Analysis: Target Partners With Instacart As Home Delivery Heats Up
The latest posting from the McMillanDoolittle blog:
Target announced a partnership with Instacart in Target’s hometown of Minneapolis. This is Target’s first experiment with same-day delivery of products, and it coincides with the expansion of their grocery and fresh business.
At the same time, it is another high-profile retailer for Instacart, which has rapidly expanded and now counts presence in 18 different metropolitan markets. More critically, Instacart offers their service through a number of key retailers, including Costco and Whole Foods Market, in most of these markets and with selected regional retailers in many others. In our home market, Chicago, I can use Instacart at the aforementioned retailers as well as Petco, Jewel-Osco and Mariano’s and other selected independents.
In addition to Instacart, other titans are getting into the battle. Amazon is expanding Amazon Fresh in selected markets, including Seattle, San Francisco, Los Angeles and New York. And Google continues to dabble in the space as well. Google Express is in multiple cities selling non-perishables products, including Chicago, and is experimenting with adding fresh products sourced through retailers.
And, of course, this doesn’t include long established grocery ecommerce players like Peapod and Fresh Direct as well as the litany of niche players who target foodservice like Grub Hub, DoorDash, and Postmates. And, did I mention Uber, where I can have Uber Eats deliver lunch or dinner to my door? And, there are Instacart competitors out there too, like Shipt.
What is clear is that we are at a period of significant investment in once again trying to solve the last mile of bringing products to the consumer’s door. And, most importantly, trying to leverage the last two significant barriers to e-commerce penetration: first, conquering food, which is the largest retail category but also one with low margins, bulky products and the critical component of fresh foods and the complexities that entails. And second, same day delivery, which eliminates the wait time for fulfillment and remains the main benefit of shopping retail stores — instant gratification.
So, what can we make of Target’s and Instacart’s partnership? Instacart’s basic offer begins at $3.99 for a delivery with a low minimum order size and delivery to my door in less than an hour. Depending upon the retailer involved, Instacart will indicate whether they are charging “same as retail” prices or whether there is a mark-up associated with the products. Costco, for example, carries about a 15% mark-up from their shelf price while most other retailers indicate prices that are the same as in-store retail.
While all of this is absolutely wonderful for the consumer, the economics of the proposition remain head scratching and call into question the sustainability of many of these newer offers. Even with Instacart’s terrific consumer interface and crowdsourced distribution model, it doesn’t seem conceivable that they can begin to cover their costs. This then begs the question, how do you turn the model profitable? At some point, the cost of shopping and delivery need to be covered, either through product mark-ups, retailer subsidization or higher costs to the end consumer. All of these could potentially slow the growth (or derail) companies like Instacart.
As for Target, participating is a no-brainer. It gives their customers added convenience of getting products delivered to the home and they can learn what sells and what doesn’t. Anecdotally, Whole Foods is reporting almost an additional $50 million-$75 million of added revenue per year through their association with Instacart, and we know of individual Costco stores that are adding a $1 million plus a year in volume.
I think we are at a fascinating time in the development of e-commerce in the grocery and consumables space. Real breakthroughs could really occur or, we might be seeing the next generation of Webvan and Kozmo, two notable e-commerce failures from a decade ago. There certainly seems to be more game changing elements at play this time around but base economics still must rule in the end.
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UPS braces for e-commerce surge
It is the season before the season when retailer revelations about plans to hire temporary workers offer insight into holiday expectations. One of the best indicators of what to expect this Christmas comes courtesy of UPS.
UPS said it plans to hire between 90,000 and 95,000 seasonal employees (about the same as last year) to support the anticipated increase in package volume that will begin in November and continue through January 2016.
"We have initial volume forecasts from our customers and are starting the hiring process for our temporary holiday season jobs," said Myron Gray, president, U.S. Operations for UPS. "We have needs for various positions on all shifts at UPS locations throughout the United States."
UPS touts the fact that the full- and part-time seasonal positions – primarily package handlers, drivers and driver-helpers – have long been an entry point for permanent employment at UPS. Many senior UPS executives, including CEO David Abney and three other members of the company's management committee, started their UPS careers as part-time employees, according to the company.
"It was a way to pay my way through college," said Abney, who started loading trucks at night in March, 1974 while studying business. "At the time, I had no idea then that I'd be leading the company someday, but I could tell UPS was a place where a solid work ethic was appreciated and there were great opportunities for advancement."
Reading Is Fundamental at Books-A-Million
Books-A-Million is teaming up with the nation’s largest children’s literacy organizations on a campaign that is sure to appeal to its core customers.
Through Sept. 19, customers at Books-A-Million can make a donation to Reading Is Fundamental. No purchase is necessary to donate, and contributions can be made at all Books-A-Million locations. Customers will receive an exclusive bookmark stating that they donated to Reading Is Fundamental.
“We are thrilled to partner with Books-a-Million to provide books for children who need them most,” said Carol H. Rasco, president and CEO of Reading Is Fundamental. “There are millions of children living in poverty who don’t have access to books. Thanks to the generosity of Books-A-Million and its customers, children have a greater opportunity to read, learn and grow.”
This donation drive also launches the BAM Brigade, Readers Uniting for Good, which encompasses all of Books-A-Million’s philanthropic activities and continues its history of supporting local communities. The BAM Brigade consists of the customers and associates that rally to support Books-A-Million’s philanthropic activities, including Coffee for the Troops, The Salvation Army donation drives, School Book Drives, Holiday Toy Collections, as well as Reading Is Fundamental.
“At Books-a-Million, we are passionate about reading. We are also passionate about readers uniting for a good cause,” said Scott Terry, Manager of Training and Operations of Books-A-Million. “We can’t imagine a childhood without books and are strong believers in providing children with the tools needed to increase literacy. That’s why we are partnering with Reading Is Fundamental. Their mission is our mission, and we encourage customers and associates to join the BAM brigade and unite for a worthy cause.”
Books-A-Million operates 255 stores in 32 states.