Ralph Tkatchuk, founder and operator, TK DataSec Consultancy

Grocery ecommerce sales were already building momentum over the past few years, even before the coronavirus pandemic. But now that COVID-19 has changed business and life for everyone, online grocery shopping has exploded so dramatically that it now seems likely it will never return to business as usual.

How dramatically has grocery ecommerce grown? March 2020 was already a record month, hitting $4 billion in sales. But April revenues skyrocketed even further up to $5.3 billion. An unprecedented shift is happening, and it’s one that the smartest grocers will act upon immediately. Experts contend that if growth continues at the current pace, $20 billion is on the table for grocery ecommerce within the next two years.

The undeniable opportunity for independent grocery retailers is to incorporate ecommerce into their brick and mortar operations. However, this comes with its own operational issues. Instacart, Walmart and other retailers have created a fast-paced market in which they can deliver groceries within a matter of hours. Retailers also need to employ additional staff to do the picking, packing and delivery, which involves adding new capabilities to their operations and workforce skill sets.

Unfortunately, however, another problem stands between many grocers and a robust ecommerce solution for their customers. One major obstacle is that many grocers have already partnered with gig worker-powered delivery apps like Instacart to solve the challenges in setting up their delivery operations.

Why is it a “problem” to entwine your grocery business with platforms like Instacart? Because the size, business model and control of services like Instacart makes these platforms more of a threat than an ally.

How Instacart overran the online grocery industry

Instacart underwent a major growth spurt in 2018, shortly after Amazon acquired Whole Foods. The threat of the world’s largest online retail brand expanding into the brick-and-mortar grocery business sent shockwaves throughout the industry. At that time, Whole Foods was Instacart’s biggest customer, so it was little surprise that the two parted ways soon after news of the acquisition emerged.

In the wake of the Whole Foods takeover, grocery store executives across the US signed on with Instacart as a knee-jerk reaction at the threat of Amazon intruding on their business. However, it seems they lived to regret it. “Faced with the reality that they had panicked, grocery executives are now reevaluating their relationship with Instacart,” industry consultant Brittain Ladd wrote in a Forbes op-ed as long ago as December 2018.

And as it turned out, Instacart has emerged as the more significant threat to independent grocers, holding a 59% share of the delivery market. Social listening platform Talkwalker estimates Instacart currently enjoys an 88% “share of topics.”

This vulturous behavior appears to be a pattern, with Instacart making the economics untenable for grocers. For example, Kroger commonly shells out an estimated 6% fulfillment fee with a $100 Instacart order. An order of this value would typically only generate around $3 in profit for Kroger based on its prices, meaning that the Instacart order represents a $3 loss after factoring in margins. Kroger may be able to absorb losses like that in the name of long-term customer loyalty, but local, independent grocers? Not so much.

Fees on this scale mean that many grocers must raise prices for online customers compared to what those shopping in-store would pay. 

Scams and abuse of Instacart’s platform can harm your store’s reputation

Instacart and other platforms do little to ensure your grocery customers or their workers receive a positive experience with your store. When bad things happen because of Instacart’s service, the negative consequences spill over into your store’s reputation and reviews.

One of the more recent problems is the reports of Instacart “shoppers” stealing groceries from customers rather than delivering them to the customer’s address. Instacart often refunds the money for stolen groceries, but there are also reports of customers who never receive a refund.

Customers generally understand that this crime is a result of the Instacart platform’s gig worker-driven model and not your store. But the same can be said of “brand safety” issues associated with ads running as YouTube pre-rolls. Brand reputation is a volatile commodity, and only one incident of Instacart grocery theft is enough to put a stain on your store’s brand and customer experience.

Another Instacart danger is how easy it is for customers to game the app and scam Instacart shoppers out of tips. It’s not uncommon for customers to lure in shoppers with the promise of generous gratuities, only to change the tip to $0 after their groceries are delivered.

Further, if we are to believe accounts from Instacart workers, they’re being asked to risk their lives for the sake of $7 per hour. Reports emerged in March that workers were staging a walkout in protest at their working conditions, having to pick orders from packed stores with near-empty shelves. This is the danger of the gig worker model, whereby the platform company puts itself into a position to have no obligation towards its workforce.

The problem for grocers is that in the minds of buyers, Instacart gets the credit for the ease and convenience of the service, while merchants are the ones who often sustain the damage when people exploit the third-party platform.

Digital sharecropping is a death knell for grocers

Building your business on someone else’s platform is playing with fire. Consider the analogy of sharecropping, whereby a landowner allows a tenant to use some of their lands in return for a share of crops produced on the property. While the tenant works hard to produce crops, the control and ownership remain with the landowner.

“Digital sharecropping” works much the same way, and it’s a danger that’s happening every time your customers use a service like Instacart.

When you make yourself dependent on any platform – be it Facebook, Shopify, Instacart or whoever – the platform will view your customers as theirs. And in many ways, they’re right. The customer contact information, preferences and other data collected by Instacart is theirs, not yours. Also, the branding and customer shopping experience is an Instacart interface, not your store’s.

Further, digital sharecropping comes with a devastating competition and loyalty problem in that the platform gives no incentive for customers to be loyal to you. When your customers go through the Instacart app, they get options to shop with several of your competitors. Instacart doesn’t care if your customers buy from you or your competitors. As long as customers are using the Instacart app, it’s a win for Instacart.

To illustrate, research from Barclays Investment Bank has uncovered an alarming statistic regarding grocery customer loyalty (or lack thereof). A staggering 43% of Instacart users stated that if their preferred grocer became unavailable on the platform, they’d ditch that grocer and continue with another Instacart grocery store instead.

The key to regaining control of your customer data, branding, and loyalty efforts is to run a delivery and pick-up service yourself. Taking back control is why so many grocers are turning to software that facilitates fast ecommerce implementation, fulfillment, and last-mile logistics. One such company, Self Point, says it sees unprecedented demand from grocers around the world, to the tune of 286% year-over-year growth in transaction volume for merchants on the platform.

Alleviating the bottlenecks beyond your control

When you hitch your store to services like Instacart, Shipt, Postmates, Mercato and other such platforms, your customers are directly affected by nationwide slowdowns caused by COVID-19 and extreme demand for grocery delivery. There have been reports about weeks-long waits for these delivery services to catch up to demand. In some markets, restaurant delivery platforms like Uber Eats and Delivery Hero are also jumping into the grocery ring to get in on this opportunity.

To try to compensate for Instacart’s steep backlog of services, many local stores have resorted to setting up makeshift delivery services of their own. Consumers are also trying to compensate by skipping the delivery services altogether and making more trips to local merchants to get a few basic needs at a time.

Instacart may have taken the lion’s share of the market, but it doesn’t necessarily have to stay that way. Grocery retailers have alternative options that give them a higher degree of power and control over their operations, helping to protect their reputation and promote their brand, throughout the current crisis and beyond.

TK DataSec Consultancy provides advice on ecommerce security.