As Walmart’s business model evolves, a focus on omnichannel strategy is the thread tying together its e-commerce business, fulfillment services, advertising and more, Walmart President and CEO Doug McMillon said at Morgan Stanley’s Global Consumer & Retail Conference in December. 

Walmart hasn’t been shy about touting its omnichannel efforts and why catering to meet shoppers’ needs across in-store and online channels can boost profitability. 

“We’ve shared before — if people buy in-store and online with Walmart.com, they generally spend twice as much and they shop in-store more often,” McMillon said. The retailer giant is “very excited” about automation as it builds out its e-commerce fulfillment, McMillion added.

McMillon’s sit down with Morgan Stanley Analyst Simeon Gutman provided more details into the role automation plays, which fulfillment methods the retailer is relying on and how e-commerce connects to its alternative income streams and overall profits. 

High-tech supply chain

McMillon said his confidence in Walmart growing its top-and bottom-line growth is partly driven by the chance to improve productivity through automation, particularly with its supply chain. 

“There's more in front of us to do with the supply chain in particular and we're very excited about automation. And I think it's going to really help our store associates and help us with productivity,” McMillon said.

He continued: “Specifically, what we're seeing is — after a number of years of work — there are opportunities to use automated storage and retrieval systems in ambient distribution centers, food distribution centers, e-commerce fulfillment centers and eventually market fulfillment centers next to stores.”

Automation can create customized e-commerce orders for customers or as department- and store-specific pallets, McMillon said. In the U.S., the retailer already receives grocery products on pallets, which make freight handling easier. Now, the retailer wants to use that model for general merchandise and enable stocking from the pallet, he said. 

“It's a different process, eliminating a lot of the hours that we invest in today in the back room of our stores,” he said.      

Walmart is turning to automation to not only boost productivity but also to help reduce labor costs. “One of the biggest costs that we have in our e-commerce businesses is for store-level wage investments to pick orders,” McMillon said. 

McMillon said Walmart is working with four different partners on the four types of fulfillment centers. As Walmart has layered on those different types of fulfillment centers, starting with ambient and then adding food and e-commerce with different operating systems, the retailer has worked to sync them together and optimize inventory. Data and algorithm improvements and robotics with its supply chain are allowing for better demand forecasting, allowing for new ways to reduce costs, McMillon said.    

Walmart has also focused on outfitting its existing distribution centers with automated storage and retrieval systems to avoid having to build more facilities, McMillon added.     

In some cases, the retailer is choosing to add new facilities where they’re needed, including a recently opened one in Chicago — the first of four high-tech fulfillment centers Walmart is building over the next three years.        

“There's not a lot of human engagement with that product,” McMillon said about the Chicago facility. “There's still some, which eventually we'll work through to an even greater degree, but it is really slick and also more accurate.”  

Walmart is also using store-level fulfillment in other cases, leveraging the last-mile advantage of store locations near customers and carving out space for micro-fulfillment centers (MFC) while retaining in-person shopping, McMillon said. 

Last fall, the retailer bought MFC developer Alert Innovation, following work on a multi-year pilot of the company’s robotic grocery order-fulfillment technology, known as Alphabot. Walmart Chief Financial Officer John David Rainey told investors during its third-quarter earnings call that the retailer is expanding its buildout of MFCs that are attached to or inside its supercenters. 

Evolving business model

The multi-year investment in revamping its supply chain is happening in tandem with changes to the retailer’s business model to focus more on omnichannel strategy, McMillon said.

Walmart has long focused on its stores. But as the retailer built up its e-commerce business, in-store and online shopping felt siloed as recently as last year, McMillon said. Through organizational structure changes, the retailer has achieved a more seamless shopping experience by doing away with channels, McMillon said.

The company is using income from its fulfillment services, advertising and Walmart+ membership to help support its investments in areas that are not yet profitable, while also running its retail business, McMillon said. Among its alternative businesses, Walmart’s marketplace is the top priority due marketplace seller fees and its connection to the retailer’s fulfillment and advertising offerings, he said. 

Building out digital relationships with customers can help the retailer steer people toward its Walmart+ memberships. 

“The primary reason why someone would want to become a Walmart+ member is for free delivery and our food
and consumables customer value proposition is attractive. ... Our challenge is to take that frequently purchased set of items in that relationship and have it extend into more discretionary items and build the basket out over time,” McMillon said. 

Ultimately, Walmart can “see all the pieces” of the technologies it’s leveraging adding up to a profitable model, McMillon said.

So far, the work appears to be paying off: For its U.S. business, Walmart recorded e-commerce sales growth of 16% and 12% in its third and second quarters of fiscal year 2023, respectively — a jump from the 1% increase it recorded in its first quarter. 

“Now, I think we are truly an omnichannel retailer,” he said. 

On Cyber Monday last year, Albertsons began selling and delivering tangible items in the metaverse to customers, becoming the first grocer to do so, according to emailed information from a company representative. 

In its pilot experience launched on Decentraland, a 3D virtual browser-based platform, Albertsons offered Signature Select pretzels, peanut butter cups and a six-pack of mini Cokes, all for $1 with free delivery. Albertsons showcased the Meta Mega Deal promotion, as it was called, on 25 virtual billboards in Decentraland. Users could scan QR codes on the billboards to then pay by credit card for the bundles, with delivery in as soon as 45 minutes, according to the press email. 

The limited-time promo aimed to bridge the physical and digital customer experiences. In recent years, retailers, fashion brands and restaurants have all been experimenting with connecting the metaverse to real life offerings.

“Giving users the ability to shop and order groceries in the Metaverse and have those goods delivered directly to their home is a unique way of offering customer convenience and satisfaction through an exciting new platform,” Jill Pavlovich, who heads up digital shopping experiences at Albertsons Companies, said in the email. 

Albertsons will take findings from the Meta Mega Deal pilot to test, learn and develop a clearer understanding of what customers in the future will want and how to connect with them, per the email. 

Along with opening up new opportunities to connect with customers and drive purchases, Albertsons’ presence in the metaverse shows the grocery company, which oversees more than a dozen banners including Safeway, Vons, Jewel-Osco and Acme, is closely following the behaviors of younger consumers. 

“While we're one of the oldest grocery retailers in America, we always strive to be on the forefront of technology by creating meaningful experiences that build customer loyalty,” Pavlovich said. 

There’s been considerable speculation on how grocery shopping could work in a virtual landscape, and in many ways the metaverse is still serving as just a place for fun and games, like the grocery order picking game Shipt and Meta showcased at Groceryshop in September. 

A few months ago, Walmart unveiled its “isles” of virtual merchandise games and the ability to unlock exclusive interactive content in online platform Roblox. 

“How are we driving relevance in cultural conversation? How are we developing community and engagement? How are we moving the needle from a brand favorability [standpoint] with younger audiences?” William White, Walmart’s chief marketing officer, told CNBC. “That’s what we’re trying to accomplish here.”

Walmart and Publix have reportedly filed metaverse-related trademarks. 

While still an emerging space for grocers, the metaverse may eventually provide a way to tap into younger consumers’ spending power. By 2030, the metaverse may generate up to $5 trillion in impact, with roughly $2 trillion to $2.6 trillion of that affecting e-commerce, McKinsey & Company estimated earlier this year. 

TikTok and other social media apps are widely popular ways to reach users, especially younger ones, and tap into their desires for entertainment and virtual connectedness. 

But video commerce technology company Firework says those social media apps shouldn’t be the focus of companies’ shoppable video strategies.

“[The] biggest problem for TikTok and Instagram is shopping intent isn’t happening there,” Firework co-founder and CEO Vincent Yang said in an interview. 

That’s why Firework has built its business around powering shoppable livestreams and short videos on retailers’ websites, email and social media accounts. Founded in 2017, the company boasts a client base that includes major companies such as Walmart, Albertsons and fashion brand Natori. 

Firework’s mission to have companies look beyond social media as a primary way to leverage short videos and livestreaming comes at a time when brands are starting to reduce ad spending on social media, Yang said.

On top of that, Apple’s privacy changes have made it harder to target ads to iPhone users and slashed return on ad spend (ROAS), leading to a greater emphasis on advertising on websites, Yang said. 

Owning the shopping experience

Social media sites, like TikTok, are distracting aggregators that people use to keep in touch with friends and family or for entertainment, Yang said: “Yes, people spend a lot of time on TikTok but [they’re] spending a long time on TikTok spread across thousands of other content.”

Meanwhile, the user base may be smaller for retailers' and brands' websites compared to social media, but the purchasing intent tends to be much higher, he said. To help generate more traffic for brands, Firework is in the process of building out retail media networks that link retailers and publishers, Yang said.

Shoppable videos can significantly boost engagement, Yang said, noting that Firework-powered videos can normally double or triple conversion rates and hook people into spending a longer amount of time on websites. 

While the average attention span on a TikTok video is 2-3 seconds and a TikTok livestream is 20 seconds, Firework is seeing, on average, a 25-second attention span for the former and for the latter, 5 minutes minimum and up to 15-20 minutes, depending on the client, Yang said. The longer a viewer watches, the more likely it is for a sales pitch to resonate.

Companies have more control and access to first-party data by owning their video content than if they use social media, Yang said, noting that retailers can generate an alternative revenue stream by charging brands for access to that data.

“Now Safeway can report back to Campbell Soup to say, ‘Look today 1,000 people in this location were scanning your Campbell Soup video. On average, they watch for about 5 seconds and this percentage of people share it and this percentage of people actually shop it,’” Yang said. 

How grocers can leverage shoppable content

Currently, short videos are the “hottest” format, but livestreams can fuel more purchasing given their length, Yang said. Shoppable video can also work offline to create an omnichannel experience with scannable QR codes on products, Yang noted.

With livestreams, retailers and brands can provide two-way communication that helps answer questions viewers have. The Fresh Market, which has been working with Firework since late 2021, uses livestreams to launch new stores and showcase experiences, Yang said. 

Livestreaming and short video capabilities can have several use cases for food products, from shoppable recipes on homepages to storytelling about product sourcing in search results to how-to-use videos on product pages, Yang said. Instead of a search results page with images of yogurt, for example, grocers can have short videos showcasing the different brands.

While video commerce on retailers’ sites is typically not seen by viewers as a “community,” storytelling can help create it, Yang said. Brands that Firework works with are encouraging user-generated content that gets directly uploaded to the site and leveraging brand ambassadors and founders to talk about the brand and its main attributes, like a wine or coffee vendor showcasing sustainable sourcing methods, Yang said. 

Content created by store associates and managers is particularly effective, Yang said, because millennials and Gen Z consumers crave human connection and authenticity. To increase personalization, artificial intelligence can show a viewer content made by workers at a local store.

Video not only allows for better measures of engagement than static visuals, but also provides more inspiration to viewers, Yang said: “Video speaks much stronger than just text.”

Spurred by the sustained increase in e-commerce business sparked by the pandemic, grocers are stepping up their interest in vertical storage systems, which allow workers to more efficiently assemble orders and can be less costly than other types of automated equipment.

The mechanized units, which stack totes loaded with goods on shelves in multistory towers that can be more than 40 feet tall, have long been used in industrial settings, where they are prized for their ability to store and rapidly retrieve parts while requiring a minimum of floor space.

Those qualities are now catching on with food retailers, which have until recently displayed relatively little interest in vertical storage systems even as they have invested in other forms of automation, said Max Gigli, CEO of Modula, an Italy-based vertical storage equipment manufacturer that works with grocers in Europe and been in contact with U.S. supermarket chains.

“The portfolio of customers that we have reached has changed a lot,” Gigli said. “Manufacturing is still our bread and butter, but more and more we see customers … in the retail sector and in the grocery sector.”

Vertical storage systems, also known as vertical lift modules (VLMs), can handle a variety of tasks for retailers, including holding products for distribution to stores or inclusion in online orders. The units can also store completed orders until customers are ready to pick them up or delivery personnel arrive to transport them to people’s homes.

In a sign of the grocery industry’s growing interest in VLMs, Modula officials spoke in September at Groceryshop with representatives of companies including H-E-B, Kroger, Whole Foods Market, Giant Eagle, Associated Wholesale Grocers and Lowes Foods, according to David Lind, the company’s director of business development. Modula also connected at the trade show with U.K. grocery chain Tesco, according to Lind.

In 2021, Wakefern Food, the East Coast grocery cooperative that includes banners like ShopRite, Dearborn Market and The Fresh Grocer, said it had begun testing a VLM from Modula rival Kardex Remstar in the Home department at a ShopRite store in Kingston, New York.

A lower-cost alternative to MFCs

Vertical storage systems hold promise for grocers because of their relatively low cost compared with automated micro-fulfillment centers (MFCs), said Marc Wulfraat, founder and president of MWPVL International, a Montreal-based supply chain consultancy that advises grocery chains.

“I started looking at [VLMs] and paying attention because I really think there's a future here in North America for this technology,” Wulfraat said.

VLMs are also attractive because they are less complex than MFCs, which can cut down on maintenance costs, Wulfraat added. “You can have somebody who's doing other forms of maintenance in the building … take care of the equipment” instead of needing dedicated technicians to deal with mechanical issues, he said, referring to VLMs.

Still, Wulfraat said, it could take time for interest among food retailers in vertical storage technology to ramp up, much as MFC technology has been somewhat slow to take off. “It always takes a little bit of time for people to catch on and understand new solutions that come to the market, particularly in the automation sector,” he said.

Wulfraat said VLMs can be especially useful in helping retailers store and fulfill orders for items like dry goods that can be stored at ambient temperatures but need to always be on hand, adding that he thinks they will gain momentum with grocers in the U.S. in distribution centers before making their way to supermarket backrooms or dark stores.

“It's an area of business that everybody struggles with because your pick line gets elongated by all of these slow-moving items that have to be stocked in the warehouse, and you never seem to have enough floor space for them,” Wulfraat said.

Gigli said Modula’s ongoing efforts to build its business with grocers in the United States are taking shape as it works on vertical storage initiatives for food retailers in Italy, which have been ahead of food retailers in other countries in embracing the concept.

Before the pandemic began, Modula installed about a dozen VLMs at a distribution center that serves stores operated by Italian grocery chain Conad, but the technology company didn’t see much interest for its products from other grocers until 2020, when it began working with Tulips, an Italian e-grocer, said Gigli. Modula is also working with Coop, another grocer in Italy, he said.

As e-commerce demand has leveled off following the surge brought on by the pandemic, Modula is positioning the relatively low cost of its gear as a key advantage compared with MFCs, which can cost several million dollars or more to build. By comparison, Modula’s automated storage towers typically cost about $150,000 each to install, Lind said.

Gigli added that Modula emphasizes its ability to install its equipment quickly and rapidly bring on additional storage capacity when it has discussions with retailers. It takes the company four to six months from when it receives an order for a vertical storage unit until installation is complete, he said.

According to Gigli, workers can summon goods and orders using a control panel at the base of a VLM, or the control software can be integrated with a grocer’s online grocery platform, allowing the unit to automatically ferry items to a worker when an order comes in from a shopper.

The units can also be insulated to maintain interior temperature and humidity levels, Lind said.

Setting the temperature of individual totes

As they start to pay closer attention to VLMs, grocers are also showing increased interest in technology that can keep food refrigerated or frozen on a tote-by-tote basis instead of requiring goods to be kept in chilled rooms that may have a lot of empty space, said Dana Krug, senior vice president for cold chain at Phononic, a supplier of temperature-controlled totes compatible with VLMs and MFCs.

Phononic’s totes feature solid state cooling units the size of a smartphone that can bring the interior of the unit from room temperature down to a specific temperature in under an hour, Krug said. The totes can also be controlled remotely, allowing retailers to turn the cooling system on or off as needed even when a tote is stored inside a VLM. That makes the equipment, which depends on carbon dioxide and water instead of conventional refrigerant, much more efficient than compressor-based cooling systems, Krug said.

While companies in sectors such as healthcare and the life sciences have used the company’s cooling technology for more than a decade, retailers have only been showing interest in its equipment for about three years, Krug said. The company is not ready to identify retailers it is working with, he said.

Phononic displayed its totes at Groceryshop inside a vertical storage unit from Vidir Vertical Solutions, a VLM supplier it is partnering with to demonstrate the technology to food retailers. Vidir has installed VLMs for retailers including Home Depot, Kohl’s and Walmart, according to the company’s website.

“The beauty of the vertical racking and our system working with it is that flexibility to flex your order capacity at any given time. If I need more order capacity, I add more totes … it doesn't mean I'm taking up more space inside the store,” said Krug.

With its planned $24.6 billion acquisition of Albertsons announced in October, Kroger is making clear it doesn’t intend to let Walmart and Amazon continue enjoying the greatest benefits of scale in the grocery industry.

Kroger is no small enterprise, of course. It’s the country’s largest supermarket chain, with loads of stores and a raft of alternative businesses circling that core grocery offering. But it still labors to keep up with the prices and the pace of innovation that Walmart and Amazon set because it hasn’t had that next-level scale of those two companies, which dominate the bricks and clicks, respectively, of retail. And that pressure is only going to grow in the coming years as digital shopping and the ecosystems that support them continue to ramp up.

If it’s able to merge with Albertsons (more on that if further down), Kroger will be able to pull itself within striking distance of the industry behemoths. It also leaves the rest of the country’s grocery chains in the dust, effectively creating a new “Big 3” in the industry.

There’ll be Walmart, Amazon, Kroger/Albertsons, and then everyone else.

Fueling digital and alternative businesses

The deal says a lot about the state of the industry today. As inflation and supply chain headaches continue to impact retailers, Kroger’s acquisition gives the company more operational resources, including expanded private label capabilities and more negotiating power with suppliers. Kroger estimates the deal will achieve $1 billion in annual efficiency savings within the first four years of its completion.

It also presents the opportunity to build out a truly nationwide supermarket network with a rationalized store footprint. Kroger, which currently doesn’t operate stores in the Northeast and Northern California, will now have access to those markets through Albertsons stores. The stores that operate in close proximity — in some cases right across the street from each other — can be jettisoned, either voluntarily or through the coming regulatory review process.

Beyond these traditional benefits that come with a large merger, Kroger’s acquisition incorporates scale benefits in emerging areas like data, e-commerce and retail media that add even more value to the tie-up than we would have seen even just a few years ago, and further position it for the years to come.

Four years after announcing its moonshot e-commerce deal with Ocado, Kroger now stands to drive more volume through the fast-growing network of automated warehouses it’s building alongside the British e-grocer and technology company. High volumes are critical to making those pricey facilities cost effective, and Kroger was probably overly optimistic about the amount of orders it could push through those facilities on its own, Stewart Samuel, program director with IGD, told me. Kroger’s flexible agreement with Ocado also means the companies can build additional facilities as needed.

Albertsons has mainly outsourced its delivery operations in recent years to third-party marketplaces, but it has deep experience testing automated micro-fulfillment centers (MFCs) that could help round out Kroger’s network. The combination of small, medium and large facilities will likely be crucial to helping Kroger compete with Walmart, which has its cavernous stores and a newly acquired MFC company to lean on for fulfillment, and Amazon, which is adding same-day delivery through its fast-growing store network.

“Kroger has always said they want to have that range of options in e-commerce fulfillment. I think the two [approaches] are not incompatible,” Samuel said.

Greater scale also boosts Kroger’s ability to compete with Walmart, Amazon and Instacart for supplier advertising dollars that help support those hefty e-commerce investments. The more shoppers a retailer serves, the greater the pull they have in retail media. Kroger has built a leading retail media business over the years that could help the combined company capitalize on the 85 million combined households they serve.

Alternative revenue streams like retail media, health services and consumer insights are becoming critical for retailers as expenditures in e-commerce, sustainability and other investments further dilute their margins over time, said Samuel. That adds even more impetus to scale up.

The greatest prize in the merger, then, might be the reams of additional consumer data Kroger can crunch to fuel its core business and alternative streams, said Ken Fenyo, president of research and advisory with Coresight Research and former vice president of loyalty and digital with Kroger. 

“Kroger has a huge data set of national consumer behavior data, to which they apply analytics, personalization, and expertise to drive retail media, personalized marketing, and better internal decision making,” he wrote in emailed comments. “Data is the real gold in the deal.”

During a call with the investment community after the deal was announced, Kroger’s Chief Financial Officer Gary Millerchip noted the deal will enhance the “flywheel effect” the grocer has harnessed in recent years, wherein its core grocery business helps fuel its alternative businesses, which in turn power further investments in the core. He estimated a combined Kroger-Albertsons will immediately generate $1.5 billion in yearly profit from alternative businesses, up from the $1 billion Kroger reported last year.

Will a deal actually get done? 

For all its potential to create a new industry behemoth, there are a lot of questions swirling around this deal. Chief among them being: Will the deal actually go through?

The Federal Trade Commission has blocked mega mergers in the past, including the proposed joining of US Foods and Sysco in 2015, and Staples’ bid to acquire rival Office Depot that same year. Experts agree the FTC now takes a more critical look at large deals that could stifle competition and raise prices. 

Samuel said he’s skeptical the FTC will let the two largest U.S. supermarket companies merge, given their overlaps and the fact that both businesses have been doing quite well on their own. Wall Street is also treading carefully around the deal, noting its game-changing nature but also pointing out the extensive risk involved. Kroger’s shares fell just over 7% on Friday and Albertsons’ shares fell 8.5%, indicating investors aren’t confident will make it through regulatory approval.

“While we understand the benefits from acquiring Albertsons … such benefits only play out if the merger passes FTC scrutiny,” Jefferies analyst Rob Dickerson wrote in a note to investors on Friday.

Kroger will certainly need to sell the FTC on the deal’s ability to lower prices, improve services and not stifle competition — a tall task, no doubt. Fenyo said he’s optimistic the deal will get approved, noting that Kroger has already said it plans to plow $500 million into price investments off the bat.

Kroger has said it’s prepared to sell off anywhere from 100 to 375 stores to satisfy regulatory requirements. That projection seems more like an opening bid than a realistic range, given the many markets across the U.S. where the two compete and have leading market share. 

In a note to investors, Wells Fargo analyst Edward Kelly noted that Kroger will be able to pay a $600 million breakup fee if it’s required to divest more than 650 stores. “It's difficult to know if an FTC ruling would breach this threshold, but we still expect a high number of divestitures given it may be difficult to find a buyer without providing adequate local scale,” he wrote.

In Southern California alone, the two companies have five combined banners — Kroger’s Ralphs and Food 4 Less chains, and Albertsons’ Safeway, Vons and Pavilions brands. In the Seattle area, where I live, Safeway stores and Kroger’s Fred Meyer and QFC stores constitute the top three grocers in terms of store traffic, according to Placer.ai. In Chicago, Albertsons’ Jewel-Osco and Kroger’s Mariano’s stores are the top two grocers, according to that same metric.

There are other questions surrounding the head-spinning complexities of combining two sprawling supermarket operators. How would Kroger and Albertsons handle private labels, given Kroger’s out-and-out strength in this area? Will Kroger want to inject its massively successful Simple Truth and Home Chef brands into Albertsons’ stores? Can those brands coexist with Albertsons brands like Open Nature and ReadyMeals?

Both Kroger and Albertsons have developed strong test-and-learn approaches to food retailing, ushering in innovations like ghost kitchens, automated e-commerce ordering, robotic fulfillment and more. How will the companies combine their innovation capabilities? And how will they continue to source the local and niche products that consumers still greatly value as they grow to nearly 5,000 stores?

It’s also worth considering the effect a Kroger-Albertsons merger would have on the rest of the industry. I recently predicted in this column an uptick in regional grocery M&A — an uptick driven by the rising pressure that major players like Walmart and Amazon are exerting on the industry. If a third mega grocer joins the mix, that pressure rises even more, leading to what could easily become a feeding frenzy of consolidation in food retail.

SNAP online purchasing has come a long way in the last three years. 

After a surge of grocers last year received approval from the USDA to allow SNAP participants to make online payments, more retailers continue to gain approval from the agency and consumer adoption of SNAP online purchasing is steadily increasing. 

Currently, 49 states and Washington, D.C. allow retailers to sign up to offer SNAP online purchasing. Last February, Louisiana allowed Walmart to become the first retailer in the state to offer the capability, and Montana followed suit in April, making it the 49th state to do so.

More than 150 retailer chains have received USDA approval for SNAP online purchasing, a USDA spokesperson said in an email. Grocers that have been accepting Electronic Benefits Transfer (EBT) payments online for more than a year are seeing, on average, between 5%-15% month-over-month growth in those payments, correlating to more than 60% year-over-year growth, according to data from Fiserv, a financial services technology company and partner of the USDA on SNAP online purchasing.

To understand SNAP’s digital growth, it’s important to first get a sense of the federal program’s overall participation, benefits and how both categories have grown during the pandemic.

As SNAP participation surged early in the pandemic, states and agencies scrambled to add online purchasing capabilities for retailers across the country. Between January and December 2020, the number of households using SNAP online grew from 20,000 to 1.4 million, according to USDA data.

As the data below show, SNAP online use has continued to climb.

Innovation with SNAP online shopping 

As SNAP online purchasing has gained momentum, retailers and grocers have recently rolled out new digital tools or added the ability to make EBT card payments to broaden how people can shop.

Walmart and Amazon, which both have a massive online reach to SNAP participants, in recent months have added new digital features that make it easier for shoppers to find EBT-eligible products. 

 

 

 

The USDA is currently working to stand up a pilot program that will allow SNAP consumers to save their EBT card information on their phones and then have the ability to make mobile purchases while at in-store checkout counters. The department is seeking SNAP state agencies to participate in the pilot. 

Continuing to diversify SNAP online

While people paying with their EBT cards now have more retailers to choose from, national retailers and regional chains still dominate the choices for where SNAP participants can shop online. 

The number and types of retailers — independents, regional grocers, discounters, clubs and mass merchants — approved to offer SNAP online purchasing varies state by state, and the USDA is pushing for a greater diversity of grocers to have the capability. 

The agency is also looking to increase the number and diversity of retailers offering SNAP online purchasing with a $5 million grant, funded by the American Rescue Plan, to give retailers education and technical assistance. 

“Expanding the diversity of our online shopping retailers is a critical component of our nutrition security goal to provide better access to healthy, safe, affordable foods,” said Stacy Dean, deputy under secretary for food, nutrition and consumer services at USDA, said in a statement last month.

Aldi is developing an online grocery platform that will offer pickup and delivery service in as little as an hour across the supermarket chain’s U.S. footprint, according to Boris Lokschin, CEO of Spryker, a German e-commerce technology company that is working with Aldi on the joint project. 

Aldi and Spryker are currently testing the service with an unspecified number of shoppers and plan to eventually make it available nationwide, the companies said in a Tuesday press release. The project is moving ahead as Aldi looks to highlight its focus on low prices amid persistent grocery inflation and concerns that a recession may be on the horizon.

Aldi and Spryker provided few details about the platform, which they described in the press release as a “new online food & grocery shopping experience.” But the e-commerce service the companies are working on together represents a clear departure from Aldi’s traditional dependence on Instacart to manage its online grocery operations.

Aldi’s own employees are fulfilling click-and-collect orders that come in through the new service, while Instacart workers are handling delivery orders shoppers place on the platform, Lokschin said in an emailed response to questions sent by Grocery Dive.

By contrast, Aldi has for years entirely outsourced all of its online grocery services to Instacart, which provides inbound order handling as well as labor to fulfill those orders regardless of the fulfillment channel shoppers choose. According to its website, Aldi currently offers curbside pickup in partnership with Instacart at almost 700 of its approximately 2,000 stores in 38 states. In addition, shoppers can place orders for delivery at about 95% of Aldi’s U.S. locations. 

Aldi provides information about products it carries in its store on its own website, but does not allow shoppers to order items. The site also does not provide prices, instead directing shoppers to stores to obtain that information.

“The platform is being tested with a select group of customers in regions all across the country and will roll out to all shoppers in a phased approach,” Lokschin said. However, he declined to say how many shoppers are participating in the test of the new service or indicate when the platform is expected to be available to a broader group of customers.

Aldi suggested in the press release that it is looking to the new platform to help shoppers save money. “Our partnership with Spryker will allow our shoppers another way to access the incredible value they expect from ALDI,” Scott Patton, Aldi's vice president of national buying, said in a statement.

However, the companies also did not share details about fees for the service or indicate whether shoppers who use it have access to the same prices Aldi charges in its stores. “Most items are available on the new website but assortment and pricing can vary by geographic region,” Lokschin said.

Last September, data analysis firm dunnhumby ranked Aldi second among 69 grocers in terms of their relevance with shoppers amid record-high inflation. Meanwhile, Aldi announced earlier this month that it would be cutting prices on “dozens of top-selling items.”

After double-digit sales growth earlier in the pandemic, Instacart’s momentum is easing at a time when retailers are turning to their own e-commerce operations, according to research from 1010data.

In June, Instacart saw its sales grow 4% year-over-year and 3.5% year-to-date, the retail data analytics firm found — a stark drop from Instacart’s sales success earlier in the pandemic, 1010data analysts noted. Instacart declined to comment on the report. 

At the start of the pandemic, grocers scrambled to partner with third-party e-commerce providers who could help them reach customers online, serving as a catalyst for Instacart’s growth. Now, with more retailers building out their logistics operations and rapid delivery firms, like Gopuff, zeroing in on convenience offerings, Instacart is facing more competition.  

While the company still looms large, the changing grocery e-commerce landscape signals Instacart will need to transform in order to regain the strong sales it’s seen before, the report noted. That next chapter appears to be underway as Instacart expands its menu of retailer tools and services, from fulfillment warehouses to tech-enabled shopping carts.

“Instacart’s had an amazing run and now that they've fallen back to Earth. But now that their numbers are becoming a normal growth story and others have closed the gap, they really need to figure out what the next chapter is,” Jonah Ellin, chief product officer at 1010data, said in an interview.

Comparing Instacart to its retail partners

The research firm looked at sales growth for three of Instacart’s retail partners — H-E-B, Costco and Sam’s Club, excluding sales through H-E-B’s Favor service. 

“Historically, Sam’s Club, H-E-B and Costco were very, very dependent on Instacart,” Ellin noted. Recently, though, they’ve become aggressive in rolling out their own e-commerce fulfillment capabilities, Frank Riva, vice president of marketing at 1010data, told Omni Talk.

All three retailers recorded higher year-over-year and year-to-date growth in online sales than Instacart, the report found. The share of Instacart sales remained relatively flat for Sam’s Club and H-E-B and declined 8.6% for Costco when compared to previous years, according to 1010data. 

“Now that customers are seeing options provided directly from retailers, they have a great affinity towards and a lot of loyalty towards” those retailer offerings Ellin said, noting that club-based memberships like Sam’s Club and Costco, especially, see a high degree of customer loyalty. 

Ellin said that retailers’ own e-commerce services often provide better value propositions to customers compared to Instacart’s model, which often siphons off margins on product sales in addition to charging tips and fees to customers. 

For the second quarter of 2022, the average basket size for Instacart ($33) was one-third to half that of the three retailers, according to 1010data. However, Instacart’s customers are purchasing more frequently, Ellin noted, adding 1010data’s research indicates people are building baskets but then waiting to place orders until they need an item on short notice or for a special occasion. 

“We think some of that has to do with the way in which they have installed their loyalty program and their subscription service,” Ellin said. “People are targeting a certain basket size that hits a price point. They're making their order and then they're reserving things that they can wait on for a later date to help them to hit that minimum order on the next basket. So it’s a little bit of gaming the system.”

The comparison of Instacart to the three retail partners also illuminates how online fulfillment channels are changing. Delivery drove Instacart’s recent sales growth while click-and-collect has seen negative sales growth, per the report. The three retailers recorded higher sales in both channels than Instacart did year-over-year, with delivery providing more robust sales growth rates, 1010data found. 

The research indicates pickup’s popularity has slowed as consumers return to in-store shopping, especially to pick “high-touch” fresh items like meat, produce and seafood, while delivery is continuing to gain traction due to its convenience and saving customers time, Ellin said. 

As consumers battle high food and gas prices, retailers have an advantage in enticing shoppers seeking delivery with e-commerce memberships that lower fees and online order minimums. For Instacart, on the other hand, some consumers view it as a luxury service, Riva said.

Can Instacart replicate its previous sales success?

Even with the rise of retailer-owned services and the ongoing issues caused by inflation and supply chain challenges, 1010data argues Instacart can still thrive. 

“I think they've got a lot of challenges coming. I do like the fact that they're very customer-centric,” Ellin said. 

Indications that Instacart is looking to make itself more relevant in this landscape include its work to change pricing strategies and promotions for their CPG and retail partners for customer savings, along with its foray into curated shopping carts and exclusive recipes from celebrities, retailers and influencers, 1010data noted. 

For Instacart to return to its previous sales boom earlier in the pandemic, 1010data said the company would need to “transform itself and its value proposition,” noting that it already seems to be working on that through its recent acquisitions of Rosie, Eversight, Caper AI and FoodStorm. 

Those acquisitions signal Instacart is making strategic moves to offer desired solutions for its retailer partners. “I think a lot of what they’re doing is right,” Riva said. 

“That long tail with retailers is going to be critical to them because the bulk of those long-tail retailers are not going to be in a position to do it. … The level of sophistication that Instacart can put into an e-commerce front-end and the ancillary offerings that could go with that is going to make sense,” Riva said.

Instacart’s personalization efforts, particularly, “feel like a very smart play” because customers who come to the Instacart marketplace aren’t necessarily looking to shop from a specific retailer, Ellin said. 

Instacart has a treasure trove of user data that it can leverage. For example, Instacart can help steer customers toward high-value items and products they know will be relevant to them based on their shopping history, Ellin noted. 

“They still have that understanding of the customer and understanding the customer across multiple merchants that most of the retailers that are out there lack,” Ellin said. “They know how that customer shops with them, but they don't know where's the rest of their share of wallet going and what inspired them to make purchases today one site versus another.”

Walmart has entered a definitive agreement to purchase micro-fullment center (MFC) developer Alert Innovation, according to a press release issued last October. Financial terms of the deal were not disclosed.

The retailer is taking over Alert after working with the startup on a multi-year pilot of the company’s robotic grocery order-fulfillment technology, known as Alphabot, and as it steps up efforts to fulfill e-commerce orders more efficiently against a backdrop of a tight labor market.

Andover, Massachusetts-based Alert, which developed the Alphabot technology specifically for the retailer, began working with Walmart in 2016, and launched a test of the autonomous cart-based system in a 20,000-square-foot warehouse connected to a supercenter in Salem, New Hampshire, in 2019. Alert had been exploring potential arrangements with other retailers, but made clear in its announcement that it would focus its efforts on Walmart going forward.

“Our mission to improve people’s lives through innovation will now be dedicated to Walmart customers and associates which is an inspiring undertaking,” John Lert, Alert’s founder and executive chairman, said in a statement.

Alert will continue to operate under its existing name and remain in the Boston area, according to the announcement.

In a separate announcement, David Guggina, senior vice president of innovation and automation with Walmart, said Alert is notable among MFC developers because its bots move autonomously in multiple directions and across three temperature zones, and don’t require lifts or conveyors to move through fulfillment structures. This allows the company flexibility in building storage spaces and means operators don’t have to shut down the entire MFC system to fix the bots.

Guggina said the acquisition will allow Walmart to enhance its local fulfillment operations, noting that its 4,700 stores are located within 10 miles of 90% of the U.S. population.

“Bringing the best of Alert’s technology and capabilities in-house will enable us to reach customers quicker by deploying MFCs with greater speed, providing both an unmatched shopping experience and a competitive advantage in omnichannel fulfillment,” Guginna wrote.

In 2021, Walmart announced it would add automated MFCs to “dozens” of stores, incorporating technology from providers like Dematic, Fabric and Alert. It said at the time that it would test MFC solutions inside stores as well as in buildings adjacent to them.

Walmart is also in the process of building “next-generation” fulfillment centers with enhanced automation capabilities. The first of these four locations opened in late September in Joliet, Illinois.

Pricey automated fulfillment center technology has been a tough sell for all but a select group of chain retailers looking to more efficiently route the high order volumes they see. But the prospects are improving as the technology evolves, experts say. In addition to using Alert’s technology to meet its own fulfillment goals, Walmart likely sees Alert as an opportunity to sell MFCs to other retailers, adding to the growing list of tools like home delivery and electronic scanners that it’s offering to other companies.

Walmart’s decision to acquire Alert follows its announcement last August that it would acquire Delivery Drivers Inc., the gig-labor company it has worked with to staff its Spark Driver fulfillment delivery service. Walmart also said in August that it was purchasing Volt Systems, a software company that provides vendor management and product tracking tools. 

In a reminder that even promising technology-related partnerships can quickly change course, Walmart ended its relationship with Bossa Nova Robotics, which had supplied the retailer with robots that took inventory in its stores, in November 2020, less than a year after expanding its partnership with the automation company.