What If Instacart Becomes A Retailer?

Originally printed in the September 2021 issue of Produce Business.

My eldest son, William, is a student at Cornell University. He attends The Hotel School, which is a part of the SC Johnson College of Business. This year, he moved off campus into his own apartment. One of the reasons he looked forward to this is that he is a formidable cook and looked forward to having his own kitchen.

To stock his pantry, there is a small GreenStar Food Co-op right in Collegetown, a few steps from William’s apartment, and he shops there to pick up things on the way back and forth from campus.

Most of his food shopping, though, is done at Wegmans and mostly via Instacart. Wegmans says that its Instacart prices “remain about 15% above in-store, which includes our cost for shopping your order.” Plus there are Instacart charges: “A service charge, which is preset at 7.0%” Instacart also explains that there is a $3.99 same-day delivery fee.

There are alternatives. You can pay $99 per year to join Wegmans Instacart Express, and Wegmans explains that this service eliminates delivery fees and offers a reduction in service fees. We haven’t done that yet, as we are waiting to see how William’s purchasing stabilizes and making sure Cornell doesn’t cancel live classes as they did last year.

All the charges are pretty hefty, especially because we’ve told William to add on a 20% gratuity for each order placed. So, one problem with Instacart, at least as we experience it, is our son’s groceries are costing about 40% more than they would if he picked them up at the store. There is also a $35 minimum purchase.

For now, we are willing to pay. To his parents, William’s academics are the priority, and we would rather have him focus on that than going to the store. Experiencing all these charges, though, makes us wonder about the long-term viability of these services.

Currently, retailers are pricing delivery services as an add-on to all their existing brick-and-mortar costs. If, in fact, delivery remains important post-pandemic, its viability would depend on pricing it not as an add-on to all existing costs but in a way that avoids many of the costs of having products in a retail store.

Obviously you don’t need a high rent store location. Delivery can be done from an industrial park. And all the costs of making a store nice and appealing are irrelevant for delivered product. Right now, the system requires products to be unloaded and displayed on shelves and then someone takes them off the shelves to prepare for delivery. Having consumers in stores also requires expenses such as shoplifting, damaged goods, insurance against consumers slipping and falling, etc.

Retailers who remain captured by consumer-facing options such as Instacart will be vulnerable.

Indeed, we know that Kroger, through a partnership with the United Kingdom-based Ocado, plans to build up to 20 heavily automated warehouses to facilitate consumer delivery.

Others are trying a micro-fulfillment option. Boston-based Takeoff Technologies is promoting 10,000 square-foot centers holding about 15,000 products. These are being tested by Ahold’s Stop & Shop, Wakefern, Albertsons and others.

We suspect retailers better get on the ball. An Israeli-based company, Fabric, is teaming up with Instacart. The idea is that Fabric’s technology, which includes software and robotics, will team up with Instacart’s e-commerce and front end to deliver groceries efficiently. The plan was announced as a hybrid involving both dedicated warehouses that will provide the most efficient packing and delivery options along with personal shoppers and existing retail locations.

Instacart talks nicely, explaining that this technology will allow it to better serve retailers. Yet we would say the writing is on the wall.

My son, born and having lived his whole life in Florida, didn’t know Wegmans from Publix or Winn-Dixie when he went to Ithaca. It was only my taking him down to Wegmans, showing him the store, having him sample the foodservice operations and telling him this was one of the greatest chains in the world that made him a fan.

Even so, if tomorrow, he logged into Instacart and they were representing themselves, I’m not sure he would notice. How could any supermarket chain fire Instacart, knowing it would quickly become a major competitor? And if Instacart is such a popular delivery option, well why wouldn’t the company open retail stores where they have waiting customers?

Ahold’s FreshDirect and Walmart are also working with Fabric. It is unclear if the future is micro-fulfillment centers or large-scale fulfillment centers or something else, but it seems highly likely, though, that retailers who remain captured by consumer-facing options such as Instacart will be vulnerable. So retailers need to make other plans.

Vendors, including the produce industry, need to be prepared to deal with a new customer base and a new future.