What Shopper Loyalty to Instacart Could Mean for Grocery E-Commerce CEO Orlee Tal’s wake-up call for retailers
Grocery delivery
Photograph: Shutterstock wants to see a return to intimacy between grocers and shoppers in the e-commerce space. As a retail digital commerce solutions provider, the company urges grocers to, “Own your brand, data and end-to-end customer relationship.”  

Instacart, the largest on-demand grocery delivery service in the country, partners with nearly 600 national, regional and local retailers, to offer delivery and pickup services from more than 55,000 stores to over 85% of U.S. households.

But what the stats don’t reveal, says, is the number of grocers hemorrhaging customer loyalty from their banners to the Instacart brand.

WGB recently connected with Orlee Tal, CEO of Tel Aviv- and Brooklyn-based, to get her take on the state of shopper loyalty in grocery e-commerce and to learn what retailers can do amid soaring digital demand to ensure their brands stay top of mind.

Jennifer Strailey: As the largest on-demand grocery delivery service in the country, Instacart continues to grow its customer base. Given the loyalty of its customers, I understand you foresee a shift where Instacart becomes a competitor to the grocery retailers with whom it currently partners. How do you see this situation unfolding, how quickly will it do so, and who will be the winners and losers if it comes to pass?

Orlee Tal: Customers’ loyalty has been shifting to Instacart for years. In a survey carried out by Barclays Research and AlixPartners way before the pandemic in 2019, Instacart customers were asked what action they would take if their preferred retailer were no longer available on the Instacart platform. Forty-three percent responded that they would just switch to a different retailer. These results clearly indicate the lack of loyalty to grocers on the Instacart platform.

But it’s more than just loyalty; it’s also about the retailers building their own technological and logistical sophistication. For example, Instacart is investing heavily in building its infrastructure to support e-commerce: although they continue to deny it, they are now taking the next step and planning to open their own MFCs (microfulfillment centers). Whether they go direct is yet to be seen.

Retailers should take a close look at the fate of Toys R Us, a leading U.S. retailer, which in 2000 decided to outsource its e-commerce activity to Amazon. At the time, it made sense, as e-commerce was fast-growing but made up only a small fraction of their business. Unfortunately, Toys R Us failed to develop its e-commerce expertise, and by the time they made a decision to take control of the online business, they had already lost the digital race.

Given the soaring demand for online grocery ordering and delivery, what can retailers looking to meet this demand (who don’t own a delivery service) do to satisfy customers? For those who do use third-party delivery, how can they ensure shoppers remain loyal to their brand? 

As online grocery scales up, its future cannot solely rely on manual labor in the store for several reasons: The picking labor is crowding the aisles and worsening the in-store experience for customers; it becomes challenging to replenish the store’s shelves at a quick enough rate; and there is a limit to the pace and numbers of orders that can be picked to meet customers’ growing demand.

The future of online grocery lies in microfulfillment centers installed in dark stores, in back rooms of grocery stores, or in buildings attached to the side of a grocery store. Actually, most of the large grocers in the country are investing in building MFCs (e.g., H-E-B, Albertsons and Ahold Delhaize).

Fulfilling grocery orders from MFCs can enable retailers to scale-up in-store capacity swiftly. Since grocery stores tend to be located close to where shoppers are based (e.g., in residential neighborhoods, adjacent to workplaces or in busy town centers), these microfulfillment centers can offer many of these retailers the best of both worlds by facilitating efficient and quick fulfillment without requiring stores to take on new real estate costs.

To maintain customer loyalty, grocers need to control their customer experience by building their own white label solutions, managing the product selection, pricing, customer service and fulfillment, winning back their customers’ loyalty. Grocers can still choose to outsource some labor (e.g., picking and last-mile delivery labor), but ultimately customers have to feel that their shopping experience belongs to a particular brand.

You’ve also said that despite its rising valuation, “negative stories” are circulating around Instacart. How significant is this publicity and do you see it impacting the Instacart brand?

Instacart, which just raised an additional $265 million, has been in the news recently because the company is looking into establishing its infrastructure of fulfillment centers. [While] Instacart continues to deny it's interested in opening its own MFCs, a recent article in The Financial Times and a report by CNN confirms that Instacart is exploring technology to open MFCs.

The big question is: What do they intend to do with these MFCs? Opening their own MFCs and going direct or offering microfulfillment as a service in small-format stores, like Sephora and 7-Eleven, for example. In the latter case, Instacart will need to convince its retailers to outsource. It still needs to be seen if retailers will find it cost-effective to outsource their MFC fulfillment rather than building their own.

Now that the pandemic finally appears to being slowing down, Instacart is experiencing a decrease in volume and revenue; thus, last January, it cut 1,900 employees’ jobs. Grocers realize that the decision they made to use Instacart’s service before COVID when only 3% of grocery sales were online is not sustainable anymore.

Instacart is also under pressure to maintain an impressive valuation as the company heads towards an IPO, which is driving the company to act on many fronts. To mention a few—announcing a 30-minute priority delivery service, making the first steps in global expansion, and appointing four new VPs, including executives from Facebook and Uber Eats.

Editor’s note: While Instacart has neither confirmed nor denied it is exploring the use of robotic warehouses/MFCs to fulfill orders, the company has repeatedly expressed its allegiance to its retailer partners. “We’re constantly evaluating our services in deep partnership with the more than 600 retailers we work with. Instacart’s entire product and model is predicated on being a chief ally to our retail partners,” an Instacart spokesperson told WGB. “We’re not a retailer, and our business is only successful when we’re driving value for our partners. Our goal has always been to lift up grocers and give retailers of all sizes an edge in an increasingly competitive industry.” 

How does Instacart stack up against its competitors? What is the value proposition of Amazon,, and DoorDash compared to that of Instacart?  

Walmart is investing heavily in its online infrastructure and driving innovation around fulfillment and user experience. It has complete control of its customers’ end-to-end experience, including loyalty programs, in-store Scan & Go, and fuel discounts. Walmart provides lower prices [than] Instacart. It’s tough for Instacart to compete with Walmart’s low prices because of the cost associated with the personal shopping service.

On the other hand, Instacart provides better availability and more variety since it serves over 300 national and local grocery chains. Following its last impressive funding round ($265 million), Instacart has almost limitless resources, and it will continue to invest heavily in building its infrastructure and improving its services.

Instacart and Amazon, two of the biggest grocery delivery services, operate differently. Amazon Fresh puts together orders in a warehouse, while Instacart uses personal shoppers who go to local stores near you. Amazon Fresh offers free, two-hour delivery and enables purchasing of a wide variety of products beyond grocery, such as electronics, clothing and toys.

Instacart and DoorDash are both on-demand delivery services. However, Instacart has higher availability; it is spread across more cities and serves top U.S. grocers, including Costco, Petco, Safeway, Kroger, H-E-B, Target and Aldi.

Do you ultimately see a monopolization of grocery delivery services with fewer players than today?

The big players in the market are moving ahead very aggressively, investing heavily in sophisticated technology, developing expertise in all aspects of the e-commerce business, and accumulating huge amounts of data around customer behavior. If grocers do not take control of their e-commerce businesses soon, it will be challenging for them to join the race in the future.

As e-commerce becomes a larger part of their overall business, projected to grow to an estimated 21.5% of the total U.S. grocery market by 2025, maintaining a competitive e-commerce offering will become even more important.



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