Should grocers welcome Instacart’s warehouses?

Discussion
Photo: Fabric
Aug 04, 2021

Instacart has announced plans to partner with grocers to build micro-fulfillment centers within dedicated warehouses and existing retailer locations. Doing so is expected to speed up delivery and reduce the costs.

The move represents the first phase of Instacart’s “next-generation fulfillment initiative” to bring automated technology solutions to retail partners.

“With the rapid adoption of online grocery shopping that’s taken place over the last year, the grocery industry has experienced an accelerated transformation that’s required retailers to reimagine their e-commerce footprint and explore new technologies to meet the needs of their customers,” Instacart wrote in a blog.

Instacart has entered into a multi-year strategic deal to have Fabric serve as fulfillment automation partner to support the warehouses, which will have capacity for 10,000 to 50,000 items. Robots will pull items from the warehouse and Instacart’s shoppers will pack and deliver orders.

Instacart’s delivery workers may also take on the extra chore of placing orders in staging areas for curbside pickup. They will, however, avoid many of the hassles of in-store shopping, including crowded aisles, out-of-stock items and long checkout lines.

The in-store experience for customers may likewise improve without Instacart’s shoppers clogging aisles and checkout lines. Increased efficiencies may speed delivery and improve the profitability of e-commerce and BOPIS for grocers.

Mark Schaaf, chief technology officer, Instacart, said in a statement, “Over the long-term, we believe partnering with retailers to bring next-gen fulfillment technologies together with the personal touch and care of Instacart’s shopper community will create an even more seamless online grocery experience that’s faster and more affordable for customers and delivers even more value and growth to retailers.”

Automation may help improve Instacart’s profitability as it reportedly explores an initial public offering. It may also provide a differential against newer competitors such as Doordash. Retailers have reportedly griped about Instacart’s high commission fees.

A number of grocers have opened “dark stores” and micro-fulfillment centers to support online delivery. A new study from Edge by Ascential predicts up to one third of store space could be resourced to fulfill online orders in major channels and larger store formats as e-commerce growth accelerates in the years ahead.

DISCUSSION QUESTIONS: Should grocers welcome or be wary of Instacart’s warehouse facilities? Will online grocery delivery and store pickup eventually be driven by micro-fulfillment facilities or dedicated space inside stores rather than in-aisle pickup?

Please practice The RetailWire Golden Rule when submitting your comments.
Braintrust
"A lot of retailers will adopt this because they don't have the capital or expertise to seek other options, and almost all of their online volume is coming from Instacart."
"Make no mistake, Instacart is the retail grocery threat equivalent that Amazon was to Target, Barnes & Noble and Toys “R” Us a decade ago."
"In a few short years, only Amazon, Walmart and Instacart will matter. Every other banner will just be a third-party supplier."

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16 Comments on "Should grocers welcome Instacart’s warehouses?"


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Ken Morris
BrainTrust

Grocers should be implementing MFCs themselves. Why in the world would you let Instacart get control of your customer? It would make more sense to follow the Kroger model where they are using Ocado to do their fulfillment for CFCs (Customer Fulfillment Centers). Retailer MFCs in a hub and spoke environment make the most financial sense and can run 24 hours a day, seven days a week, 365 days a year. With the cost of people rising and the price of this technology coming down, grocers need to embrace this technology now before Instacart pulls an Amazon on them.

Neil Saunders
BrainTrust

This is really about Instacart following the Ocado model of being a technology provider as well as a service provider to retail. This improves its defensible postion as more players enter the grocery pickup and delivery market, simply because a technology delivery solution has higher barriers to entry than a model that relies mostly on gig-economy workers. Instacart is also now shifting such volume that it makes perfect sense to streamline operations via automation. Should retailers be worried? Not really. For many smaller players who don’t want to invest in this stuff, it is an off-shelf solution. Sure, Instacart may eventually offer its own products – even though it denies this – but this is simply another future line of defense it can advance if needed.

David Naumann
BrainTrust

I think micro-fulfillment facilities are the future of online grocery delivery, as they can dramatically increase the speed of fulfillment, circumvent crowded aisles and checkout lines, and can be more cost effective. The new Instacart initiative isn’t clear on the pricing model and if facilities will support multiple grocery chains in the same location. This is an interesting strategy that may appeal to smaller chains that can justify the capital expenditure or develop their own micro-fulfillment centers.

Rick Watson
BrainTrust

Once Instacart is over 50 percent over your online business, it is game over. You are owned by Instacart and you essentially are playing their game.

I predict a lot of retailers will adopt this because they don’t have the capital or expertise to seek other options, and almost all of their online volume is coming from Instacart.

The true test will be if Instacart allows other providers to pick up from their facilities!

DeAnn Campbell
BrainTrust

Resistance is futile, the micro-fulfillment grocery model is here to stay. Shoppers have come to realize there is no joy in squeezing the Charmin before you buy it. The grocery experience is becoming a two part journey, with one being basic staples easily ordered online for significant time savings, the other being meat, produce and specialty items that are part of an in-person experiential shopping trip that is more satisfying in person.

Jenn McMillen
BrainTrust

To echo the other Brain Trustees, grocers are fools if they let the fox in the hen house. Wouldn’t it be interesting if, instead, Instacart took over all the empty Sears/JCP shells in areas where there are food deserts, for a more altruistic and community-oriented angle? Oh wait. Sorry. I was in Fantasy Land.

Ron Margulis
BrainTrust

I can imagine the conversations going on between Instacart and retail users as I type:

Instacart: You will be supplying us with your product from your DC for more efficient order fulfillment.
Retailer: What happens when you hit scale and can order directly from our suppliers?
Instacart: Oh, that won’t happen. We’re committed to our relationship with you.
Retailer: How about the promotion dollars we’re getting to support store marketing?
Instacart: I’m sure the CPG companies will keep those flowing. We’re committed to our relationship with you.
Retailer: Will you guarantee that you won’t offer our customers competitive products?
Instacart: We wouldn’t do that. We’re committed to our relationship with you.

Bottom line – Instacart has a roadmap that will ultimately take business away from their retail customers.

Michael La Kier
BrainTrust

Should grocers, or will grocers? Grocers should keep supply chain and e-commerce in-house to ensure quality of service and ownership of the customer (data + experience). Grocers will likely continue to outsource this as they don’t have access to capital to pay for this or the expertise in-house.

Mohamed Amer
BrainTrust

Instacart’s robotic warehouse move elevates the entry barrier in the grocery delivery segment, protects revenues and margins, increases the company’s moat, and offers a balance sheet alternative to a grocer’s investment in non-store deliveries. Welcome to the brave new world of highly specialized consumer-facing grocery supply chain!

John Karolefski
BrainTrust

There has been a longtime and quietly-held suspicion that Instacart would evolve into a fulltime grocer and compete with traditional food retailers. Instacart’s warehouse facilities might be a Trojan Horse and the first step to its larger goal. But I could be wrong.

Jeff Weidauer
BrainTrust

This is a logical next step for the short-sighted grocers who helped Instacart build relationships with customers and manufacturers. In a few short years, only Amazon, Walmart and Instacart will matter. Every other banner will just be a third-party supplier.

Patricia Vekich Waldron
Staff

Instacart owns the customer touchpoint and with this initiative they will take even more control from retailers, managing assortment and probably developing their own product lines. I’m sure they’re pitching to retailers that removing the Instacart pickers from crowding stores and cost/capital efficiencies make this a good deal…

John Hennessy
BrainTrust

Since I work for a provider of automated micro-fulfillment centers, automated darks stores and other fulfillment automation capabilities to supermarkets, I had to think hard about an unbiased comment. Instacart’s business is taking shoppers and their business from its supermarket partners. It is not creating new shoppers or new meal occasions. Now Instacart can take more. That succinct viewpoint seems consistent with other BrainTrust comments.

Peter Fader
Guest

I very much agree with Jenn’s “fox in the henhouse” metaphor (and similar sentiments expressed by most of the other folks here). This is purely bad news for grocers, who need to invest in automation themselves in order control their destinies. This reminds me a lot of Borders outsourcing e-commerce fulfillment to Amazon 20 years ago — it seemed like a great partnership at the beginning but look at what happened…

Peter Charness
BrainTrust

For grocers who already have enough of a challenge keeping their stores and owned fulfillment centers in stock, this is one more wobbly chair at the table. The advantage grocers have over the big central warehousers (aka Amazon and now instacart) is their ability to use their stores and store inventory/existing DC network to effectively to support customer need, closest to where to where the customer wants to take possession of their product. So the fox in the chicken coup comments (agreed) aside, just adding more to a complex logistical framework is a step in the wrong direction as well.

Brent Biddulph
BrainTrust

Make no mistake, Instacart is the retail grocery threat equivalent that Amazon was to Target, Barnes & Noble and Toys “R” Us a decade ago. Each of those traditional retailers “outsourced” a core capability that took a decade to recover from (and 2 of 3 of those never really recovered). Perhaps Instacart simply represents the price (and risk) to pay for laggard grocers that have not invested sufficiently themselves in the last mile.

wpDiscuz
Braintrust
"A lot of retailers will adopt this because they don't have the capital or expertise to seek other options, and almost all of their online volume is coming from Instacart."
"Make no mistake, Instacart is the retail grocery threat equivalent that Amazon was to Target, Barnes & Noble and Toys “R” Us a decade ago."
"In a few short years, only Amazon, Walmart and Instacart will matter. Every other banner will just be a third-party supplier."

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