SAN FRANCISCO—Instacart announced that it will offer 15-minute grocery delivery under its new Instacart Platform, according to a news release. The fast delivery will begin with Publix stores in Atlanta and Miami, and the announcement came in conjunction with a platform that will allow retailers the ability to transact online with tools like ads and performance trackers.
The Wall Street Journal reports that rapid delivery has faced headwinds due to intense competition in the space and high expenses. Normal speed delivery services use gig workers, but many rapid grocery delivery services, such as Gorillas, hire employees to make sure they can quickly source and deliver orders. Gopuff, which is the largest rapid delivery platform and valued at $15 billion, didn’t make a profit last year, reports the Journal. Uber Eats have only just recently started turning a profit, so investors are concerned about the viability of the rapid delivery model for smaller companies.
Instacart Chief Financial Officer Nick Giovanni told the Journal in an interview that he thinks the rapid delivery trend could stick around because consumers will “absolutely” still be demanding quick delivery of groceries in 10 years, as they will have become accustomed to the speed.
Instacart’s foray into ultrafast delivery is different than the fast grocery delivery startups. One major difference is that Instacart is not becoming a retailer itself and is instead partnering with retailers, who already have brick-and-mortar locations in place.
However, Instacart’s announcement notes it will conduct 15-minute delivery in its first two cities from its own warehouses. The company said it would work to be flexible with retailers based on their preferences. It will allow them to use Instacart’s warehouses, or the retailers can co-locate Instacart’s warehouses within their existing brick-and-mortar locations.
In order for rapid-delivery companies to improve gross margins, they have started offering private labels, such as Gopuff’s Basically private-label line. Instacart is able to offer brand names through its retail partners to avoid owning the inventory.
Another major difference is that rapid delivery is only a part of Instacart’s business model, not the crux of it, so if the rapid delivery portion falters, it has its traditional delivery service and ads to make up for loss profits.
The company declined to comment to the Journal on what an ideal mix of ultrafast delivery versus regular delivery would look like at maturity, but Giovanni did say delivering only small orders quickly would be “a tough business model.”
Online sales of groceries soared during 2020 when shelter-at-home orders were prevalent, and while online grocery sales continue to grow, the rate is much slower, according a Forrester report based on IRI data.
Food as a percentage of e-commerce is now bigger than ever, comprising 37% today versus 26% pre-pandemic; however, for the majority of grocery categories, most sales still occur offline. All of the food categories that IRI tracks have single- or low-double-digit percentages of sales transacted online, and three categories—frozen food, health and beauty—declined in online penetration since their peak during the pandemic.
According to NACS’ “Last Mile Fulfillment in Convenience Retail” report, 61% of retailers are satisfied with their third-party delivery partners. Concerns include high fees, little access to consumer data, difficulties delivering age-restricted products and service and operational issues. Read more about these challenges and what c-stores are doing to make delivery work for their businesses in “Delivering Convenience” in the December 2021 issue of NACS Magazine.