When it comes to allocating digital marketing budget and resources, many CPG brands only focus on large online retailers like Amazon and Walmart. Many of them don’t think about the importance of grocery delivery providers that have their own apps, such as Instacart and Shipt.
With the constant and dynamic changes in grocery retailing, e-commerce is a top strategic priority for every grocer in the country, regardless of its size. These grocers understand that consumer expectations have shifted, with four out of five shoppers now wanting same-day delivery. But for most retailers, the economics of offering same-day grocery delivery simply don’t make sense. Enter Instacart and Shipt.
E-Commerce Grocery Growth
E-commerce grocery sales are estimated to grow at 10 times the rate of in-store sales over the next five years, according to a Brick Meets Click report. During the same period, almost 10% of all grocery sales will likely be made online, which will equate to almost $134 billion. As consumers increasingly gain confidence in buying groceries online, and as Millennials, the first digitally-native generation, mature into adulthood, these figures are set to grow further. A recent poll reported that 61% of U.S. Millennial consumers have purchased groceries online this year.
Currently in e-commerce grocery, there are two main distribution options: pure-play (i.e. Amazon.com) and in-market, which encompasses both click and collect (i.e. Walmart Online Grocery Pickup) and final-mile delivery (i.e. Instacart and Shipt).
Though almost 100% of U.S. consumers can purchase groceries via pure-play e-commerce, many categories currently do not work with that distribution option.
Meanwhile, a physical retail footprint is required to make click and collect work, which is one of the main reasons why Amazon purchased Whole Foods last year.
As a result of this acquisition, many grocers have partnered with delivery service providers like Instacart and Shipt to expand their e-commerce presence and make their online operations more profitable.
"Many grocers have partnered with delivery service providers like Instacart and Shipt to expand their e-commerce presence and make their online operations more profitable."
Instacart was founded in 2012 as a personal shopping startup but quickly moved into partnerships with grocery retailers. After a large investment in 2017, Instacart used these partnerships to grow from 30 to now more than 240 markets, including some in Canada. The platform is now used by the eight largest U.S. grocery retailers, including Kroger, Costco and Albertsons. Even retailers like Ahold, which owns grocery delivery company Peapod, have added Instacart in select markets to offer one- and two-hour delivery options. In total, Instacart is estimated to work with 58% of grocery retailers.
This geographical growth has pushed Instacart to more than half a million customers who have bought over $2 billion in groceries from the delivery platform. Currently, the company is valued at over $4 billion after an early 2018 investment. This, combined with a low cash burn rate, enabled it to acquire Unata, a startup specializing in making and tracking digital coupons, to further expand its services and provide added value to its grocery partners. Additionally, Unata is also developing voice capabilities to allow customers to purchase items from grocery partners using voice assistants like Google Home.
Shipt was founded in 2014 but was quickly acquired by Target for $550 million in 2016. Shipt still acts as an independent company, and it has more than doubled its markets since the acquisition. After Target acquired Shipt, it further validated the company and has helped it gain traction faster in the market, including taking on one of the toughest markets in New York City. Shipt is expected to expand its reach to 180 markets by the end of 2018.
A few of the major grocery retailers that Shipt has partnered with are Target, Albertsons and Kroger. Shipt Founder and CEO Bill Smith expects Shipt to book $1 billion in revenue in 2018 thanks to a 2017 growth rate north of 50%. He also believes the future is bright, and Target’s recent 2018 Q2 earnings shows that digital sales is a huge strategic initiative for the company.
How Brands Can Win
First and foremost, CPG brands need to focus on creating a consistent product content strategy that maintains trust with shoppers. Think about grocery delivery apps as an extension of your own website and social media. Do not rely on these apps or their retail partners to create the high-quality, branded experience consumers are looking. Product photos, titles, descriptions and specifications should all be tailored to the Instacart and Shipt audiences in a way that helps them make more informed purchasing decisions. Since customers cannot physically see or touch the products, your product packaging and listing page content need to help customers overcome the challenges of shopping for groceries online.
Like any e-commerce platform, Instacart and Shipt are essentially search engines, and brands need to optimize their product listings to ensure organic and paid discoverability. As a first step, brands should compile a list of relevant broad and specific keywords they want their products to rank for when customers search on these apps. Components like titles, bullet points, descriptions and any enhanced content should all be optimized to help a CPG get maximum search visibility.
CPG brands have used in-store promotional strategies for decades to push more units out the door. But these same promotions are sometimes not available on Instacart and Shipt. Brands should instead consider promotional strategies unique to these apps. For example, some brands offer to cover the delivery charge on your entire order if you add a select quantity or dollar value of their products.
Though Instacart and Shipt get most of the attention in this sector, there are several other important final-mile delivery startups in the market. Walmart recently started to partner with Postmates in the Charlotte, North Carolina, area for all final-mile grocery delivery. This partnership is expected to reach over 40% of Walmart shoppers before the end of 2018. Similarly, Texas-focused grocer H-E-B recently acquired final-mile delivery startup Favor. Finally, many of the largest grocery retailers, like Kroger, have started to create their own final-mile solutions this year.
Joshua Schall, MBA has an 11-year background in the emerging and intersecting CPG/FMCG categories of functional food and beverage and nutritional products.
He currently is the owner of J. Schall Consulting, an Austin, TX-based boutique management consulting company that focuses on digital growth strategies for CPG/FMCG brands that range from pre-launch to portfolio companies with $500M in yearly revenue.
Joshua enjoys an active healthy lifestyle but still finds himself spending way too much time scanning social media and digital grocery aisles for new consumable brands.