The 2007 launch of AmazonFresh drew blood from the grocery industry, beginning Amazon’s shark-like strategy of long, slow circling, culminating with an attack in the form of its Whole Foods acquisition last year. Yet rival delivery service Instacart has managed to remain afloat and continues to ink partnerships with grocers, most recently Kroger. The success of both companies indicates that, at least for the time being, grocers can leverage partnerships to swim and not sink.

Nearly 60% of grocers in L2’s inaugural Digital IQ Index: Grocery that have brick-and-mortar stores partner with Instacart, leveraging the platform to serve additional markets and complement their own delivery offerings. In regions where Instacart overlaps with brand-owned delivery, however, the platform is not always the most cost-effective option for consumers.

To use Instacart, shoppers must pay a $5.99 service fee as well as additional fees during peak hours. In addition, groceries on Instacart are more expensive. The sticker price of the average item is 18% higher on Instacart than on the corresponding grocer’s e-commerce site.

While the platform seeks to appeal to shoppers’ desire to find deals—L2 researchers found that 35% of top-ranking Instacart items were on sale—even baskets on sale were 12% more expensive. When L2 researchers shopped for a basket of 10 items on a Safeway Instacart page in Phoenix, seven items were on sale, none of which were discounted on shop.safeway.com. Yet even with all discounts applied, the Instacart basket still cost more.

Grocery comparison Instacart

For grocers, Instacart can be a short-term life raft to offer digital fulfillment and expand coverage. In 2016, Kroger made significant digital investments including nearly tripling its number of Clicklist locations, which allow customers to order groceries online and pick them up in-store. The investment paid off, with 2017 digital sales growing over 90%. Kroger will now leverage both brand-owned digital fulfillment and Instacart to serve digital shoppers through 872 stores and over 1,000 pickup locations, with plans to add 500 more stores in 2018.

However, Kroger and other grocers must be wary that their life raft doesn’t deflate. Because Instacart allows shoppers to easily toggle between different grocers, the platform can threaten customer loyalty to particular grocers even as it brings in additional sales.

Responding to this threat, 55% of Index grocers partnering with Instacart leverage branded subdomains (e.g. delivery.ralphs.com) that limit shoppers’ ability to toggle between grocers when accessing Instacart. In early February, L2 analyzed six Kroger brands offering Instacart delivery; Ralphs was the only brand within the portfolio that had the aforementioned branded subdomain. Ralphs shoppers could also access the Instacart interface with Ralphs account credentials. Following the partnership, five of the six Kroger brands offered the same functionality. Furthermore, in geographies offering Instacart, all five brands now provide a direct link to Instacart visible above the fold on the homepage.

Kroger

Instacart creates convenience for both grocers and shoppers. The platform allows grocers to quickly serve more online grocery shoppers and provides an intuitive experience for online shoppers. However, convenience comes at a cost; grocers must follow the efforts of Kroger and leverage branded subdomains to limit shoppers’ ability to switch between grocers and maintain customer loyalty. Additionally, shoppers must remain aware of the costs associated with Instacart and understand that cheaper grocer-owned fulfillment options often exist.

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