shipt services, the Target Red loyalty program also provides free next-day delivery of dry groceries and household products via Target Restock, which usually costs $4.99 per delivery.

Target also will expand its delivery service for guests’ in-store purchases—currently offered in four New York stores—to all New York stores in the five boroughs and select urban stores in Boston, Chicago, San Francisco and Washington, D.C. This service is offered because customers in those cities often commute on foot or by mass transit. For those consumers, delivery of in-store purchases allows them to avoid taking their purchases home on foot, or in a train, bus, taxi or another form of mass transportation.

Delivery is essential


All of the delivery-related activity makes sense, says Steve Bishop, managing partner and co-founder of Brick Meets Click, a consultancy for grocery retailers. The industry is increasingly online, he says, and delivery—along with customer pickups of web orders—is essential to grocers that want to successfully compete.

“There will be significantly greater emphasis in 2018 on delivery, mainly outsourced to third-party players by Instacart and Shipt,” Bishop says. “There will be less short-term interest in delivery being done [and] fulfilled by the grocer themselves, but that’s likely to change in the future.”

According to Internet Retailer data, food is quickly becoming one of the hottest areas of online retailing. In 2016, online food sales in the U.S. grew 31.5% to $22.1 billion, Internet Retailer estimates, which is double last year’s growth in e-commerce as a whole.


While grocers have not been ignoring delivery, retailers have so far focused much of their e-commerce expansion around facilitating customer pickup of online orders. Walmart, for example, now has 1,200 grocery-pickup points—up from 800 several months ago—and plans to add 1,000 more by the end of 2018. Kroger Co. says it had 1,091 pickup locations as of March, up from 813 in September 2017.

The greater emphasis on grocery delivery comes at a time when e-commerce giant Amazon.com Inc. (No. 1) is making a big bet on groceries. However, Bishop says it would be misleading to assume that Amazon has been the only catalyst for it.

“It’s really more about meeting customer needs and demands,” Bishop says. “Delivery is something that customers have always been interested in, and now it’s being offered to them at a very affordable price. This is more about responding to the customer than it is competing with Amazon.”


In March, Mercatus, which provides web-based applications for grocers, started working with Shipt to provide delivery services to the regional grocers Mercatus serves such as Weis Markets Inc. and Piggly Wiggly Midwest. Sylvain Perrier, president and CEO at Mercatus, says Shipt is an early “integration partner” brought on to provide delivery services, but it won’t be the last.

“As customer expectations rise, last-mile service continues to be a key focus for retailers. Mercatus believes in giving [grocers] the benefits of premier delivery services without the burden of building their own fulfillment offerings,” Perrier says.

Asked how many delivery partners he expects to add, Perrier says: “As many as possible to help grocers find the best fit for their shoppers.”

Dangers of outsourcing


Teaming up with third-party firms allows grocers to offer delivery services more quickly and for less than they otherwise could. But it also disrupts the retailer’s relationship with its customers. “The negative is that the retailer is allowing someone else to define the retail experience and allowing that experience to drift away from being part of the brand,” Bishop says.

“Instacart and Shipt will have success as long as grocery retailers struggle to achieve profitability with their online business,” Bishop says. “The reason is that both of these business models take some of the pressure off the retailer and that’s very much appreciated at this point.” Eventually, he says, some retailers will evolve to a more profitable form of fulfillment. When that happens, Bishop says, grocers could shift to making delivery as a consistent part of their own brands.

Sucharita Kodali, an analyst at Forrester Research, agreed that collaborating with a third-party delivery company presents risks for grocers.

“The pro for outsourcing this is that it entails low startup costs. Venture capitalists [that invest in companies like Instacart] are subsidizing your onboarding,” Kodali says. “The downside is that it may not be a long-term solution because these companies may go under or because they become competitive in some way.”


However, Kodali says, it does not yet make economic sense for most grocery chains to build a delivery capability in-house. “It’s quite expensive and there isn’t yet enough volume to justify the cost,” she says.

And that, more than anything, explains Instacart’s plans for the rest of the year.

Instacart expands

Instacart says proceeds of its newest funding round will be used to double the size of its workforce, continue its geographic expansion in North America and invest in new products and services. Instacart says the $150 million brings the total for the current funding round to $350 million. The company says the new funding round values Instacart at $4.35 billion.


In all, Instacart has raised more than $1 billion since its founding in 2012 and says most of that capital has not been spent. Instacart customers include grocers Kroger (No. 88), Albertsons Cos. (No, 157), Publix, Costco Wholesale Corp. (No. 9), Ahold-Delhaize (No. 62), HEB Grocery Co. LP, Loblaw Cos. and Sam’s Club, which is a unit of Walmart. Since the beginning of 2017, Instacart has launched in more than 190 markets across the United States and Canada, bringing its total to 220 markets and growing, a company spokesman says.

Instacart’s latest funding round was led by Coatue Management, with participation from Glade Brook Capital and existing investors.

“The online grocery market hit a tipping point last year, as more and more consumers demanded grocery delivery. We are excited to accelerate our plans to bring online grocery everywhere and to keep transforming the way people shop,” Ravi Gupta, chief operating officer and chief financial officer of Instacart said at the time his firm’s investment in Instacart was announced.