With New Digital Ad Push, Instacart Comes Closer To Creating Its Own Trade Channel

It’s good to be Instacart. The San Francisco-based digital grocery delivery firm already has the dominant share of the home delivery business from traditional brick-and-mortar food retailers and now is looking to further bolster its revenue by ramping up its efforts to sell more digital advertising.

According to The Wall Street Journal, Instacart, which has grown prodigiously over the past 18 months in large part to the spike in e-commerce sales, is seeking to increase its ad revenues from approximately $300 million in 2020 to $1 billion by next year. That’s a tall achievement but consider that the 2012 start-up added more than 250 retailers in the U.S. and Canada last year and now provides delivery services for more than 600 firms, many of them food merchants. Over the past 15 months, Instacart has also raised nearly $700 million in new capital and now has a whopping market value of $39 billion (more than Kroger and Albertsons combined). It is also planning to go public in the next few months and has revamped its senior management team with ex-Facebook executives Fidji Simo and Carolyn Everson being brought in as CEO and president respectively.

Why is this important? Because by this time next year, the very same food retailers that once viewed Instacart as an important third-party partner are likely to find Instacart competing for the same trade dollars that food retailers are now receiving from their vendors. And I’m not just talking about advertising revenue.

Major CPG vendors such as P&G, Coke, Pepsico, Unilever, Mondelez and others are already engaged with Instacart and it’s not hard to envision those vendors being solicited to create their own segregated promotional agendas with a growing, well-endowed digital services company that is poised to do more than complete the last mile piece of the e-commerce puzzle.

Of course, Instacart has said it doesn’t compete with retailers but rather acts as a conduit for them to achieve higher revenue while providing them with important data and analytics on product movement. And objectively, Instacart is certainly creating some tangible value-added functions that are designed to help retailers become more efficient. In July, the firm announced that it will help its retail customers build fulfillment centers adjacent to or near existing stores utilizing robotics that are capable of carrying 10,000-50,000 items.

And that’s part of the conundrum that retailers face. It’s true that Instacart provides an important and now necessary service and has shown that it wants to enhance its relationships with the retailers that it services. On the other hand, Instacart’s new financial clout and business direction worry retailers, many who now see Instacart as both a partner and a growing competitive threat.

The truth is that despite solving the last mile riddle and providing some unique data to its retail partners, some merchants aren’t happy with the disruptions that Instacart selectors create at store level. Others complain that they believe that Instacart also provides an inferior level of customer service from some of its delivery associates which ultimately reflects poorly on the image of that merchant.

It can be argued that grocery operators helped create the Instacart monster by continuing to feed it. For many merchants, using a provider like Instacart offered the best solution to a growing demand for home delivery especially during the height of the pandemic. Now Instacart is expanding its territory and retailers face some difficult decisions moving forward if they want to move away from their partner/competitor.

The other major grocery delivery firm, Shipt, is probably an unlikely choice because it is owned by another growing competitor – Target. And utilizing smaller players in the grocery delivery arena such as Uber Eats or DoorDash might be an option, but those companies don’t yet have an established track record with larger retail operators.

One thing is certain: other than the Godzilla of e-commerce, Amazon, as well as brick-and-mortar powerhouses Walmart, Target and (to lesser extents) Kroger and Ahold Delhaize USA, no other retailer wants to develop or redevelop their own stand-alone grocery delivery platform – they know that would certainly become a rocky road to unprofitability. In the end, and as difficult as it may be, retailers must find more effective ways to provide their own platforms to gain the level of customer loyalty they need in the more ambiguous e-commerce universe.

Because as it stands now, Instacart is here to stay, both as a partner and a growing rival (“she’s my sister and my daughter”). And retailers will be hard pressed to change that dynamic.

As I said – it’s good to be Instacart.

‘Round The Trade

As the pressure of dealing with labor shortages, spiraling inflation, supply chain dysfunction and the challenges of dealing with COVID-19 continues, almost every sector of American business is affected. As for the grocery industry, the situation seems to be getting more acute every week with no letup in sight. However, there may be some good news on the labor front coming soon because of the end of extra pandemic-era unemployment benefits. By the end of September nearly 11 million Americans will lose the short-term benefits they gained from the passage of the American Rescue Plan 18 months ago. Of that number, about 7.5 million Americans lost access to those extra federal benefits entirely on September 6, and another three million saw their checks cut by $300 a week. This is really a tale of two cities – certainly there are many people, especially mothers and fathers who need to continue to take care of their children, who should remain eligible to receive benefits. However, it’s pretty obvious to me that a significant number of those beneficiaries have willingly been content to sit on the sidelines and get compensated. Now some of those glad-handers are going to be forced back into the labor pool. After chatting with about a dozen retailers about this issue, most agree that this could provide a boost to increase their hiring efforts. However, as one chain executive noted: “There will certainly more people available, but do they want to work in a grocery store, distribution center or manufacturing plant? Currently it seems all of us are searching for any live body that will work for us. However, that’s not the solution. We need to improve the quality of our workforce and provide the incentives that ensure that our new hires will remain in our system for more than a few weeks or months.” Another Mid-Atlantic-based high volume independent agreed about the labor pool potentially increasing but added, “I believe we lost a significant part of the overall labor force during the first 6 months of the pandemic. Many potential employees decided they no longer wanted work at any level of retail and those ‘dropouts’ have certainly impacted our ability to maintain normal staffing levels.” Two companies that seem undeterred by the realities of the labor shortage are Amazon and Walmart. Andy Jassy, “Godzilla’s new CEO, said that Amazon plans to hire 55,000 new associates for corporate and technology roles globally. And Walmart said that it is seeking to add 20,000 new positions to beef up distribution and transportation before the holiday season begins. Good luck finding that many live bodies, even at $25 an hour. And as for the holiday season, not just in the retail grocery biz, where price increases and out-of-stocks are very noticeable, other segments of retailing are facing similar challenges which is creating a lot of agita for most merchants who consider the Thanksgiving to New Year’s Day period their most critical. One more piece of Walmart news: in its bid to rule the world (along with Amazon), the Bentonville, AR merchant has created a new platform called “GoLocal” where it will pick up items from other retailers and delivery them to shoppers’ homes the same day. Operating under Walmart’s Spark delivery network, “GoLocal” is another portal in the Behemoth’s attempt to compete with Amazon (and others) as a last mile delivery provider.

According to the Brick Meets Click/Mercatus Grocery (BMCM) monthly shopping survey, online grocery sales were slightly down for the month of July. The research and advisory firm said that grocery sales were $6.7 billion, down 1.5 percent from June and a 4.3 percent dip from May 2021.While delivery and pickup sales remained stable at $5.3 billion, the survey noted that ship-to-home sales (delivered by parcel services) decreased 6.7 percent to $1.4 billion. After reading the quality work done by David Bishop and his team at BMCM for more than a year, the numbers confirm that while there has been a flattening of online purchases compared to 18 months ago, grocery e-commerce has become a permanent part of consumer’s grocery purchasing behavior.

And a tip of the hat to Nicole Wegman on being named president of Wegmans brands, a new post where Nicole will supervise the uber-chain own brands program. Nicole, the younger sister of Nicole Wegman, CEO, has worn many hats for the Rochester, NY-based regional chain in her 32 years with the company. “Our mission is to help people live healthier better lives through exceptional food,” Danny Wegman chairman of the 106-store merchant said in a statement. “The innovation we’re able to bring to life through our trusted brand enables us to deliver on that mission. Nicole is leading this effort across our company to ensure we only bring the very best to our customers.”

Local Notes

Amazon Fresh (AF) opened its third DC area store on August 26 at a former Giant Food location on Wisconsin Ave. in the Friendship Heights area of Chevy Chase, MD. The 33,172 square foot store closely resembled the retailer’s first local offering which opening in late May in Franconia, VA. In July, AF debuted its first District store on 14th St. NW (Logan Circle). That unit is significantly smaller in size – 7,300 square feet – and offers only a small percentage of items found in the Franconia and Chevy Chase locations. However, the DC store is the first Amazon Fresh unit in the area to fully use the company’s “Just Walk Out” technology which allows customers to bypass front-end checkouts after making their purchases. And AF’s sister company, Whole Food just announced that its long-awaited reopening of its Wisconsin Ave. NW unit in the Glover Park area of the city will also feature “Just Walk Out” utilization, one of only two planned new WFM units to offer Amazon’s proprietary cashierless payment technology. The Glover Park unit, which was Whole Foods first store in DC when it originally opened in 1996, has been closed since 2017 due to a rodent infestation problem (you hate to hear that) which ultimately grew into a major dispute with the retailer’s landlord. The totally rebuilt version is expected to open in Q1 of 2022.

Costco, the biggest club store operator in the U.S., posted another extremely healthy sales period (4th quarter) and full fiscal year with net revenue increasing 10.3 percent and 13.6 percent respectively at its 564 U.S. stores (excluding gas). Costco’s earnings and its full balance sheet will be released on September 23.

Perhaps the best performer over the past 18 months – Target – continued its terrific performance in its second quarter ended August 28. Overall sales increased 9.2 percent to $25.2 billion with profits reaching $1.82 billion, a significant gain from last year’s $1.7 billion figure. Comp store sales also jumped a robust 8.7 percent.

A tip of the hat to Henry Smith, former chief executive of Key Food Brokers, who just celebrated his 90th birthday. My retired partner Dick Bestany and I first met Henry shortly after we acquired Food World in 1978 and we hit it off immediately. A consummate pro, Henry was not only a stellar sales executive he was also one of the nicest people in business. Happy Birthday!

Two industry veterans, Jeff Landsman and John Caha, have formed a new sales organization – Specialty Industry Sales. The company, with offices in Towson, MD and Olney, MD, will sell specialty items to retailers in multiple channels from North Carolina to New York. Landsman, who came to the area in the 1990s, has operated his own food brokerage firm, Specialty Food Sales, since 2010. Caha has spent more than 50 years in food retail in the Mid-Atlantic and has a long list of top-notch employers on his resume including Dollar Tree, Weis Markets and Walmart. “We have helped each other over the years with referrals and suggestions. Finally, we came up with a plan that seems to have worked, based on it resulting in a million-dollar product sales. With that great result, it just seemed to be a great fit, and as they say, ‘timing is everything’” Landsman noted. I’ve known Jeff and John for many years and wish them well with this new endeavor.

Sadly, we have a few deaths to report this month. One of the finest drummers in rock & roll for arguably the best rock & roll band of all time has left us. Charlie Watts, 80, an original member of The Rolling Stones, formed in 1963, had recently been in ill health before the announcement of his passing on August 24. Watt’s sparse drumming style is in stark contrast to singer Mick Jagger’s and guitarists Keith Richards’ and Ron Wood’s approaches to their music. But nobody was better at keeping the beat than was Watts. Both Jagger and Richards have often referred to Watts as the “engine” of the band. If you’re not a diehard Stones fan, I’d ask you to listen to Watts masterfully manipulate his drum kit on four songs: “Honky Tonk Women,” “Gimme Shelter,” “All Down the Line” and the live version of “Midnight Rambler” (from “Get Yer Ya-Yas Out!”) to better understand Watts’ brilliance. With his passing, the retirement of original bassist Bill Wyman in 1992 and the death of rhythm guitarist Brian Jones in 1969, the Glimmer Twins (Jagger and Richards) are the only two original Stones members remaining in the band. They begin their 13-city “No Filter” U.S. tour on September 26 with Steve Jordan (an excellent drummer in his own right) sitting in the chair.

Another musical great, Don Everly, has also passed away. Everly, 84, with his younger brother Phil (who died in 2014), combined to form one of the greatest singing duos in the history of rock/pop/country. The Everly Brothers’ consonance was certainly unique – a twangy, harmonic blend that Paul Simon called the most beautiful sound he ever heard. “Both voices were pristine and soulful. The Everlys were there at the crossroads of country and R&B. They witnessed and were part of the birth of rock & roll.” Together they produced a slew of iconic number one hits in the late 1950s and early 60s including “Wake Up Little Susie,” “All I Have To Do Is Dream,” “Bye Bye Love” and “Bird Dog.” And in case you were wondering, Don’s voice was slightly lower than his brother’s, which helped create their beautiful distinctive harmonies.

And while we’re still in the musical realm, let’s not forget about another less famous drummer – Ron Bushy. You’ve probably never heard Bushy’s name but there’s a good chance you’ll remember his “15 minutes of fame.” Bushy, 79, was an original member of Iron Butterfly (and appeared on all six of their albums) and he is credited with naming (but not writing) the band’s only hit song – “In-A-Gadda-Da-Vida” (1968). The 17-minute opus, which filled up the entire B side of their eponymously named second album, is still played on the few remaining free-form rock radio stations today and has been also heard as a “sampler” on several hip-hop songs. I recently listened to the plodding, dirge-like song again, and I can tell you I liked it a lot better as a freshman in my college dorm with my black light on.

Lou Grant is dead, too. Actually, Lou’s real-life persona, Ed Asner, has died. The burly character actor won seven Emmy awards and actually parlayed his original role as grump newsman Grant from its origin on “The Mary Tyler Moore Show” (1970-1977) into the successful spin-off series “Lou Grant” (1977-1982). However, those two series were only a small part of a career that lasted 64 years and included an incredible 417 TV and movie credits. Asner also served as the president of the Screen Actors Guild from 1981 to 1985. Some of his other most notable roles were in “Roots” (1977), “JFK” (1991) and “Elf” (2003). An excellent actor with a strong personality, Ed Asner, 91, was a certainly an unforgettable presence.