Dive Brief:

• Albertsons has partnered with Instacart to offer same-day delivery from more than 1,800 of the grocer’s locations, according to a company release. The service will be available by the middle of next year.
• Albertsons, which has introduced its own delivery and store-pickup in select markets, will continue to operate those services, according to the release.
• Albertsons operates 20 banner stores across 35 states, while Instacart offers e-commerce services to grocers in more than 150 geographic markets.  

Dive Insight:

Up to this point, Albertsons has been gradually rolling out its own home delivery service in select markets across the country — most recently to Chicago-area Jewel-Osco customers. Albertsons also offers its Drive Up & Go service, which it gained in the Safeway acquisition three years ago and has expanded to select stores in its hometown of Boise, Idaho.

With Amazon continuing to make inroads in the industry, however, and with more and more rival grocers signing on with Instacart and Shipt, Albertsons likely felt it needed to scale up faster. With this newest deal, Instacart will offer same-day delivery to more than three quarters of Albertsons stores by next year.

As with other grocers that have partnered with third-party ordering and delivery services, this is mainly a move to retain business. Online fulfillment is still expensive and inefficient for grocers, particularly when products are being pulled from stores, which typically aren’t optimized for picking and packing orders.

Looking down the road, though, Albertsons could eventually see higher returns if it decides to keep expanding its own delivery and click-and-collect programs. Its Chicago expansion through Jewel-Osco added to an existing delivery arrangement with Instacart that began in 2013. It’s possible that Instacart coverage serves mainly as a placeholder for Albertsons while the grocer continues developing its own services in key markets across the country. 

Albertsons has also made some key investments that could help further leverage its scale in e-commerce. Meal kits offered by Plated, which Albertsons purchased this year for around $200 million, are a significant asset that could draw shoppers and grow baskets. The company has also updated its ordering platform and made key hires. Narayan Iyengar, the company’s senior vice president of digital marketing and e-commerce, came from Disney, while other leads have brought in diverse experience from companies like Levi’s and Macy’s.

For Instacart, this large deal caps off what’s been an extraordinary growth year. The company, which many believed would struggle amidst the acquisition of its largest client, Whole Foods, has instead capitalized on the deal by offering an e-commerce lifeline for retailers. In the past year, Instacart has expanded from 30 markets to more than 150. With its Albertsons agreement, it has already surpassed its goal of reaching 80% of U.S. consumers by the end of next year.