Feb 17, 2021
By special arrangement with the authors, here is an excerpt from the forthcoming book “Instacart for CMOs,” launching on March 10th.
Many traditional retailers are living on borrowed time, with their own ecommerce efforts lagging far behind online marketplaces. But is the current reliance on Instacart to handle the notoriously challenging “last mile” of retail fulfillment really all that bad?
Instacart solves several thorny challenges for retailers, like:
- Providing the required technology, which many retailers are lagging behind on.
- Avoiding the profit-sucking “last mile”. Delivery costs are the biggest hurdle to profitability, particularly in online grocery. Instacart has already done the hard work to figure out factors like “route density,” optimizing routes and scaling nationally;
- Instacart is a demand aggregator. The farther behind retailers get with meeting customer needs with a native solution, the more appealing it is to simply join the shopper where they are already transacting.
While it may be easier to join Instacart than beat them, there are also compelling reasons for retailers to be wary of ceding control.
- Losing the customer connection: personal info, product info and household info all sits with Instacart. Retailers lose both their current and future direct relationship with the customer.
- The quandary of servicing both in-store “gig” shoppers who need to find items and exit the store quickly and the end customer shopping for themselves. Each has vastly different preferences and measures of value for retailers.
- Margin erosion: Instacart charges a five to eight percent platform fee to retailers. Some choose to pass this on as a markup; others absorb it and lose margin.
- Instacart may put vendor allowances and retail media spend in jeopardy as brands shift their marketing budgets online.
These challenges beg the question, should retailers build their own in-home delivery platforms?
Retailers could leap-frog both their competitors and Instacart by investing in next-generation technology. While Instacart’s current business model limits their efficiency to traditional store layouts and locations, retailers could flip the script through new concepts like dark stores and micro-fulfilment.
Ultimately, more revenue for Instacart is more revenue for the retailers that sell there. For retailers who do not have their own mature last-mile delivery play, they would otherwise be losing home-delivery sales right now. Larger retailers who are thinking strategically are likely to believe that they should eventually own the fulfillment process, or at least white-label it. And even with the hefty price tag of building a last-mile delivery capability, retailers could make that investment back with online advertising revenue — a highly profitable revenue stream.
DISCUSSION QUESTIONS: Do you expect to see pushback from retailers over fees associated with third-party fulfillment services or the collection/sharing of customer information? Should retailers working with Instacart or other third-party delivery services plan to transition to fulfilling orders on their own?
“For those who believe life has changed irrevocably either get your game on now or give up and go to Instacart. Different story for those who think life will go back to normal.”