The grocery delivery service, Instacart Inc., appeared to be the perfect partner for supermarkets looking to enter e-commerce. After several years together, however, some traders are beginning to question the relationship.
But many supermarkets say they are not making money from Instacart, mainly because the delivery company normally charges a commission of more than 10% for each order. Some of Instacart’s retail partners say the service has a lot of control over customer interactions and expects it to consume an increasing share of the money that food manufacturers spend on marketing. All of this has put groceries owners in trouble as deliveries continue to grow and become a necessity.
“We don’t think we make money from an Instacart order,” said Mark Skogen, CEO of Foodliner Inc. of Skogen, which operates more than 30 stores under its Festival Foods brand and started offering Instacart about a year ago.
Delivery remains expensive because his company pays Instacart a percentage of its online sales, Skogen said. The grocer still works with Instacart because it allows for greater revenue, even if there is no profit.
Nilam Ganenthiran, president of Instacart, said in an e-mail that the company’s services help grocery stores grow without spending years of work and capital investment to build infrastructure.
“We don’t compete with retailers,” said Ganenthiran. “We don’t operate outside warehouses and we don’t launch our own stores or mini-markets like other services that compete directly with supermarkets.”
The Save A Lot chain joined Instacart this summer because the service was quick and easy to implement, said Chris Hooks, director of merchandising for the Midwestern grocery store that operates more than 1,000 stores. He said Save A Lot sees Instacart as a way to attract existing and potential customers.
Instacart said it added or expanded deals with more than 150 retailers in the U.S. and Canada this year, placing it in partnership with more than 500 companies, including Kroger Co.
, Walmart Inc.,
Aldi Inc. and 7-Eleven Inc.
Like many of its peers, the delivery service struggled to meet rising demand at the start of the pandemic, but said it had recovered. Instacart said its orders increased 500% a year at some times this year and that its workforce of workers has largely more than doubled to 500,000.
The business boom helped give Instacart its first profitable month in April, since it was founded in 2012. The company has raised nearly $ 500 million since March, for a valuation of $ 17.7 billion. Instacart said it expects an initial public offering, but declined to comment on the timing.
Over the years, Instacart has added services like the suggestion of replacing out-of-stock items based on customer preferences and allowing consumers to communicate directly with Instacart buyers, Ganenthiran said.
Instacart started delivering non-grocery items, like recipes and alcohol. The company is expanding a website building business and providing technology support to retailers.
Instacart is also working with manufacturers to promote and offer product discounts on its platform. Mark Griffin, president of B&R Stores Inc. in Nebraska, said this means that retailers and Instacart are going after the same money that brands spend on marketing.
“We are competing with what we perceive to be a partner,” he said. In working with Instacart, B&R becomes part of “an entire laundry list” of retailers, rather than customers’ local stores, he said.
Ganenthiran of Instacart said the advertising industry gives consumers access to discounts, which would encourage them to buy more at supermarkets. Instacart was built to protect retailers and help them gain market share online, he added.
When HEB LP partnered with Instacart in 2015, the Texas-based chain raised prices for products sold by Instacart to help cover delivery fees, said people familiar with the negotiations.
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To maintain some control, others are choosing not to outsource their entire e-commerce business. Kroger, the country’s largest grocery store, handles collection orders with his own team. The company also encourages customers to place delivery orders through its website – instead of Instacart’s – offering digital coupons and fuel savings at Kroger gas stations to members of its loyalty program. Kroger executives described Instacart in a recent profit call as a great partner, but said the grocer is always looking for delivery partners.
Retailers have more options at hand. DoorDash Inc.
and Uber Technologies Inc.
started delivering groceries this year while Target Body
Shipt Inc. continues to expand.
Associated Food Stores, a cooperative with more than 400 stores based in Salt Lake City, said it is exploring Instacart early next year. So far, she has been using DoorDash, in part because of the service’s low commission rate of approximately 9% per order charged in stores, said Thomas Horne, the company’s senior e-commerce manager. Instacart’s fee is higher, he said, although the fee varies by retailer.
Instacart said it wants to give an advantage to all supermarkets.
“It is much more complicated to choose the perfect bunch or the best substitute for your favorite cookies than to hand someone a burrito,” said Ganenthiran, adding that the company continues to make investments to improve its operations.
Some supermarkets are resisting. Weis Markets Northeast Network Inc.
prefers to encourage customers to place orders online and pick up in stores, said CEO Jonathan Weis. The grocer does not use Instacart, but depends on Shipt for delivery.
“They were a little expensive, in our opinion,” he said of Instacart.
Instacart can remain just one of many ways to buy groceries online. Farhan Siddiqi, digital director at Koninklijke Ahold Delhaize NV, said that customers prefer specific delivery services. The owner of the Giant and Stop & Shop chains uses Instacart, in addition to its internal delivery services Peapod and FreshDirect LLC, which is partnering with a private equity firm to buy.
He added: “It is a very complicated world”.
Write to Jaewon Kang at [email protected]
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