Will grocers turn to Amazon as an alternative to Instacart?

Discussion
Photo: Amazon
Dec 15, 2021

Amazon.com has plans to share its logistical power with U.S. grocers by way of a local delivery service similar to that offered by Instacart. Amazon will roll out the program across Europe and America next year, according to The Information.

The program known as Amazon Fresh Marketplace was launched in the UK over the past year with the Morrisons and Co-op chains making use of the service. Prime members can use their mobile apps or visit amazon.co.uk to place orders that are delivered the same day by Amazon Flex drivers.

Amazon has not confirmed plans to roll out its service in the U.S. but a spokesperson, Jessica Canfield, told The Information that “partnerships with other grocers enable more customers to shop online and allow us to provide Amazon Prime members with more choice, value and convenience.”

The online grocery market has grown substantially during the pandemic. Nearly 69 million households in the U.S. placed online grocery orders in November, according to a Brick Meets Click/Mercatus Grocery Shopping Survey. That represents a 15 percent increase over last year. In-store and curbside pickup was up 29 percent year-over-year for the month and home delivery improved six percent.

Amazon will face a formidable challenge going up against Instacart, which has partnered with grocery store operators across North America to offer delivery to more than 85 percent of households in the U.S. and 90 percent in Canada.

Instacart in 2020 has sought to build on its advantage, including moves to partner with grocers to build micro-fulfillment warehouses.

The firm has also announced several ultrafast delivery deals with major supermarket chains, including Kroger and Publix that promise deliveries in as little as 30 minutes. Customers of the chains pay a $2.99 delivery fee on orders of $10 or more. Instacart members do not pay a delivery fee. Orders can be placed either through the chain’s apps or websites or through Instacart.

DISCUSSION QUESTIONS: Will Amazon make significant inroads in the U.S. market should it offer an alternative service to Instacart? If successful, do you expect Amazon to pull back on its own grocery business expansion plans?

Please practice The RetailWire Golden Rule when submitting your comments.
Braintrust
"A lot of big grocers need to develop their own capabilities. However smaller and mid-sized ones will look to partner with someone - which could be Amazon."
"In a word, no."
"By helping grocery chains avoid Capex and partner with a trusted delivery provider, Amazon offers the needed solution for many grocers."

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25 Comments on "Will grocers turn to Amazon as an alternative to Instacart?"


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Mark Ryski
BrainTrust

Any market that Amazon chooses to enter is one where they have the potential to make inroads. Even if they aren’t successful, they can cause a lot of disruption and margin erosion in the process. Given the challenges with profitability the delivery service industry has seen, I expect that this battle will be protracted and painful. If Amazon is successful and does create a superior service, then I would expect to see this as a good growth opportunity for Amazon.

David Naumann
BrainTrust

While making Amazon delivery services available to grocery chains offers grocers another option, I doubt that many would embrace this option. Many retailers view Amazon as a competitor and would be reluctant to let their competitor have access to customer information. I doubt this is a sign that Amazon is planning to decelerate its grocery expansion plans.

Gary Sankary
BrainTrust

I really doubt that too many grocers will sign up to “partner” with Amazon on anything. They see, and with justification, Amazon as such a serious threat that some won’t even use AWS services to host their data.

Dion Kenney
BrainTrust
5 months 13 days ago

Amazon has demonstrated the willingness and wherewithal to pursue multiple markets and strategies simultaneously. But I don’t see the grocery segment as being the ideal fit for the many areas where Amazon excels. And with margins notoriously thin in grocery, there isn’t much room for them to exert pressure on suppliers. In brief, I don’t think it is the area where they would get the best return on their investment in dollars, effort, and time.

Dave Bruno
BrainTrust

Margins beware! Amazon eats margins for breakfast, lunch and dinner. Let alone considering the competitive risks, this feels very much like a trap. If the past is precedent, then we can expect Amazon to offer services to consumers at prices that only their AWS-fueled coffers can afford and then they’ll make moves that will force other retailers to try to match them.

Neil Saunders
BrainTrust

It’s a dilemma, frankly. Amazon can bring a lot to the table as Morrisons in the UK has found to its benefit. However with its ambitions in grocery, there is no doubt that Amazon is also a competitor. My sense is that a lot of big grocers need to develop their own capabilities. However smaller and mid-sized ones will look to partner with someone – which could be Amazon.

Doug Garnett
BrainTrust

I doubt Amazon will succeed they way they hope. The recent departure of Instacart’s president is evidence that delivery isn’t likely to maintain volume as the pandemic eases. As with Groupon, I expect it’s a service of value to a niche.

Andrew Blatherwick
BrainTrust

Why would any grocer give their customer information and data to a major competitor? “That nice Amazon would never use it, I’m sure!” It seems crazy to provide them with the opportunity. Most major retailers have already set themselves up for online retail, so why do this?

Richard J. George, Ph.D.
BrainTrust

I believe Amazon will take share from Instacart. I think this move reinforces Amazon’s position as the pre-eminent supply chain/logistics company in the world. Greatest risk to grocers engaging Amazon is, that unlike Instacart, Amazon is a major online grocery competitor. Careful letting the fox into the henhouse.

Lisa Goller
BrainTrust

As always, Amazon is like, “Oh, it’s ON, baby!” There was no way the e-commerce giant was passively watching rivals gobble up lucrative grocery market share over the past two years.

Yes, Amazon will make grocery inroads in the U.S. because it’s a trusted logistics dynamo that already gets to our doors.

No, Amazon won’t pull back on its grocery expansion, as it opens more stores and partners with chains like Sainsbury’s for Just Walk Out tech. Amazon is doubling down on global grocery and perfecting its omnichannel experience so we make it part of our weekly habits.

Gene Detroyer
BrainTrust

Never bet against Amazon.

If they come to the U.S. be assured they have worked out the kinks of this endeavor in the UK. If the UK is not to their liking, we will never see them in the U.S.

Amazon tries many things. We don’t even know what never sees the light of day. We do know that if the effort is viable, they will put massive resources against it to make it successful.

Personally, I am sorry to see this. I am seeing more and more Instacart shoppers in my traditional supermarket. As they do to Whole Foods shoppers, they block aisles, don’t know where product is and are generally a disruption to my shopping experience. I want to go in, get what I need, and get out.

David Spear
BrainTrust

I can’t imagine any large U.S. grocery chain signing up for this service. We’ve all heard the phrase “the fox in the henhouse” — well, this is exactly what would happen if a grocery chain were to partner with this Amazon delivery service. There are several other options for grocery chains to use. For much smaller chains or mom-and-pop grocers, this service might provide a real upside for faster service, extended reach and recurring frequency.

Shawn Harris
BrainTrust
Shawn Harris
Board Advisor, Light Line Delivery
5 months 13 days ago

If Amazon is cheaper, faster, and less impactful on a grocer’s existing operations, then yes, they will win. I too believe that the Top 5 will not rush to use this service, but that leaves a significant number of regional and local grocers who are deeply aligned to their economics and will see this as a money saver. In offering this service, I do not think that Amazon will pull back on their own grocery business, see “The Everything Store” by Brad Stone for reference.

Karen Wong
BrainTrust

It’s a good opportunity for Amazon to try to make inroads. If they are successful, it may create a “if you can’t beat them, join them” mentality but I’d be inclined to say that trading Instacart for Amazon is like trading a fox for a wolf in terms of data. And I definitely wouldn’t expect Amazon to pull back its own grocery expansion. This is another way for them to learn/optimize using the data of others and cover some of their infrastructural overhead, similar to what they did with AWS to begin with.

Camille P. Schuster, PhD.
BrainTrust

Will consumers shop online at the grocer and then have a choice of delivery options with Amazon being a choice, or will Amazon be the only delivery choice, or will consumers shop online at the grocer through Amazon to utilize the Amazon delivery service? Consumer acceptance may depend upon the process used. Some consumers will refuse to use the Amazon service. Some consumers will gladly choose Amazon delivery if they have been using Amazon and are satisfied. If this is true, then the first process is better because consumers have a choice. The second process will work if consumers are comfortable with Amazon delivery. Then this process can also work for those who use Amazon, but will consumers be making a choice of which grocer to use if ordering takes place through Amazon? That process could pose a potential problem for the grocers. Would this arrangement give Amazon inroads? Of course. Will it create issues with consumers or grocers potentially? Depends upon the process used. Seems like some testing is in order here.

Mohamed Amer, PhD
BrainTrust

Amazon is highly incented to increase the online share of grocery purchases. By helping grocery chains avoid Capex and partner with a trusted delivery provider, Amazon offers the needed solution for many grocers. Amazon understands that it will not replace Instacart and is more interested in increasing the size of the online ordering pie while tapping into more data to improve on the company’s profound insights on consumer behavior. For smaller grocery chains, Amazon adds competitive pressure on Instacart and should be welcomed. The larger chains are unlikely to bite, while those in the middle will have a more difficult decision but lean to the least costly delivery option.

Ananda Chakravarty
BrainTrust

Unlike in some segments, increased assortment isn’t as important in grocery. Bread #1 is just as good as bread #2. This play seems to be geared more towards building local delivery for NON-grocery products. Amazon will face pressure from Instacart and most likely will not be able to match the Instacart model. More critically, the effort will turn off most grocers who may feel impingement on their grocery business. Larger grocery partners such as Kroger and Albertsons will be building in-house while regional grocers have already built formidable barriers with Instacart (and DoorDash). Whole Foods will be Amazon’s main play but it has market share of less than 2 percent of grocery. Amazon may attempt to continue their expansion, but it will not gain grocery advantages through this offering as it taps into local delivery. Winner: Walmart, curbside pickup, and for Amazon – prepping the stage for better local delivery of non-grocery goods.

Ryan Mathews
BrainTrust

Yes, Amazon could become a major player in the way overcrowded grocery delivery market and could give Instacart a run for its share of retailers’ money. But no, if it does take Instacart on and wins it absolutely will not pull its own grocery expansion plans back. In fact, I’d watch for Amazon to make a push to become America’s largest grocer. Why do I say that? Because that’s what Amazon does — picks a market, partners with companies (in this case retailers) that know it, learn the rules of the game, and, assuming it’s profitable or meets some other strategic objective, it disintermediates its partner and takes over the market. If retailers think they are losing their brand identity to Instacart, just way until Amazon gets in the game.

James Tenser
BrainTrust

Change all the “Amazon”s in your post to “Walmart”s and re-read. Almost sounds like a flashback to the mid-’90s, don’t it?

Scott Norris
Guest

Frankly, the logistics services division of Amazon (aircraft and long-haul trucking down to local delivery) would be one heckuva great spinoff company. “We deliver your goods with no baggage attached…”

Does Amazon even *need* to sell physical stuff anymore?

Kenneth Leung
BrainTrust

I think most grocers will stay away because of the customer data issue. Do you really want Amazon to have access to your customer delivery data given they are also a retailer? At least with Amazon Cloud Service there are enough data regulations protecting the corporate and customer data, but this is literally using Amazon’s retail infrastructure, so it offers much less protection.

Shep Hyken
BrainTrust

This is all about a potentially better supply chain and distribution strategy. Amazon is brilliant to get involved at this level. They have created a marketplace for retailers on their Amazon.com site. Now it looks like they’re creating a similar strategy for the grocery industry.

James Tenser
BrainTrust

I suggested a very long time ago in my VStoreNews e-letter that supermarket chains had the potential to co-deliver e-commerce packages along with grocery orders. Amazon flipped that script by investing far more boldly in its nationwide distribution capabilities.

Instacart had better watch its back. Amazon is clearly coming after them now, and it will succeed at slowing their growth.

While the battle plays out, it’s worth remembering that grocers are rightfully wary about allowing their shopper interactions to be intermediated by anyone. There are very practical, turnkey options now to control their own digital ordering, order fulfillment and pick-up/delivery systems and link them tightly to shopper loyalty programs.

That’s one reason why Instacart is re-making its business model so assertively. It’s also a key reason why Amazon Fresh Marketplace won’t attract many grocery chains.

Paula Rosenblum
BrainTrust

In a word, no.

John Karolefski
BrainTrust

It depends on how you define “significant inroads.” Amazon will make a dent, likely with small and mid-sized grocers. The big chains will back off because they rightly see Amazon as a growing threat to their their business.

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Braintrust
"A lot of big grocers need to develop their own capabilities. However smaller and mid-sized ones will look to partner with someone - which could be Amazon."
"In a word, no."
"By helping grocery chains avoid Capex and partner with a trusted delivery provider, Amazon offers the needed solution for many grocers."

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