Whole Foods makes aggressive move into e-grocery biz

Discussion
Sep 09, 2014

During Whole Foods’ third quarter earnings call in July, co-CEO Walter Robb discussed plans to move ahead with the chain’s "digital roadmap" designed "to offer customers more choices and new ways to engage" with the retailer. Yesterday, the natural and organic grocery chain’s plans became clearer with the announcement that it was partnering with Instacart to offer online ordering to customers in 15 major metro areas around the U.S.

Right now, customers of Whole Foods can order groceries for delivery in all the markets where Instacart operates (Atlanta, Austin, Boston, Boulder, Chicago, Denver, Houston, Los Angeles, New York, Philadelphia, Portland, San Francisco, San Jose, Seattle and Washington, D.C.). Whole Foods will also begin testing in-store pickup at select stores in the Austin, TX and Boston markets beginning next month.

Instacart began offering delivery from Whole Foods’ locations in recent months, but what changes now is that the delivery service will now have its people in the natural and organic grocer’s stores.

"Instacart makes it extremely easy for our customers to buy Whole Foods Markets products from 15 cities and have them quickly delivered — whether buying fresh ingredients for dinner tonight or sending healthy foods to loved ones in another city," said Mr. Robb in a statement. "We are thrilled to add this additional convenience for our customers."

To order from Whole Foods, customers need to go to Instacart’s website or use its mobile app. Instacart customers get their first order delivered for free and subsequent orders are either $3.99 for two-hour delivery or $5.99 for delivery in an hour. There is also an annual membership offer in which consumers pay a $99 annual fee and get free deliveries for orders over $35.

Whole Foods is ramping up its e-grocery effort as more and more companies including Amazon, Door-to-Door Organics, FreshDirect, Peapod, Safeway, ShopRite, Walmart etc. are doing the same. The chain produced a humorous web spot to promote the new service.

[Image: Whole Foods + Instacart]

How will Whole Foods’ partnership with Instacart affect the direction of the grocery chain going forward? What will it mean for others operating in the online grocery space?

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12 Comments on "Whole Foods makes aggressive move into e-grocery biz"

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Keith Anderson
BrainTrust

Instacart’s aggressive expansion is driving availability of full-basket online grocery in the U.S. at an accelerating pace, and its pivot from its early tactic of bypassing retailers’ endorsement to partnering with them is lowering the barrier to entry for brick-and-mortar retailers that see where the market is headed and want an active role.

Whether, when and how a grocer should make a play for online grocery depends on its shoppers, the trip orientation of its brick-and-mortar stores, competitive dynamics and internal competencies. Whole Foods’ shoppers have a willingness to pay for convenience, and Instacart (and Amazon) are steadily re-setting shoppers’ expectations.

Partnering with Instacart gives Whole Foods more influence over key considerations like pricing, marketing and impact on store operations.

As with any third party that sits between a retailer and shoppers, the key questions are:

  1. Who ultimately owns the customer and what usage rights do all involved parties have related to customers’ data?
  2. How does the economic arrangement drive sustainable value for the retailer?
Max Goldberg
BrainTrust

With so many grocery delivery options, Whole Foods, at this point, is just a “me-too.” This is a natural, organic progression in their business model. Since Whole Foods customers tend to be upscale, they might be more inclined to pay for delivery, and Whole Foods is happy to oblige.

Ken Lonyai
BrainTrust

Whole Foods is really no different than any other supermarket chain and in some ways many retailers. Home delivery and in-store pickup are the newest seismic shift to affect the industry, thanks to Amazon and some smaller players. To not move in this direction is to stay firmly planted in the past and to stand in the road as others same-day delivery vehicles roll right over you.

Mark Price
BrainTrust

Instacart provides Whole Foods with an easy way to expand e-commerce and delivery without having to invest heavily in logistics. The ability to order for a narrow time window will have appeal to the customer segments that cannot remain at home for extended periods of time, and wish to order fresh organic produce.

As for competition, I am not sure that this move will impact others operating in the online grocery space. Many other grocers offer some sort of online ordering with delivery or pickup. Seems to be a “catch up” move by Whole Foods rather than a significant innovation.

Ben Ball
BrainTrust

Yesterday a prominent industry commentator blasted Whole Foods for this move, calling it outsourcing the company’s online presence, or words to that effect.

I get that. You do not want to outsource your brand image management under any circumstances.

But I wonder if there isn’t a different current flowing here. That online ordering and home delivery are not an extension of the base brand. That this is in fact a different service, one that consumers can avail themselves of if and as they choose, but more of an “enabler” for access to the actual brand (Whole Foods or whoever) than being an extension of the brand.

If that’s true, perhaps Whole Foods is smart to simply make sure they have this enabler available for their shoppers. To make sure they partner with the highest quality home delivery provider they can. And to avoid being sucked into the investment of getting involved in a business system they know nothing about—which typically doesn’t end well.

I wonder.

Kelly Tackett
BrainTrust

Whole Foods used to be an innovator but over time the company has shed that mantle. They are playing catch-up in a lot of areas as others encroach on the organic/healthy living space with affordable offers. Getting into delivery makes a lot sense. It aligns well with core customer needs and expectations, and by partnering with Instacart the company doesn’t have to invest in the infrastructure to make delivery happen. I’m not sure that it’s going to be a driver of new business, but it certainly can bake in loyalty with existing customers, particularly those in non car-friendly markets who are likely to grow their basket once their purchases aren’t constrained to only what they can carry.

Naomi K. Shapiro
Guest
Naomi K. Shapiro
3 years 13 days ago

Another sign of the times. Are we more concerned with Whole Foods doing e-business or with Whole Foods delivery? Hey, my dad had a small grocery store when I was growing up in Madison, Wisconsin. A big part of their business was home delivery—of groceries—that were ordered over the phone. Telephones, remember them?

vic gallese
Guest
3 years 13 days ago

It is needed service and smart partnership in the 15 cities named. It will probably put a burden on some of the neighborhood markets in those cities who held delivery as a differentiator.

One or more of the mid-price tier regionals or nationals also needs to establish a price sensitive alternative in those densely populated locations. 15 cities could be 150 cities overall. That would be a viable business!

Craig Sundstrom
Guest

This doesn’t really seem like news anymore; actually they’re saying “e-commerce? Forget it, it’s just a fad…not for us” WOULD have been news, but I have a hard time picturing that. So they join every other Tom, Dick and Harry.com. I wish them well in capturing their share of the X.Y% of grocery sales that are made online.

M. Jericho Banks PhD
Guest
M. Jericho Banks PhD
3 years 13 days ago

I like Ben Ball’s thoughts on this topic. If you use the services of a personal shopper, does your shopper have to reflect the brand image of every store you send them to? Instacart is simply a personal shopper that happens to specialize in supermarket shopping. And it isn’t just for Whole Foods. In San Francisco, for instance, in addition to Whole Foods Instacart will shop for you at Rainbow Grocery, Bi-Rite Market, Safeway, Costco, and Falletti Foods. Instacart can’t be expected to be a brand extension of all of these stores.

The fact that Instacart will install shoppers in Whole Foods stores is simply an expedience. In most markets, that’s where most of the Instacart shopping activity will be. Upscale food shopping for the upscale shoppers who are most likely to use the service.

James Tenser
BrainTrust

Online ordering, delivery and pickup are a natural fit for Whole Foods, in my opinion, because its clientele is a little less price-resistant and a little more interested in a better total experience.

The selection of Instacart as a partner to carry it out is not automatic. There are alternate options. But the present arrangement brings several immediate advantages: no new infrastructure; turnkey readiness; and geographic coverage in 15 key markets.

Instacart was already delivering Whole Foods items in some markets, as it does for other major chains, who agree to allow Instacart agents to shop their stores. The key differences now center on an explicit plan to cooperate—designated Whole Foods shoppers, an in-store pickup option, in-store promotion of Instacart, and (I assume) more sharing of information.

According to an Instacart blog post published Sept. 3, customers can consolidate their deliveries from multiple retailers—like Whole Foods, Costco, and King Soopers in Boulder, CO.

So it is notable that Whole Foods is sharing the spotlight with the Instacart brand, rather than trying to attach its own brand. This is a highly strategic decision. No wonder it is controversial.

Gajendra Ratnavel
BrainTrust

This is a great idea for Whole Foods. Their clients are ideal for this kind of service; most trips to Whole Foods (if not all) are over $35!

The best part, you don’t need to worry about someone else picking the veggies and fruits for you. Everything at Whole Foods is already sorted to only include the top tier of products anyway.

And their clients are probably the ones that don’t have the time to spend at the grocery store. Really a win win all around.

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