This is an excerpt from Monday’s Point of Sale retail supply chain newsletter.
Prior to the pandemic, less than 5% of all grocery spending occurred online. The coronavirus prompted millions of Americans to purchase groceries online for the first time, including older generations that had not even been considered potential market participants. Recent data from the U.S. Bureau of Labor Statistics shows 28% of baby boomers and silent generation shoppers increased their online grocery purchases during Covid.
Online grocery demand has nearly tripled this year, and groceries have been one of the fastest growing e-commerce segments, in part because it began from such a small base. More important than growth has been the sustainment of online spending since lockdowns began in March. Grocery is the only retail segment that has maintained (and even grown) its e-commerce penetration since peak levels in March, indicating the new normal is already here.
This new level of demand is forcing grocers to rethink their fulfillment methods. Grocers are not alone in this transformation. Recent analysis of 500 leading retailers from Gartner shows that 12.5% fewer were offering free shipping in Aug 2020 vs Aug 2019. As retailers spin out BOPIS, curbside pickup, lockers and other options, they are rolling back more expensive, unprofitable fulfilment methods, like same-day delivery via third-party courier.
Instacart and other gig economy delivery firms have been an outsized beneficiaries of the shift to online grocery shopping. Instacart has added hundreds of thousands of independent contractor “full-service shoppers” since the pandemic began to meet surging demand for online groceries. However, the company is laying off more than 1,800 part-time in-store employees that service specific grocery stores.
Instacart’s service works a few ways. Customers can place orders for delivery and workers for Instacart — either its in-store shoppers or its contract workers — will shop for the items, then the contract workers will deliver. Or customers can purchase items for pickup at select locations. In this case, an Instacart in-store shopper, employed by Instacart, or an employee of the retail store will shop for items and package them for pickup.
Major grocers are expanding pickup locations at a torrid pace, and in turn are adjusting their relationships with Instacart. Kroger is the most recent to transition to a ‘Partner Pick’ model, where the grocer will continue to use Instacart’s technology to source and pick online orders, but will do so with in-store employees rather than Instacart shoppers. Over the summer, Aldi and Sprouts opted to replace Instacart’s in-store shoppers with their own employees.
Since the stores will continue to use Instacart’s technology to fulfill orders to be picked up by customers, Instacart customers won’t see a difference in their experience. They can still purchase items from Aldi, Sprouts, or Kroger via the app and have it delivered by a full-service shopper, or head to the store to pick up the order.
By using just Instacart’s technology, the grocers are able to gain more control over the workers inside their stores. Grocers may pitch this move to the public as a way to improve worker safety during the pandemic, but these changes will outlast the virus. The grocery segment is notoriously a low margin, high volume business that can’t afford to subsidize delivery. Grocers have been in expansionary mode over the past year as they fight for online market share. All major grocery chains that have invested in BOPIS and curbside pickup will look for returns on their investments. They also understand the unit economics for pickup are much better than that of delivery, especially if they are able to utilize their own workers to fulfill orders. Look for grocers to incentivize shoppers to utilize pickup options so they can more quickly transition away from costly third-party partners.
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