Will Instacart and Shipt give Amazon a run for its money?

Photo: Instacart
Feb 13, 2018
George Anderson

Amazon.com is certainly a headline grabber. It has made news in the past week for the launch of Prime Now deliveries from Whole Foods in four markets along with the planned rollout of a new service, Shipping with Amazon (SWA), that will put the company in competition with FedEx and UPS. Amazon, however, isn’t the only company making headlines as the third-party same-day grocery delivery services, Instacart and Shipt, had news of their own.

Instacart announced yesterday that it has raised $200 million in a new round of funding for the service, which now boasts some 200 grocery partners in North America, including seven of the top eight.

In a blog post with the title “Tipping Point,” Instacart’s founder and CEO Apoorva Mehta, wrote that the company, which is now valued at $4.2 billion, would use the cash influx to offer “more convenience and better selection at competitive prices” to its customers. He said, Instacart planned further investments in “shopper support teams and software” as it continues its expansion.

Shipt, which was acquired by Target in December, will begin making same-day deliveries in the Minneapolis/St. Paul market on March 1. The service will deliver products including electronics, toys and other items in addition to groceries from about 50 stores in the Twin Cities and surrounding suburbs.

When Target acquired Shipt, it announced that it planned to make the service available to customers in the majority of its stores by this year’s Christmas selling season. The two companies, which initially are limiting deliveries to key items, plan to offer same-day deliveries from all major categories by the end of next year.

DISCUSSION QUESTIONS: Will Instacart and Shipt be able to hold their own — perhaps even gain ground — against Amazon? Are you more bullish on one company’s prospects versus the other in near- and long-term?

"I think both Instacart and Shipt must focus on the pickers’ skills and, if they do, they’ll do fine. "
"Like for the cat who tasted real tuna, the canned version no longer works. Amazon has set the bar on expectations."
"Both Instacart and Target will need to invest substantial amounts of money to drive awareness, trial and repeat."

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15 Comments on "Will Instacart and Shipt give Amazon a run for its money?"

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Zel Bianco

First, I hope both are able to compete with Amazon as we need to balance the power that they have, if that is even possible. A $200 million cash infusion for Instacart is a lot of money but compared to the bank that is Amazon, not so much. The fact that Instacart has been able to build a relationship with some of the top grocers in North America is a big step in protecting their turf and in building even more of a footprint from there. I have to believe that in the case of Shipt and their parent, Target, they will have their own channel so to speak and will allow Target to stay in the game although I suspect they are and will continue to broaden their universe outside of Target in order to compete with both Instacart and Amazon. I worry that obesity in America will increase with all this free shipping though.

Paula Rosenblum

I think both Instacart and Shipt must focus on the pickers’ skills and, if they do, they’ll do fine. I personally use Instacart a lot and I think they need to improve two things: 1.) their technology (it’s insane that I have to ask for “no substitutes” on every single item instead of a global setting that says so, allowing the exception to be “okay you can substitute as needed”) and 2.) the expertise of their shoppers. I get tiny little stalks of broccoli sometimes that wouldn’t even make for a meal for one.

I’m saying this here, and I’ve been intimating it for some time: I think Amazon is coming down to earth. Price parity is being achieved, delivery times are really not “all that” for many third-party “Prime” shippers but, hey, they’re making money. Like a “real” retailer.

I look forward to continued health in the retail industry. And I hope we don’t experience an economic shock that damages that health.

Art Suriano
The goal today is, how fast can we deliver it to the customer? Amazon was out ahead for a while and now other companies are in the game and remain competitive. The next few years will be the contest of who can get it to you the quickest. I wonder though if years from now when we have nearly instant delivery resolved and companies look back at the investment and what they lose on impulse buying and declining in-store traffic if it will have been worth it. History tells us that for years retailers fought hard to win the battle to stay open on Sundays. At first, they all did more business, but in a short time, they found they were doing the same business they once did for six days, now spread out over seven but had more costs staying open on Sundays. At what point when we have mastered almost immediate delivery will businesses question if they did the right thing? We all want things now … but unless it’s a meal I… Read more »
Chris Petersen, PhD.

The last mile is no longer optional. And the last mile is getting faster, especially with groceries and consumables. The new standard of one-day delivery is rapidly becoming two hours in large cities.

The large national grocery and pharmacy chains have anticipated the race to the consumer’s door and are offering credible delivery in major cities. However, home delivery itself will not be enough. Consumers demands continue to escalate for choice and quality, especially for consumables. Whether it will be an iteration of Instacart, Shipt or some form of Uber, the road to the consumer requires the last mile of delivery.

The rest of retail needs to bet on some alternatives or they will be eating Amazon’s dust on the last mile. Or even worse, without an alternative they could end up paying Amazon tolls to use SWA in order to reach today’s spoiled consumers.

Jon Polin

While I may have questions about Instacart’s and Shipt’s economic models, I am confident that there is consumer demand to support them, even in an Amazon world. This is a great era to be a lazy consumer!

Ken Cassar

WIth Prime Now delivering Whole Foods, Instacart expanding and Shipt having been acquired by Target, we have reached a tipping point where retailers are finally capitalizing on their existing in-store inventory. Over the course of time, this should most significantly benefit retailers with big retail footprints, which will be a challenge for Amazon, which only owns 460 or so Whole Foods stores. Or of course, Amazon could just go out an acquire its way into a big store footprint.

Ryan Mathews

If a I had to pick a winner at this point, I’d still put my money on Amazon over both companies for a variety of reasons ranging from capitalization to customer engagement. And if I had to pick between them, I guess I like Instacart’s chances a little better.

But I think the question misses the point.

Isn’t the real issue here that delivery is rapidly transitioning from a differentiated service offering to table stakes? As more and more companies enter this space, more and more customers will come to expect real-time delivery on everything they buy from canned goods to computers.

If this hypothesis is correct what started off as a value-added service will quickly evolve into a commoditized service and the most efficient provider in the space — likely Amazon at this point, will win.

Joel Goldstein

As our lives get busier, these services allow us to spend more time with either our careers or families. As a new father, I know how time can become more and more valuable and have leveraged these services as well as many others to free up my weekends of errands.

The future will be in delivery for the daily items that we need, however I believe the service and personal touch that the shopper apps have focused on allows the consumer to build a trust that their shopper will get them the best BoGo deals and pick the best fruit for their families.

Nir Manor

Both Instacart and Shipt specialize in last-mile delivery and have adequate financial resources to support developing and rolling out their services. The key point to win in my opinion is using advanced technologies to improve the operations from online ordering (e.g. notifying shoppers that an item is out of stock when they are ordering to avoid the need to replace it), to improving pick and pack using technology to collect faster and identify SKUs, to optimizing wayfinding and using AI to improve routing and delivery slotting efficiency.

Camille P. Schuster, PhD.

Amazon has been setting the pace for fast and efficient delivery. Other retailers have to compete with that reality, among others, if they want consumers to use their online shopping tools. However, the last mile of delivery is not the only issue; it is part of a process. So the question is not whether these companies can compete with Amazon. The real question is whether these companies can help other retailers compete with Amazon. The online interface has to work well, products the consumers want have to be available, prices need to be competitive, the checking out process has to work well and delivery has to be efficient. All the pieces have to work well. Of course, companies that can do last-mile delivery efficiently are necessary for success in this endeavor.

Richard J. George, Ph.D.

Like for the cat who tasted real tuna, the canned version no longer works. Amazon has set the bar on expectations. Now everyone else needs to meet or exceed those expectations. Despite the funding and acquisition announcements, Amazon has a clear lead over these other online offerings. The value of these other options is they allow lagging retailers to get into the game. However, getting into the game or waging the table stakes does not guarantee success.

Ricardo Belmar
I don’t believe any of these contenders have truly solved the last-mile delivery problem for most consumers. In my area, none of the delivery services are operating yet and this is a fairly typical suburban area. The competition will be good for consumers and it will be interesting to see how each of these manages to differentiate. If nothing else, this tells us Amazon doesn’t have all the answers — yet. I wouldn’t bet against their deep pockets (or at least their willingness to invest while worrying about revenue and profit later) but while they used to have a clear advantage in shipping and delivery, that advantage has quickly eroded as consumers now expect fast delivery — all the time from every retailer. The grocery business is behind compared to other segments in my opinion, but given the amount of news coverage given these days dedicated to the segment I would say it is quickly changing as the top competitors all realize the potential business opportunity at stake. For my money, the first service that… Read more »
Shep Hyken

Competition is good. It requires everyone in the game to play a better game. Amazon has a system and now has the Whole Foods network to pull from. Then there is everyone else. And that’s a big part of the market. I’m betting that at some point Amazon will expand to support delivery of other grocery stores but for now, Instacart and Shipt have an opportunity to build relationships with retailers before that happens.

Mark Price

The broad range of products offered by Amazon and the inherent stickiness of their platform present substantial barriers to entry to Instacart and Shipt. Both Instacart and Target will need to invest substantial amounts of money to drive awareness, trial and repeat. I am a bit more bullish on Shipt, since Target offers a wide product range and has an established online as well as offline audience.

Ken Morris

Competing against Amazon is difficult – any way you look at it. The one advantage that local retailers have against Amazon is local inventory. Leveraging a third-party delivery service that is focused on optimizing the processes for efficiency and costs is a smart strategy, as this is not a core competency for traditional retailers.

There are still several challenges that need to be solved for successful and profitable same-day delivery: efficient processes, accurate real-time inventory, cold chain break issues and cost effective delivery models. Retailers need to staff and train employees to efficiently pick and pack merchandise for orders, as this is a new role that you can’t just add to current employees’ responsibilities. Accurate real-time perpetual inventory is critical for same-day delivery and this has been a thorn in retailers’ side for years. Now it is a retail imperative — real-time retail is … real.

Lastly, shaving costs off the last-mile of delivery and strategically pricing the service at rate consumers will accept and is profitable for the retailer is essential for sustainable success.

"I think both Instacart and Shipt must focus on the pickers’ skills and, if they do, they’ll do fine. "
"Like for the cat who tasted real tuna, the canned version no longer works. Amazon has set the bar on expectations."
"Both Instacart and Target will need to invest substantial amounts of money to drive awareness, trial and repeat."

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