Online grocery sales have moderated over the past two years as in-store shopping has picked back up and inflation has weighed down consumer spending. Nevertheless, retailers are still taking steps to improve profitability and the online shopping experience, realizing the important role digital still plays in their sales and customer loyalty.
A growing number of chains have established proprietary e-commerce platforms that put their brands front and center. Food retailers are also honing their back-of-house operations to make the picking, packing and delivery process more efficient.
In recent months, grocers and their technology partners have also begun to explore new digital shopping experiences. Walmart and Aldi have revamped their digital storefronts and now offer new tools to help inspire shoppers as well as enable them to buy.
In this trendline, you’ll read about some of the most significant steps grocers have taken lately to boost their e-commerce operations. You’ll learn about how supermarkets are trying to win over digital shoppers as mass merchants like Walmart and Target threaten, and how retailers like Amazon are offering new services like nationwide delivery. You’ll also read some of the latest analysis of Instacart, which helped fuel the recent rise of grocery e-commerce, as it pushes toward a public listing.
As 2023 winds down and 2024 looms on the horizon, look for retailers to continue to test out new digital tools and services as they further explore the expanding possibilities of e-commerce.
Supermarkets outscore Amazon in online grocery satisfaction poll
The results from The Feedback Group’s survey indicate the deep investments companies like Kroger and Ahold Delhaize have made in e-commerce over the past several years are paying off.
By: Jeff Wells• Published May 11, 2023
Supermarkets outscored Amazon as well as mass merchandisers Walmart and Target in a recent online grocery satisfaction survey conducted by The Feedback Group.
Supermarkets scored 4.40 out of five points in overall satisfaction, while Amazon scored 4.30 and the mass merchants scored 4.26. Discount grocers, including Aldi and Lidl, scored a 4.11 while dollar stores scored the lowest at 3.90.
The results, which were based on a survey of 1,000 online food shoppers, indicate that the investments supermarkets have made in online shopping over the past several years are paying off, according to The Feedback Group.
Judging by The Feedback Group’s latest poll, investments like these have boosted consumer satisfaction with online services even as fewer people shop online now compared to a few years ago when the global health crisis took hold.
However, those higher ratings may not be trickling down into higher online sales, with reports showing mass merchandisers like Walmart are stealing market share away from traditional grocers.
The Feedback Group found that nearly 90% of the consumers it surveyed were pleased with the online grocery experience across all types of merchants. But digging deeper, the organization found those shoppers are less than enthusiastic about key elements of the experience.
Consumers scored their confidence in being able to find the products they need when ordering a 3.84 out of five, while grocers’ personalization efforts rated only slightly higher, at 3.88. Respondents also gave an average 3.99 rating when asked if their preferred online grocer values them as a frequent customer.
The Feedback Group’s poll also found that online grocery is struggling to connect with young consumers — indicating a need for further innovation as the spending power of millennials and Gen Z increases. Millennials surveyed gave their most recent online grocery experience an average 4.10 rating out of five, while Gen Z respondents scored the experience at 3.95.
“These results should motivate grocers to keep innovating when it comes to their online shopping experience,” Doug Madenberg, chief listening officer with The Feedback Group, said in a statement. “Younger consumers – our future core customers – are active on so many digital platforms, eCommerce and otherwise, resulting in higher expectations than those of older shoppers.”
Article top image credit: Courtesy of Albertsons
6 takeaways from Instacart’s IPO filing
The grocery technology company, which recently achieved profitability, hit nearly $1.5 billion in revenue during the first six months of 2023, with a significant chunk coming from its ads business.
By: Sam Silverstein and Catherine Douglas Moran• Published Aug. 29, 2023
Instacart’s announcement in late August that it is preparing to go public made clear that the company has built a strong financial foundation in its legacy business as an e-commerce provider to retailers and is progressing quickly as it evolves into a technology company bent on helping grocers embrace digital technology online and in their brick-and-mortar operations.
Even as grocery e-commerce has recently shown sustained signs of slowing down after the pandemic sparked an unprecedented explosion in demand by online shoppers, Instacart said it believes it has plenty of room to grow its position as a digital service provider.
In the prospectus Instacart filed with the U.S. Securities and Exchange Commission, the company cited data from Incisiv that it said shows the online grocery market will post a compound annual growth rate of 10% to 18% between 2022 and 2025, compared with 0% to 4% for offline sales. Still, the company observed that given that the vast majority of grocery sales will not be digital anytime soon, “the role of the store will continue to be significant, and it will be critical to serve retailers with technology that enables omni-channel commerce.”
By the numbers
Instacart’s approximate revenue during the first six months of 2023, up 31% year over year
The company’s net income during the first half of 2023, compared with a $74 million loss for the same period in 2022
Instacart’s number of shoppers, a group that is two-thirds female. Instacart shoppers work nine hours on average per week
Instacart’s number of monthly active orderers, who spend approximately $317 per month on average on the company’s ordering platform
In addition to heralding a new era for Instacart by compelling it to reveal financial and other details about its operations it has long held close, the planned IPO also marks the end of co-founder Apoorva Mehta’s connection with the company, which he led as CEO for nine years after getting it off the ground in 2012.
Confirming plans the company disclosed in 2022, Instacart said in the prospectus that Mehta, a former Amazon supply chain engineer who has served as chairperson of the board since 2022, will sever his ties to the company when the registration statement becomes effective. Current CEO Fidji Simo will become chairperson when Mehta departs.
Here are six key takeaways from Instacart’s IPO registration statement.
1. Instacart is positioning itself as more than a grocery delivery provider
Instacart made clear in its prospectus that the company remains strongly tied to its roots as an e-commerce service provider — and also sought to convince potential investors that it is an essential partner for grocers no matter how they approach food retailing.
The company pointed to statistics indicating that retailers it works are increasingly benefiting from their relationships with the company. According to the filing, the sales volume Instacart drives for its top 20 retail partners grew from 0.6% of their sales in 2018 to 5% of their sales last year.
At the same time, Instacart noted that while it serves more than 1,400 banners, it is heavily dependent on just a handful of retailers for more than 40% of its business. The top three retailers the company works with accounted for about 43% of Instacart’s gross transaction value in 2021, 2022and the first half of 2023, according to the prospectus.
Instacart drew attention to its efforts in recent years to adapt promising technologies for retailers and move quickly to help them benefit from those new capabilities.
“We believe this incentivizes grocers to partner with Instacart, as they know that our technology will enable them to transform their businesses and enhance omni-channel customer experiences,” the company said. “Our business model has been built on shared success with grocers, and because we do not own inventory, we do not compete with our retail partners. We believe this combination puts us in a unique position to foster greater trust between grocers and Instacart, making us the preferred technology partner.”
2. The company is profitable
The company said in its filing it had a net income of $242 million during the first half of 2023, compared with a $74 million loss during the same period in 2022. Instacart said it “only recently began generating profit,” noting that its ability to generate profit rests heavily upon the growth in its diversified revenue streams, its ability to drive operational efficiencies and its cost management decisions.
Instacart recorded net losses of $70 million in 2020 and $73 million in 2021. At the end of 2022, the company had an accumulated deficit of $977 million.
Instacart said that the growth of its ads solutions plays a vital role in its ability to sustain and increase profitability.
Instacart’s revenue and profitability are on the rise
*Includes a $358 million tax benefit from the release of the company’s valuation allowance on deferred tax assets in the United States
3. Advertising is a key financial driver
“Advertising and other revenue” accounted for 28% of the company’s total revenue for the first half of this year, rising 24% year over year, to $406 million.
Over 5,500 brands use Instacart’s advertising tools and insights, per the filing. The company has bolstered its ads business in recent years. Its hiring of Simo as CEO in the summer of 2021 saw it bring on a high-ranking Facebook executive with experience in mobile monetization strategy, product management and advertising.
“Our grocery expertise has enabled us to build differentiated advertising solutions and tools that allow CPG brands to reach and engage with high-intent customers at the point of purchase and within minutes of delivery and consumption,” per the filing.
The company said it’s seen its advertising revenue take a hit in 2022 and the first half of this year due to reduced demand for advertising from brands who are cautious about spending amid factors like macroeconomic uncertainty, global supply chain disruptions and labor shortages.
4. It’s watchful of potential Kroger-Albertsons merger impacts
As one of its listed potential risks, Instacart notes that mergers and acquisitions by competitors or retailers could weaken its competitive position and adversely affect its business.
“Consolidation amongst major retail partners, such as the pending merger between Albertsons and Kroger, could impact contractual negotiations with such retail partners, result in lower utilization of our products, or lead ultimately to termination of existing retailer engagements,” the filing says.
Instacart said in the filing that orders grew from 223.4 million in 2021 to 262.6 million in 2022 — an 18% increase — and that it handled 263 million orders during the 12 months that ended on June 30.
Orders have remained consistent (roughly 132 million) year over year from the six months ending June 2022 to the same period this year. In the first quarter of 2023, orders decreased 2% compared to the same quarter in the prior year, per the filing.
“Since grocery is one of the largest recurring monthly household expenses, we have high average order values,” the filing said, noting Instacart’s average order value was $110 in 2022. That year, the company’s average gross profit per order was approximately $7, or 6.4% of GTV.
“We typically see lower levels of order volume growth in the second quarter and a portion of the third quarter resulting from lower usage of our offerings during the spring and summer months, followed by higher levels of order volume growth in the second half of the year during the back-to-school period and holiday season,” per the filing.
6. Members are a top business driver
Instacart’s membership program, Instacart+, had over 5.1 million members, excluding free trial members, as of June 30. That’s up from 4.6 million members at the same time last year.
The membership, which was refreshed and rebranded in June 2022, provides unlimited free delivery on orders over a certain size, a reduced service fee and credit back on eligible pickup orders, along with other benefits.
“Instacart+ members order more frequently and have higher average order values, despite lower customer fees, and typically develop a more habitual and sticky behavior on Instacart over time,” the company said in the filing.
On average, Instacart+ members have shopped at more than twice as many retail banners than non-members. Members spend an aggregate of $461 over four orders per month, compared to an aggregate of $223 spent over two orders by a non-member, the company said.
Instacart said it will continue to invest in Instacart+ and work to increase adoption of the membership to drive increased customer engagement.
Article top image credit: Courtesy of Instacart
How grocers can prepare for the online grocery shopping experience of tomorrow
The era of omnichannel grocery is here. Customers can no longer be defined as shopping for items through a single channel or fulfillment method. Instead they value being able to choose the most convenient channel, one that best suits their immediate needs and evolving preferences. In order to capture and retain customers, modern grocery retailers need to offer an exceptional omnichannel shopping experience that is both convenient and customer centric.
A well-rounded omnichannel grocery strategy can also prepare retailers for what they can expect beyond 2023. With US eGrocery sales forecasted to grow at a steady pace over the next five years, it's crucial that grocers are investing in technology that increases brand loyalty online, deepening the relationship with the customer. Here are a few ways grocery retailers can prepare for the future of online grocery shopping:
Deliver a seamless mobile shopping experience
Retailers need a native mobile app to accompany a robust and responsive website. Having a modern mobile framework, with the ability to configure, control and personalize the experience for customers is essential. An intuitive framework will also enable grocers to scale their app as their business grows, keeping up with changing industry trends.
What makes for an exceptional experience? Retailers should consider the end-to-end customer journey. Starting with shopper-friendly navigation. The ability to browse for products in digital “aisles” and build carts should be seamless and driven by customer convenience. A streamlined checkout process will ensure that purchases can be made in as few clicks as possible. These key mobile grocery app features can significantly reduce cart abandonment rates and improve mobile revenue.
Build brand loyalty with personalization offers and coupons
Grocery retailers need a solid marketing and communications strategy in order to keep customers engaged. The cost of acquiring new customers is very high. For that reason, it is wise for retailers to have a retention strategy that involves nurturing the customers they have with personalized offers, coupons, and promotions. This encourages repeat purchasing and regular communication to keep the retailer’s brand top of mind.
Customers are more likely to interact with retailers that reward them for their loyalty and provide personalized offers that match their individual needs. In fact, having a strategy to re-engage lapsed and lost customers who may not have purchased in the last 90 days is a great way for retailers to activate and drive revenue from their existing customer base.
Drive additional revenue with a grocery advertising program
Retail media is only going to grow. Integrating retail media opportunities directly into the shopping experience and capturing customer attention at the point of sale has a much higher conversion rate. Ad revenue is an excellent way for regional grocers to manage the cost-to-serve online channels, and offer the customer a variety of products within their shopping journey to help them build bigger baskets. Mass merchants are already serving a variety of CPG ads within their shopping experience, and the industry is seeing a considerable increase in cross shop between regional groceries and mass merchants. Regional grocers should consider how they are going to keep up, or their customers could leave them behind.
Monitor success with Key Performance Indicators (KPIs)
Regional grocers should be monitoring their progress and have KPIs for a successful omnichannel grocery strategy. Prioritizing data governance and having a 360 degree view of the customer in grocery eCommerce is essential to future proofing the online experience. This can be tricky depending on best practices of each retailer, but picking the right technology partners and investing in the data side of their business can help retailers achieve their goals.
At Mercatus, we’ve utilized industry research to perfect our state-of-the-art eCommerce platform that empowers grocery retailers to build a first-party online grocery shopping experience that offers a wide range of integrations, personalizes online shopping journeys, and surpasses the evolving customer expectations - all this while retailers maintain complete control over their customer data and capture advertising revenue.
Grocery eCommerce innovation awaits. For grocery retailers looking to build their own first-party platform, we encourage you to explore the Mercatus Digital Commerce Platform with our experts by requesting a free demo.
Article top image credit:
Pardon the Disruption: What new digital storefronts from Walmart and Aldi say about the future of e-grocery
Little by little, grocers’ platforms are promoting online exploration — not just mission-driven buying.
When Walmart announced earlier this year that it had updated its website and app in an effort to boost “excitement and discovery” among its customers, a source whose insight I very much respect brought up on LinkedIn the distinction between online buying and online shopping.
The two terms might seem interchangeable, but as he and other retail experts have pointed out in recent years, there are key differences that are important for retailers to understand.
Buying, as the thinking goes, is functional. It’s goal-oriented. It’s grabbing only what’s on your grocery list or selecting items only from the online “buy again” page in the app. It’s walking through the aisles — digital or physical — and never bothering to look at what’s new, what’s exciting or what’s on sale.
Shopping, on the other hand, is all about exploration and experience. It’s stopping at sampling counters, wandering down aisles impulsively and clicking on products that catch your eye. It’s visiting a grocer with the idea that you’ll figure out dinner for tonight once you get there.
Grocers’ online storefronts and apps have similarly been begging for a shopping-focused revamp in recent years. For too long, retailers and their third-party digital partners have relied on the search bar and that “buy again” button to support online sales. Online grocery exploration has mainly been limited to using a click-heavy, category-by-category approach that basically amounts to the in-person shopping experience dressed up for digital.
Given digital technology’s rapid evolution — its growing ability to personalize, enhance and make quick connections for shoppers, as exhibited by many innovative non-grocery retailers and brands — it was only a matter of time before grocers began implementing a digital-focused playbook for online storefronts.
That’s now starting to happen, and Walmart’s refurbished website and app is just the latest example of how online shopping is gaining steam. The new platform does more to curate and personalize the retailer’s vast assortment. It offers product recommendations, seasonal storefronts and interactive elements like live video, all seemingly in service of encouraging shoppers to check back regularly, to browse and to be entertained.
Walmart’s new grocery portal has the familiar category-focused navigation tools, but also includes product bundles centered around timely themes like grilling and spring cleaning. There are shoppable recipes as well — something that’s become a specialty for the company.
There are other notable examples in grocery. Click over to The Fresh Market’s e-commerce site and you’ll notice there’s no cumbersome shop-by-category navigation tool greeting customers. The site leads with meal ideas and recipes, and features social media videos along with livestream content aimed at helping answer thequestion so many grocers say they want to answer these days: What’s for dinner?
The gourmet grocer has a “Little Big Meals” section that includes limited-time deals tied to recipes like lasagna and schnitzel.
The focus for Walmart, The Fresh Market and other retailers is increasingly on curation and solutions-based digital merchandising that positions the company as an expert resource and place to regularly explore — and not just a storehouse for products.
Aldi begins to embrace online shopping
For further proof of this evolution in digital grocery shopping, look at what Aldi’s been up to lately.
Over the past several years, the hard discounter has been turning its stores into warmer, more inviting places to shop. In place of stripped-down, warehouse-style merchandising that for decades was its hallmark in the U.S., Aldi has revamped its branding, brightened its stores and pushed out trendy new products.
Aldi is now bringing a similar facelift to its digital storefront. After relying for years on Instacart to power its marketplace, it now has a proprietary new website and app that’s available for shoppers nationwide to use.
The new platform isn’t revolutionary — but then again, it doesn’t need to be given that Aldi is mainly focused on price and efficiency. The website and app have many of the stock features you’d expect from a digital grocery storefront, including weekly ads and the tried-and-true browse-by-category navigation.
But Aldi is also introducing features that promote discovery. The new app has an “Explore” bar where shoppers can find limited-time products, deals and an internal marketplace for Aldi Finds general merchandise. The site features recipes that need some work — many options are listed as “Coming Soon” while the ones that are available don’t have add-to-cart functionality — but are still a promising step toward solutions-focused selling.
In step with the digital experience revamp, Aldi has made pickup available to more locations and makes it easy for shoppers to switch between that mode and delivery.
We reached out to Aldi and to its tech partner, Spryker, which helped develop the new site and app, to learn more about the thinking behind the digital updates, but both declined to comment.
Buying, shopping and the evolving omnichannel experience
Digital storefronts still have a lot of room to evolve. Despite its slick new presentation, Walmart’s updated website is still cluttered with promotions and mini shops. Giving shoppers too many options to choose from could discourage exploration.
Websites and apps also have a lot of work ahead to improve personalization. There’s still a lot of sameness across storefront experiences. The ultimate promise of digital shopping, it seems to me, is to cut through all the mess and help match shoppers with the products and deals that will most appeal to them. Just look at how Netflix is able to narrow down its voluminous movie catalog for each user.
For now, though, it’s interesting to see grocers building out their digital tool kits and testing new services. Companies like Walmart and Aldi are offering options that appeal to both mission-driven shoppers and those looking to browse and be inspired. They’re also thinking about ways to link digital shopping with in-store shopping to createomnichannel experiences that deepen loyalty.
Another grocer that’s showcasing a lot of different digital options for shoppers right now is Albertsons and its various retail brands. Its Safeway app, for example, is a Swiss Army knife of digital tools. Users can clip digital coupons and load them to their accounts for use in-store or online. They can browse the digital storefront for pickup or delivery. There’s also a meal planning portal where shoppers can browse recipes, add interesting ones to their meal list and add ingredients from each to their online carts.
There are bundled product pages, how-to videos and a quick link to the company’s “Sincerely Health” pharmacy and nutrition service. The app also has a “Store Mode” users can turn on that enables product scanning and location tools that they can use while shopping in-person — a great example of how retailers can use digital innovation to promote shopping across channels.
Turning a grocery app into a customizable remote control for shopping across channels strikes me as an incredibly effective approach to digital shopping. It acknowledges the fact that many consumers like to toggle between online and in-store trips depending on their needs and schedules. And it acknowledges the fact that sometimes consumers just want to buy and sometimes they want to shop.
Article top image credit: Courtesy of Walmart.com
Why Save Mart believes the future is built on data
The California-based regional supermarket chain has stepped up its processing capabilities as consumer data increasingly fuels core merchandising along with new opportunities like retail media.
By: Sam Silverstein• Published July 31, 2023
When Tamara Pattison joined The Save Mart Companies last fall as the regional grocery chain’s first chief digital officer, one of her top priorities was to step up the retailer’s ability to leverage the growing amount of data it brings in.
Like other retailers, Save Mart had access to a wide variety of tools and third-party applications capable of crunching numbers. But Pattison realized the California-based company could be even more agile at turning the information it was collecting into opportunities to build sales.
“We absolutely had so much data and the ability to process it. Now, it's how do you utilize that and have a positive impact on the business?” Pattison said. “That's the process that we're building as we speak, is making sure that we not only have the data and the insights, but we know how to action against them.”
Pattison said Save Mart, which operates approximately 200 supermarkets in California and Nevada under banners including Save Mart, Lucky and FoodMaxx, has recently expanded its ability to build shopper engagement by focusing data-based insights on individual stores. The company’s digital division has also showed Save Mart’s merchandising and store operations teams the value of using data to make quick adjustments — and seen rapid results, Pattison said.
“Our plan was to use 2023 to set the stage, get all the building blocks in place and make sure that we were kind of at market parity, and 2024 is where we really want to bring some new [data-based capabilities] to market,” said Pattison.
Save Mart has recently used insights drawn from its operations to quickly roll out promotions aimed at individual stores, according to Pattison.
“Doing a digital coupon for two days on a weekend and having that targeted to an area of the chain that might need some incremental investment has not been something that we've been able to do in the past,” she said.
Pattison emphasized that speed is a key goal for Save Mart as the company builds its data-management capabilities because opportunities to turn consumer insights into sales opportunities can be fleeting in the grocery industry.
“If it takes you five days to analyze the data, and three days to action, it may not even be relevant” by the time the company is ready to use it, especially around holidays, Pattison said.
Pattison said that rather than trying to build an in-house data analysis department, Save Mart is relying on outside companies to provide the technical know-how it needs. Meanwhile, Save Mart is tapping into its core advantages as a regional chain to set itself apart from larger competitors with deeper pockets and more expansive technological resources.
While bigger grocers like Kroger might need to consider decisions on a national level, Save Mart is positioning itself as more nimble because it has fewer stores concentrated in a relatively small geographic area, said Pattison, a former senior Albertsons executive who headed up marketing, loyalty, digital and e-commerce for the company.
Save Mart recently set up a retail media network in partnership with retail technology supplier Swiftly as part of the company’s efforts to use third-party suppliers to build its digital capabilities.
“We’re small, we’re nimble, we can work with our third-party partners to do things quickly,” Pattison said. “And we see that as kind of our unique competitive advantage.”
A regional grocer’s willingness to embrace its smaller size relative to national players as a strength can turn out to be a key benefit, particularly when working with CPGs that want to use data from grocers to promote their products, said Spencer Baird, CEO of retail data provider Inmar Intelligence.
“‘Small’ to me could mean incrementality,” Baird said, referring to advertisers’ interest in gauging how consumers engage with their messages. “So there’s ways to play it to make yourself more valuable to the advertiser.”
Barry Clogan, chief product evangelist for Wynshop, which provides e-commerce solutions to grocers, said it is critical for regional retailers not to view their size as a disadvantage when assessing their ability to leverage data.
“If I’m a smaller grocer, I can’t get distracted by [how] Kroger and 84.51° are crunching all sorts of data science and machine learning and coming up with really cool things,” Clogan said, referring to the grocery giant’s data analysis subsidiary. “I need to be able to [understand] my data so that at least I’m surfacing it in the right places.”
Clogan added that grocers that acquire other food retailers can face challenges when working with data they inherit. “I’m hearing from grocers that they have it in different locations, and they don’t actually know how to get it out of the current systems that they have,” he said.
Another challenge facing regional grocers in the coming years, Baird said, is being able to draw together various streams of data and also incorporate artificial intelligence in order to help forecast sales opportunities.
“There's a need for the industry to go from using data to measure performance on things to using data to target opportunities to make more informed, smarter decisions,” he said.
Jeff Wells contributed reporting to this story.
Article top image credit: Courtesy of The Save Mart Companies
Kroger sees e-commerce as future profit engine
The retailer is looking to its automation partnership with Ocado and its young retail media business to help achieve its goal of making money online, Chairman and CEO Rodney McMullen said Wednesday.
By: Sam Silverstein• Published March 16, 2023
Kroger believes its online operations have the potential to eventually yield margins that are at least as strong as what it sees with its traditional supermarket business, Chairman and CEO Rodney McMullen said back in March during the Bank of America Consumer & Retail Conference.
“If you look at our online business, the [in-store] business incrementally now is profitable. Barely. And if you look at the delivery, you know, that still has a lot of work to do. But I feel very confident that we'll get there and we'll figure it out,” McMullen said.
That conviction stems in large part from Kroger’s multibillion-dollar partnership with Ocado to develop a network of automated fulfillment facilities, McMullen said, adding that the high-profile project represents a long-term play designed to help transform the company over the next decade. Each of the customer fulfillment centers Kroger is building can handle the same volume as 10 to 12 supermarkets, he said.
“The biggest question is, is seamless going to be more important in ten years than today? And is it going to be meaningfully more important, where you invest a lot of resources, both talent capital and other things?” McMullen said. “And the answer to all those things are yes. And it's the ecosystem together that's so critical.”
McMullen also said Kroger is intent on offering consistent pricing to shoppers across all of its channels with the exception of its 30-minute delivery business, which it launched in 2021 in partnership with Instacart.
“If you look at the profitability, we price our product at what we think will be a sustainable model once you're at scale,” McMullen said. “We're not trying to price it such that we get everybody to use it, and then you start trying to raise prices afterwards, because we just don't think that that's a sustainable model.”
McMullen added that Kroger continues to find that loyal customers spend much more than people who don’t have a deep connection with the company, a phenomenon that he suggested makes investments in programs that enhancerelationships with shoppers particularly worthwhile.
He noted, for example, that Kroger’s Boost online membership program is not profitable but more than earns its keep by incentivizing customers to come back.
“Boost is just one more thing to be able to give a customer a little bit better deal if they give you give loyalty back to you,” McMullen said. “You're not going to make money on Boost. But if you look at that customer’s ecosystem, when they engage with Boost, their volume goes up enough that it works for both.”
Another reason e-commerce has so much potential for the grocer is that its relatively new foray into retail media has a long runway for growth and has so far been substantially more profitable online than it has in the company’s stores, McMullen said.
“If you look at CPGs, they're spending $100 to $120 billion a year on media. Our share of that is just a fraction of what we think we should get or can get,” said McMullen. “We're just now learning the space and I'm more excited about it now than it was three or four years ago when we started … overall alternative profit last year was worth over $1.2 billion. And we would expect to continue to grow that.”
Article top image credit: Courtesy of Kroger
Heinen’s dropped Instacart. Will other grocers follow suit?
Changes in how grocers are approaching their e-commerce strategies signal they may start shifting away from third-party marketplaces, retail observers say.
By: Catherine Douglas Moran• Published Feb. 27, 2023
Back in February, Heinen’s bid farewell to Instacart, opting instead to focus on rolling out a new mobile app, upgraded shopping platform and relying on its own associates to fulfill e-commerce orders.
The announcement has raised questions both about how Heinen’s will handle fulfillment without Instacart and if other grocers will also move away from third-party e-commerce providers.
Against the backdrop of consumers being price-sensitive amid high inflation and grocers seeking more control over the consumer relationship, removing e-commercemiddlemenwill likely be a natural tendency for grocers going forward, said Rick Watson, CEO and founder of RMW Commerce Consulting.
“The migration of higher-income consumers to Walmart for the past two quarters indicates that even higher-income consumers tend to be trading down. ... Instacart is a premium service,” Watson noted.
Grocers have a growing number of options for how to handle online orders from offering service through marketplace apps to turning to white-label fulfillment providers to building the e-commerce infrastructure in-house. Some regional grocers like SpartanNash and Giant Food have invested in branded services that co-exist alongside partnerships with app marketplace giants like Instacart and DoorDash.
“I believe there is a wave coming of retailers that are becoming more tech savvy and are realizing that they are paving the way for Instacart to own the customer and disintermediate the retailer,” said Ken Morris, managing partner of Cambridge Retail Advisors. “If you don’t own the customer, you lose the war.”
Analysts noted that challenges remain, however, with online grocery logistics and profitability for retailers, especially smaller ones. Shifts in how grocers are approaching their e-commerce strategies, though, seem to signal third-party marketplaces like Instacart may play a diminished role on the delivery front in the future.
Instacart’s suite of retailer solutions can be a cost-effective way for small and medium-sized grocers to scale in e-commerce without committing to the expense and complexity of building their own solution, especially during rapid periods of change, like the pandemic, said Neil Saunders, managing director of GlobalData Retail.
“The problem, however, is that by partnering with Instacart retailers cede some control,” Saunders said. “They don’t control the experience or the customer journey, which can take some getting used to. They also don’t have complete control over how to innovate and evolve their e-commerce proposition. On top of these things, there is a risk that a retailer becomes too beholden on Instacart as e-commerce grows.”
That desire for more control over customer data and customer experience is serving as a driver for taking more ownership of e-commerce, Watson said.
“That doesn't mean that there aren’t places for a portion of your revenue to be from a third party but you generally don't want it to be an increasing percentage over time,” Watson said.
The bulk of Heinen’s 23 stores are in the Cleveland, Ohio, area, and the family-owned grocery chain is well-known in that metropolitan area, Watson said. The regional chain doesn’t need the nationwide reach, access to delivery workers across multiple markets nor exposure that Instacart can provide, he said.
“If you're a small retailer, and nobody knows who you are, and maybe you're not easy to get to, [then] Instacart is a great thing because they bring you traffic. ... People know Heinen’s. It’s not a mystery to people in that market,” Watson said.
He added: “I think the regional grocers are more at risk for abandoning Instacart, because they already have the name recognition and people have a go-to grocer.”
Rethinking e-commerce operations
Anne Mezzenga, a Target veteran and co-CEO of retail blog Omni Talk, noted that Instacart has helped regionals executespeed and efficiency with online orders. As micro-fulfillment costs come down and other economics improve with grocery e-commerce, however she said she expects retailers to build their own omnichannel ecosystem that likely don’tinclude Instacart.
While Mezzenga said there are providers that can provide e-commerce efficiencies for retailers, grocers need to have the tech talent to vet those providers and work with them to create that ecosystem. Retailers who don’t have that internal team in place will likely keep turning to providers like Instacart, Mezzenga said.
“It's kind of difficult when you're still hanging on to a legacy system and you're trying to integrate that into the new way of thinking,” she said. “I think it makes sense to have them as like the crawl, walk, run approach. And I think the pandemic was kind of the crawl for a lot of these retailers.”
Now, grocers are considering if and how they can tackle e-commerce in a way that is less reliant on a third-party marketplace serving as the face of their e-commerce operations, Mezzenga said. At the same time, retailers are also questioning this year which partnerships and investments have ROIs, she said, noting that grocers have access to fulfillment technologies that allow ownership of their e-commerce operations with ROIs that provide long-term benefits.
“Best practice to me is to own the customer experience/journey and use third parties for delivery only,” Morris said. “Even then, the retailer should only outsource delivery if it isn’t economically feasible to own the journey across the entire process.”
As e-commerce growth moderates, Saunders said more retailers may decide to invest in their own e-commerce systems — posing an ever-present risk to Instacart’s business model. Instacart and grocers also have to contend with the looming speculation in the industry that Instacart could turn into a competitor to retailers, Saunders noted. (Instacart has said it does not plan to become a retailer.)
“This probably isn’t foremost of mind when retailers are making a decision, but it [is] something they are constantly vigilant about,” Saunders said.
Meanwhile, Instacart is facing rising competition from the likes of Uber, DoorDash and Shipt in the gig delivery marketplace space. “[The] logistics and last mile space is just a race to the bottom in terms of who-can-do-it-the-cheapest or who-can-do-it-the-fastest — and that's not a way to build a business,” Mezzenga said.
Under CEO FidjiSimo, who Instacart announced summer 2021 would replace founder Apoorva Mehta in the role, Instacart has seemingly pivoted away from its emphasis on being a gig delivery provider and retailer marketplace to being a software and services provider for retailers, Watson said.
“I wonder if this [gig delivery marketplace] is a big focus of the business going forward, or are they trying to get out of this business given their recent acquisitions?” Watson said. “Are they trying to become more of a software company with supplementary delivery services or will delivery may remain the bulk of their revenue?”
Article top image credit: Courtesy of Instacart
Amazon launches nationwide delivery of Whole Foods’ 365 products
More than 600 of the specialty grocer’s private label items are now available for shipping to all 50 states as Amazon continues to update its grocery ecosystem.
By: Peyton Bigora• Published Aug. 8, 2023
Hundreds of items from Whole Foods Market’s private label brand 365 are now available on Amazon for nationwide shipping, a Whole Foods spokesperson noted in an email in early August.
More than 600 goods from the popular line are available as of Monday, including non-perishable goods such as coffees and teas, trail mix, pasta, rolled oats and multivitamins. The announcement comes as Amazon announces adjustments to its grocery business,including renovating Amazon Fresh stores and expanding that brand’s online reach.
Amazon-powered nationwide shipping brings the specialty grocer’s 365 branded items to shoppers in all 50 states for the first time, according to the Whole Foods representative. Prime members will have access to free delivery.
With over 3,500 brand products, including produce, beverages, supplements, grains, sauces, bakery items and more, Whole Foods plans on introducing more of its private label products to Amazon’s delivery storefront.
By utilizing the “Subscribe and Save” feature on Amazon’s website, shoppers can set up automatic restocks and save up to 15% on supplements, snacks, paper products and pantry essentials, the spokesperson stated.
Amazon extending the availability of Whole Foods’ branded products came less than a week after the company unveiled two revamped Amazon Fresh stores and expanded Amazon Fresh delivery to non-Prime members. The new stores moved advanced technology Amazon is known for, such as Just Walk Out frictionless checkout, to the back burner and focused more on product selection, displays and the overall shopping experience. Amazon announced earlier this year it had paused the opening of new Fresh stores as it evaluated the underperforming chain, which opened its doors in 2020.
Amazon is also looking to better integrate its various grocery brands, both online and offline. A Bloomberg report noted that the company is ramping up infrastructure that will allow shoppers to place products from Whole Foods, Amazon Fresh and Amazon.com into the same cart.
A growing number of chains have established proprietary e-commerce platforms that put their brands front and center. Retailers are taking steps to improve profitability and the online shopping experience, realizing the important role digital still plays in their sales and customer loyalty.
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