Last month, Instacart announced a new set of offerings for retailers, seeking to deepen the relationship they’re building with those retailers’ customers. By offering these new services, including retail media (Carrot Ads); fulfillment (Carrot Warehouses); and analytics (Carrot Insights) they’re positioning themselves to become even more embedded in their retailer’s businesses.
Grocers, in particular, who have relied on Instacart’s services over the past couple of years are at a crossroads. At first, Instacart appeared to be a gracious partner that would enable delivery, e-commerce, and a free storefront for retailers. However, as time went on, retailers found that Instacart’s platform was disintermediating their relationship with shoppers. Retailers need to decide whether they’re comfortable giving up control to a third party, or if they want to establish an insurance policy — by way of their own digital solutions — to ensure that they aren’t losing their customer relationships and first-party data to a potential future competitor.
Critical junctures in recent history reveal the true cost of outsourcing.
The last 20 years have shown us that digital engagement is not a “nice-to-have” but a “must-have” for retailers. In the early 2000’s, retailers were faced with a choice. Some invested in a digital presence, while others — like Toys “R” Us, Circuit City, and Target — depended on Amazon to power their digital offerings. Before the e-commerce explosion of the early 2000s, shoppers flocked to these brick-and-mortar giants, but that trend shifted quickly and significantly with the uptick in online options.
These companies seemed too big to fail, but they made the mistake of handing over their e-commerce capabilities to Amazon’s online ordering and delivery platform. What they didn’t realize was that e-commerce was at an inflection point that required them to modernize their business and that, by partnering with Amazon, they were being used as a stepping stone for the e-commerce giant to capture their customers digitally. By the time they chose to get on board and build their own online marketplaces, Amazon had outcompeted them into bankruptcy. The only survivor was Target, who took almost a decade to build their own platform and to win back their customers. Fast forward to today. With the pandemic prompting a digital shopping revolution, time will tell if history repeats itself with Instacart.
What retailers can learn from Toys “R” Us, Borders, and Circuit City is this: customer relationships are a retailer’s most valuable asset. It’s been proven time and again that, when retailers own their customer relationship both inside and outside of the store, they are able to significantly grow customer lifetime value. A 2021 survey by Deloitte shows that omnichannel shopping behaviors are already widespread, with 55% of shoppers starting their most recent shopping journey online, only to complete it in-store. Taking an omnichannel approach ensures that you attract and keep your customers, no matter how they choose to complete their purchase.
Now’s the time to invest in building innovative offerings to capture valuable relationships with your customers. These digital relationships are key to combating the erosion of brick-and-mortar sales to online players, reinforcing the savings and value shoppers can find in your physical store, and putting you in a position to capture high-margin digital advertising dollars.
Instacart must adapt to survive, as must small and midsize grocers.
Delivery offerings are fast becoming a hot commodity in the retail technology space, with players like DoorDash, Shipt, and GoPuff encroaching on Instacart’s market. In their efforts to get ahead of the trends, these companies are quickly finding solutions to finance fast, low-cost delivery services with paid advertising. In fact, both DoorDash and GoPuff have recently announced the development of ad platforms to gain momentum and compete more aggressively in the space. This puts Instacart in a position where it needs to redouble its efforts on winning in the grocery space — its primary vertical. Recognizing that it needs to find other sources of revenue in the grocery ecosystem aside from delivery fees, it was the next logical step for them to add a suite of offerings to tap into the revenue streams that are evolving with technology.
Delivery services aren’t the only ones recognizing and reacting to the need for expanded digital solutions. The biggest and best-resourced grocery retailers are now starting to leverage their own apps and websites to power delivery as an insurance policy against handing over too much control to partners like Instacart. For instance, Albertsons partnered with DoorDash to support order delivery by customers using their app, thereby reducing their dependence on Instacart. Meanwhile, Kroger drives nearly all Instacart deliveries through their own app in order to retain control over the customer relationship.
Looking ahead, retailers have options for owning the digital experience.
While there is no question that third-party delivery services offer convenience, retailers need to ask themselves, “At what cost?” When looking at the bigger picture, decisions need to be made that put ownership of the entire customer journey into the hands of the retailer. When a third-party delivery service steps in to deliver your products to your customer through their app, it interrupts that relationship and can, therefore, disconnect shoppers from your specific brand experience. Services like Instacart shouldn’t be a solution for shoppers, but a follow-up option to the solutions they get directly from you.
At the start of the pandemic, Instacart appeared to be a quick way and logical way for retailers to ramp up e-commerce offerings and direct-to-consumer delivery. When we take the learnings from the past two years and assess what it is that customers came to rely on — and to expect — in the digital space, retailers are in the fortunate position of building their own digital strategy with much of the heavy lifting already completed. The fact is, now more than ever, it’s important for retailers to establish their own digital presence and build one-on-one customer relationships that are within their full control across all touchpoints.
In today’s marketplace, there are free options for setting up a digital presence and many smart grocers are getting on board and taking their storefronts back from Instacart. By choosing this option, and partnering with resources, like Swiftly, that can provide the digital infrastructure they need, they’re able to capture consumer data, protect their brand, build loyalty, and serve their shoppers in thoughtful and innovative ways. Additionally, this technology can help grocers create a CPG advertising network that brings in additional margin-rich revenue and savings they can pass on to shoppers.
Retailers are now in an exciting position. Rather than deepening dependencies — and paying service fees to the likes of Instacart — retailers can become more self-sufficient in every aspect of their business. If we’ve learned nothing else as technology solutions continue to evolve, it’s that owning the digital relationship with your customers has the potential to be extremely profitable. Why else would Instacart be investing significant dollars into a negative-margin business? To build up those customer relationships, of course.
The big question is: Who is going to win the race to own the digital customer? Shouldn’t it be the retailer that put in the hard work to attract and retain the customer in the first place? The answer is yes. By investing in your brand now — and by partnering with the right tools and resources to help you succeed — you can take control of your valuable customer relationship and take a winning place in the retail marketing technology game.
***
Swiftly Team
