Is the Walmart/Instacart pilot a sign of big delivery news to come?

Discussion
Photo: Instacart
Aug 12, 2020
George Anderson

The biggest retailer and the largest online grocery delivery service in the U.S. are teaming up in a pilot program that, if expanded nationwide, could have major ramifications for the industry as a whole.

Walmart and Instacart, which work together in Canada, have partnered in four local American markets with an eye toward future rollouts if the test is successful.

“For the first time in the U.S. Instacart now delivers from Walmart locations in three California markets — Los Angeles, San Francisco and San Diego — as well as Tulsa, Oklahoma,” an Instacart spokesperson said in a statement to CNBC. “The new partnership brings thousands of items — from groceries, alcohol and pantry staples to home decor and improvement, personal care, electronics and more — at everyday low prices from Walmart stores to customers’ doors in as fast as an hour.”

Both Walmart and Instacart have seen their businesses buoyed as increasing numbers of consumers have turned to them to conveniently and safely shop for food and everyday staples during the novel coronavirus pandemic.

Walmart posted a 10 percent gain in U.S. same-store sales during its fiscal first quarter as online revenues, driven by grocery pickup and delivery, jumped 74 percent.

The retailer is also expected to debut Walmart+, a rebranding of its Delivery Unlimited Grocery service with additional perks including unlimited same-day deliveries of groceries, fuel discounts, early access to promotional deals and more. The service, which was originally set to launch in March or April and pushed back due to the pandemic, will cost $98 a year.

Instacart, which saw orders skyrocket as much as 500 percent during the pandemic, grew its share of online grocery as high as 55 percent in the third week of May, up from about 30 percent in February, according to data from Second Measure.

The delivery service has accelerated its retailer partnerships since the beginning of the year and now works with more than 400 retailers representing more than 30,000 stores in North America. The service reaches more than 85 percent of households in the U.S. and more than 70 percent in Canada.

DISCUSSION QUESTIONS: Do you see Walmart+ and Instacart deliveries being able to coexist or will the retailer choose one option over the other? What would be the ramifications of a national rollout of the Walmart/Instacart partnership for these two companies and the retail grocery industry as a whole?

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"Shipt 2.0. This is clearly a move to combat the success Target is seeing with Shipt."
"There’s really only one reason for Walmart to do this: as a step towards a potential acquisition."
"With recent Instacart customer data breaches and a previous history of leveraging customer lists against former retailers, it seems there’s more risk here for Walmart..."

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39 Comments on "Is the Walmart/Instacart pilot a sign of big delivery news to come?"


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Ben Ball
BrainTrust

Walmart buys Instacart if this works. Then all the other retail customers can sort out whether they can replace Instacart service at a reasonable cost.

Gene Detroyer
BrainTrust

Nice, Ben. That is the only way the economics work in the long run.

Paula Rosenblum
BrainTrust

I like the idea. I frankly thought Instacart did a better job delivering groceries than Amazon Fresh is now, and stopped using them.

Choice is a great idea.

Gene Detroyer
BrainTrust

Our experience was quite the opposite. Granted it was during March/April — but the in the four times we ordered from stores that used Instacart, there was something wrong with every order. As opposed to Whole Foods which was 99 percent correct and fast. It got to the point that we would avoid any store that used Instacart.

Paula Rosenblum
BrainTrust

I’m not sure where you, live, Gene, but experiences seem to vary wildly by city. Miami was awful. Gig Harbor, Washington, they said was great. You couldn’t even get a bloody appointment in LA.

The inconsistency of Amazon is worrisome.

Gene Detroyer
BrainTrust

I live in New York City.

Phil Rubin
BrainTrust
1 month 12 days ago

Therein lies the challenge and the opportunity — agree with you both that these experience are wildly inconsistent. Our experience in Atlanta is that WFM/AMZN are much more reliable than Instacart.

Gene Detroyer
BrainTrust

I suspect that Instacart is not really an operator, but contracts the delivery services out to locals and can’t control the execution. Does anybody know how they operate?

Suresh Chaganti
BrainTrust

It is not clear if this would be exclusive. If it is exclusive, at least for grocery, I can see it will give Walmart an edge in the grocery delivery wars.

Secondly, if Instacart is acquired by Walmart down the road, it could mean a major shift in the delivery industry. Otherwise I view it as a partnership that will accelerate Walmart’s grocery delivery capabilities, but may not have an industry altering impact.

Ananda Chakravarty
BrainTrust

I agree with the latter – this is an accelerant for Walmart, not a buyout scenario. There may be some interest in a buyout, but I am not seeing it now. It’s too costly and too dependent on the current market. Same-day delivery is not easy to fulfill and Instacart has been perfecting this model for grocery. Walmart will use this service to cover demand and supplement existing services. We all remember how grocers, Walmart, Amazon, and others struggled on demand issues, supply chain and stockouts at the beginning of the pandemic. It will also give Walmart better access to sell to a specific subset of same-day service Instacart customers that has been growing.

Ricardo Belmar
BrainTrust

I agree. If anyone is going to have the necessary scale and resources to develop a solid solution for delivery against Amazon, it’s Walmart. This must be a test to see if Instacart works to their satisfaction so they can use it to supplement their own internal capabilities long-term.

Neil Saunders
BrainTrust

I think this is a bad idea. As the largest retailer in the world and as the U.S.’s biggest grocer by some margin, Walmart should be firmly focused on developing its own solutions for e-commerce. This includes micro-fulfillment centers in its existing stores and, potentially, buying a technology company to help make this happen.

Partnering with Instacart may provide some headroom to drive volume in the short-term, but in the long-term Instacart is a potential competitor for Walmart. This deal gives Instacart greater knowledge about Walmart’s business and helps the business and brand to expand, making it a potentially bigger threat. Walmart has done some very innovative things in the e-commerce space. I don’t think this is one of them.

Sterling Hawkins
BrainTrust

I don’t think it’s about volume in the short term (although, of course they’d see some volume increases). It’s about learning, which they can both benefit from, even if a deeper partnership/acquisition never takes place.

Lee Kent
BrainTrust

You got my 2 cents on this one Neil. Being the devil’s advocate that I am, I also have to raise the point: is delivery of groceries going to keep growing after pandemic days? Most of the people I know can’t wait to get back into the stores to shop. They are just trying to stay away right now. I see this as an option that will remain, but maybe not so much a huge delivery option. Take it inside Walmart and see what your customers want. Again, that is my 2 cents.

Peter Charness
BrainTrust

I would expect that Walmart would give Instacart some territories and use them for surge capacity in others. Pretty much all the costs are variable. With the amount of volume going through online you have to hope that the “gig carters” in either vehicle are taken care of. I wonder when they will be ruled as “deemed employees” as have Uber and Lyft drivers.

Jeff Sward
BrainTrust

Speedy delivery that includes a broad range of products. And no airplanes are involved. Makes abundant sense. And kind of puts an exclamation point behind the commentary about Amazon somehow involving itself in mall/J.C. Penney/Sears real estate to get that same on-the-ground local access to customers. A couple of years ago, delivery was for pizza. Now it’s a key retail tool, driver and differentiator.

Bethany Allee
BrainTrust

Shipt 2.0. This is clearly a move to combat the success Target is seeing with Shipt. Before the pandemic people said, “Who is Shipt?” Now, it’s an everyday word in harder to serve rural or bedroom communities. Walmart is smart to partner with one of the largest players in the game, because both Walmart and Instacart are now playing catch-up with Shipt in the segment of the market they’ve locked into annual contracts.

Scott Norris
Guest

My in-laws on the far-north side of the Twin Cities have had great success with Shipt not just for Target orders (where the integration is basically perfect and the speed is Jimmy John’s fast) but also with our regional upscale grocer, Kowalski’s. Shipt is now indispensable to keep them living independently!

Bethany Allee
BrainTrust

Scott — I agree, I rarely use Shipt for Target. We use Shipt for our local grocer and pharmacy. Glad to hear your in-laws are benefiting from it too, and staying safe!

Ricardo Belmar
BrainTrust

I think the difference here is that Target needed to buy Shipt to enable that delivery capability that they lacked. Walmart already has this to some degree – they don’t need to acquire it. However they may be using this as a test to learn how they can expand their own internal offering. Having said that, I have to say Shipt has been the most reliable delivery service I’ve used since March. It has caused me to shop at Target far more than I used to and they are quickly becoming a go-to retailer in our household!

Bethany Allee
BrainTrust

Ricardo — Fair point. The partnership is about giving them access to additional local retailers who extend their product offerings, while leveraging their delivery mechanism. That’s how I’m mostly using Shipt. I rarely buy stuff from Target, but Shipt reliably delivers our groceries every other day — and with an annual subscription that makes deliveries over $35 free. That’s hard to beat right now.

Jeff Weidauer
BrainTrust

Walmart has a history of testing ideas with third parties and then putting them to use with its own resources. Hard to tell if that’s the case here, but a long-term relationship between Instacart and Walmart seems unlikely. Instacart’s $14 billion valuation makes it less attractive as an acquisition target as well. Expanding Walmart+ using the learnings gathered from the test is the most likely scenario.

Lisa Goller
BrainTrust

Both Walmart+ and Instacart deliveries need to coexist over the short term. With the holidays coming up fast, consumers will spend more online and expect seamless service.

To protect its grocery dominance, Walmart needs Instacart to speed up fulfillment and boost delivery reach. This partnership can strategically help Walmart increase average basket size, improve the customer experience and entice consumers to order online more frequently.

A national rollout would solidify e-commerce speed, home delivery and subscriptions as new standards for earning loyalty.

Ken Cassar
BrainTrust

Density drives the strategic thinking for both Walmart and Instacart, because density makes the economics of same-day delivery work. Walmart does not currently have enough delivery customers in certain markets, and partnerships make sense. I’d be surprised if Walmart made one national decision regarding same-day delivery when markets are so varied in density. An acquisition of Instacart could certainly make sense at some point, but even then Instacart will want to continue to service Walmart competitors to keep the service as profitable as possible. This is the (correct) decision that Target made with Shipt.

Ananda Chakravarty
BrainTrust

This deal is about overflow and meeting customer demand. The service also allows Walmart to learn about Instacart’s successful model in depth. For Instacart this expands their breadth, market presence, and credibility. Too often retailers and experts have discounted the innovative and market altering service that Instacart developed. COVID-19 was a catalyst for Instacart and grocery. Walmart+ may even leverage Instacart services to meet its delivery criteria. A full scale rollout can become a major force in grocery for Walmart-Instacart and we’ll see a rapid move to similar models by grocers and mass merchants selling grocery. We’ll also see additional services like Instacart pop up, both in-house and third party.

Dave Bruno
BrainTrust
If personal experience is any indicator, I highly doubt Walmart will roll this out nationwide nor for the long term unless they seriously invest in process design, training and, most importantly, quality control. I have been a very happy, very loyal and very passionate Costco shopper for decades, but my experiences with Instacart delivering their groceries during the pandemic has tarnished the Costco brand with me to the breaking point. We have had numerous epic failings with Instacart shoppers trying to fulfill my Costco orders. Multiple orders have been simply “lost” and ultimately canceled – hours after the shop had begun. Frozen fish has arrived thawed. Twice we have received someone else’s order. Shoppers that are trying to rush through each order have reported as out-of-stock items they can’t quickly find, even though we can see online that they are in stock. Hours go by before our orders arrive. And we are not alone. Everyone we know that has Costco groceries delivered has had similar experiences, and everyone we know is extremely frustrated with —… Read more »
Peter Charness
BrainTrust

Our experience wasn’t as bad, but far from perfect. Instacart’s extra markup on Costco’s pricing was the part that really left a bad taste. I suspect they are making more margin on items than Costco does.

Sterling Hawkins
BrainTrust

There’s really only one reason for Walmart to do this: as a step towards a potential acquisition. If they aren’t at least interested in learning what Instacart is capable of and getting behind the scenes, they’d continue to build a solution to offer entirely on their own. Even if they don’t end up buying it, it gives them learning, approach and methodology from a delivery expert.

Brett Busconi
Guest

I love it — push the envelope and make everyone else raise their games. Instacart is doing good things and I agree with Ben Ball — Walmart can see if Instacart works and, if it does, purchase it.

Bindu Gupta
BrainTrust

I am not sure if Walmart+ will have the appeal if Instacart is in the picture. I see some cannibalization here as an Instacart membership is slightly cheaper plus gives one the choice to order from other grocers as well. I doubt if Instacart will exclusively deliver Walmart products in the future unless Walmart buys it out.

Ricardo Belmar
BrainTrust

I don’t believe Walmart needs Instacart to succeed with delivery services. However they do stand to learn a great deal about operating large scale delivery services from Instacart so I see this as both an experiment to learn from, and a way to supplement high demand where and when needed down the road (I’m thinking holiday season for example). I expect Walmart will expand this partnership – maybe it will even be a factor in Walmart+ to differentiate from Amazon Prime. Walmart+ could enable a premium Instacart service, for example. Once Walmart learns to scale delivery on their own, long-term, I don’t see them needing Instacart any more and I don’t expect this is a precursor to an acquisition. If any retailer can find a way to execute delivery at scale successfully it’s Walmart.

Jeff Sward
BrainTrust

Good thought. Walmart is taking every opportunity to add an edge or an equalizer relative to Amazon.

Brent Biddulph
BrainTrust

It makes no sense that Walmart would eventually outsource their entire last mile to Instacart. With recent Instacart customer data breaches and a previous history of leveraging customer lists against former retailers, it seems there’s more risk here for Walmart than upside.

It could simply be a test run and learning event for Walmart, nothing more.

At some point, Walmart needs to step up their game and own the last mile. They have done so many things right in all other aspects of e-commerce, yet seem to be a laggard (willing to outsource) in the delivery space.

I’m not sure why they are not “leaning in” on delivery leadership – at least in major cities. I am sure they could supplement that investment by providing a platform to others needing delivery services given they have the deepest consumer household penetration (90 percent) of any retailer on the planet.

Phil Rubin
BrainTrust
1 month 12 days ago

It’s hard to see Walmart co-existing with other large retailers and it’s hard to see Instacart giving up those others. I think Ben Ball has it right and that if successful, WMT will try to buy Instacart. It’s incredibly interesting to see how WMT is making a series of very smart moves to better position itself against Amazon, while AMZN looks at options to replicate some WMT’s physical advantages (i.e., through the apparent discussions with Simon about taking some of the mall spaces from JCP, Macy’s and others.

And keep in mind that this is all against a backdrop where the other players in both department store and mass merchant categories are either struggling, dying or trying to reinvent and stay relevant. What interesting times we are living and working in!

jbarnes
Guest
I posted (below) this over 3 months ago on LinkedIn. I predicted Amazon would be the obvious choice to buy Instacart. My mistake — Walmart is now in pursuit and if so, watch out. Keep your friends close and enemies closer … ART of WAR. Walmart wants customer data (behaviors and insights) to predict and determine how to service their customer (position inventory optimally). Instacart provides them the data to optimize their supply chain. Instacart – Strategic Friend or Foe? To Instacart’s credit they saw like many entrepreneur led organizations a need to solve a market problem: fulfill & deliver groceries because grocery store chains were not focused on e-Commerce in 2012. Let Instacart worry about e-commerce fulfillment and the chains will focus on brick and mortar (was and has been the strategy). For those of us old enough to experience the first “dot.com” boom, there was a company similar to Instacart in the late ’90s called GSI Commerce that had a similar business model. GSI Commerce managed the experience, however, it was expensive and… Read more »
Rachelle King
BrainTrust

Historically, Walmart has not done co-existing well (hello, jet.com). At some point, they will choose a lane. For now, this could be a very lucrative, mutually beneficial partnership.

Instacart’s expertise in last-mile delivery married with Walmart’s scale in breadth and depth of assortment could be a game changer, across the board, with influencing consumer choice.

Once this pilot flies, and it will, it’s only a matter of time before Walmart starts to streamline (i.e. consolidate) for efficiencies.

Craig Sundstrom
Guest

Can delivery be profitable? Not so much “ever,” obviously it can work for high-price retailers who have customers willing to pay for it, but in this situation, a mass marketer whose “raison d’etre” is “low prices … always.” Until we can get a resounding “yes!” people like me are going to remain — at best — in the “eh…” camp, and fully expecting to see an endless series of “test” rollouts.

Richard J. George, Ph.D.
BrainTrust

Walmart will use Instacart to better understand the Instacart process and then either buy Instacart like it did with Jet.com, or develop their own system to defend against/move ahead of Amazon.

Kai Clarke
BrainTrust

This is just a pilot and as such, we should consider its goals for the short term. It is not a full market rollout, which might give some of Instacart’s other partners concern. This is just another good move for Instacart, and a bigger question of why Walmart is using a subcontractor to manage part of their business when they could easily be doing this themselves.

wpDiscuz
Braintrust
"Shipt 2.0. This is clearly a move to combat the success Target is seeing with Shipt."
"There’s really only one reason for Walmart to do this: as a step towards a potential acquisition."
"With recent Instacart customer data breaches and a previous history of leveraging customer lists against former retailers, it seems there’s more risk here for Walmart..."

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