The battle for grocery is about to go nuclear
Instacart has been in the news recently as word spreads that the company is creating the infrastructure it could use to go direct, using its own distribution centers in markets across the country to fulfill orders for shoppers, potentially cutting out its retail partners. Instacart just announced it has raised an additional $265 million to help fund its strategy; the funding gives Instacart a valuation of $39 billion—more than Kroger, the country's largest traditional supermarket retailer.
The day that many industry pundits have warned about—Instacart flipping from friend to foe—appears to be imminent. News that Instacart is looking into establishing its own fulfillment centers, along with their latest fundraising, and pressure to maintain a massive valuation as the company heads towards an IPO, all point to the very real possibility Instacart could go direct, disintermediating traditional retailers. (Editor's note: Instacart for its part has steadfastly denied this is the case.)
The news from Instacart comes as Jeff Bezos, Amazon’s founder and CEO, announced he’s stepping back from the CEO role so as to better focus on a few select initiatives. Among them: a focus on growing Amazon’s role in the grocery business. The company is charging ahead with physical store openings: Amazon Fresh just announced its 10th location, Amazon Go Grocery is scaling, and Whole Foods continues to evolve under Amazon’s control. But opening more Amazon stores is not all—there appears to be a bigger game afoot that may come to light soon.
And not to be forgotten, Walmart—with online sales up 79% in the last quarter over a year earlier—is investing heavily in fulfillment automation and digital infrastructure as it seeks to fend off Amazon using the momentum gained this past year and its 4,700 stores to help level the playing field.
The digital battle for grocery is poised to go nuclear, as Amazon, Instacart and Walmart unleash a take-no-prisoners war for hundreds of billions of dollars of annual grocery sales. As the proverb goes, “when elephants dance, the grass gets trampled.”
Past grocery industry battles have been waged between traditional retailers and have slowly played out region by region over time. But the coming retail war will be far different. Amazon and Instacart are not traditional retailers; both have massive economic resources, are digital natives and have a national presence and infrastructure.
And if you’re a conventional retailer consider this: Instacart and Amazon each know far more about your customers than you do.
Instacart delivers from more than 45,000 stores across 5,500 cities in North America and its service is available to more than 85% of U.S. households. Now consider that the company knows what specific products a given shopper is purchasing from each retailer Instacart delivers from. And don’t forget, Instacart knows the address, phone number and email of each of its customers.
Instacart and Amazon are fighting a war of intelligence, leveraging big data gleaned from across their massive platforms and using AI and machine learning to understand what products it should offer in each market along with powerful pricing insights. This, while many traditional retailers are still fumbling with accurate product descriptions and attributes.
Another sign the coming retail war will be different from the past: Instacart recently acquired over 250 patents from IBM as it seeks to bolster its intellectual property and provide a protected base for new innovation across its vast network. Amazon spent over $42 billion last year on innovation-focused research and development, according to macrotrends.net, and was one of the top companies for issued patents in 2020.
So what are traditional retailers to do?
