Amazon Meet Instacart
The grocery wars have just become a two-horse race: Instacart and Amazon.
In the last week, we have seen a major shift in the grocery wars. I'm talking about Walmart and Instacart's recent partnership.
Make no mistake, Walmart announcing a pilot with Instacart is not a victory for Walmart. It is an admission that Walmart cannot cover the last-mile delivery as well as Amazon and Target.
Finally, the press read that Walmart was joining “the Instacart marketplace." While this will increase some revenue for Walmart, it will also cement its place as a follower.
To think about it one way, imagine if tomorrow all of Walmart’s marketplace products would show up on Amazon's marketplace. You would cringe and worry for Walmart, right? That's what is happening here.
It's a testament to the power of the Instacart brand, and the hold it has developed over consumers. Good on them. Instacart was founded in 2012; Walmart's website launched in 2000. It's clear who’s behind, however, despite a serious head start.
Consumer data shows that once consumers get tied to a particular mobile app to order things (take-out, etc.), they rarely switch. Walmart is in customer acquisition mode. Instacart is learning and scaling, however, while Walmart is paying them for the privilege.
Miles Thomas, based in the UK, seemed baffled that Walmart would bring in a third party for grocery delivery. I think it is a supply chain last-mile problem in the US (less dense than the UK) and a consumer behavior problem (apparently people keep coming back to Instacart). It’s an extremely expensive marketing problem - similar to the food delivery apps. Miles still seemed to raise an eyebrow at this partnership, saying “A capital expenditure type of marketing to avoid the revenue expense of engaging a 3rd party…will pay back over time.” He may be right on that, but it’s hard to see the forest/trees sometimes when what you need is wood, fast.
Stewart Samuel brought up another point, adding that “On-demand delivery has also become the norm in the USA, bypassing next-day and same-day, which are more typical in the UK.” Patience has never been the greatest American virtue.
Michael Pitcher raised some other issues and posed some questions for me: “I believe after 8 years Instacart only just became profitable during the Covid pandemic. And while there is some brand loyalty with Instacart from consumers, there is more brand loyalty to Walmart, Publix, Wegmans, Amazon, etc. Instacart offers a quick and proven method to assist in making groceries available online. I am curious what your thoughts are on the profitability of Instacart? As well as how the Covid pandemic maybe shifted more of their sales to order online and pickup curbside (would explain jump to profitability) versus the home delivery Instacart order? I am willing to bet a small sum that the home delivery option still operate at a loss for each home delivery Instacart needs to make.” As we have seen with Amazon and others, profitability isn't often the primary concern in the first years of a company’s existence. Capital is cheap for the winners. They will, however, need to demonstrate progress.
