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Walmart's Partnership With Instacart: A Match Made In eCommerce Heaven?

Updated: Jan 12


An Instacart associate making a delivery

If the past two years have taught us anything about shopping habits, it's to expect the unexpected.


The eCommerce surge may have been sparked by the pandemic, but that spark grew into a $4.9 Trillion global market in 2021—a 16.8 percent increase from 2020, even in spite of loosened pandemic restrictions.


But that $4.9 Trillion estimate is still relatively conservative in 2022. Both digital retail and consumer habits share a reciprocal relationship.


Just as the latter informs strategies for the former, there isn't a single aspect of our lives which hasn't been ultimately transformed by eCommerce. And that extends to everyday necessities.


Groceries are no exception. In fact, they're possibly the most pertinent example.

Grocery Delivery and the eCommerce Boom

Grocery store shopping through Instacart

Grocers saw an increase in online orders by as much as 30 percent in 2020 as the demand for contactless shopping became a decisive factor in their very survival.


The US market for online grocery shopping was projected to reach over $100 Billion by the end of 2021, transitioning from an outright necessity to a deeply ingrained habit for millions of consumers.


It's a market which not even Amazon has been able to corner entirely, despite a revenue of $14.5 Billion in online grocery sales for 2021. And that's largely a result of their chief competitor Walmart's existing share of the retail food and beverage market—a share which transitioned to a 103 percent increase in online sales for their end of fiscal year 2021.


But what happens if you're one of the few major metropolitan cities in the US in which Walmart's presence is virtually non-existent? More specifically, a city which plays host to over 8.8 million residents?


It's simple. You partner with one of the most successful grocery delivery providers in the nation, recently reporting sales of over $35 Billion for 2020.


Walmart and the Metropolitan Retail Squeeze

Retail partners in metropolitan areas

You'd imagine the nation's largest retailer would be able to push for significant headway in any metropolitan center in the US, not the least of which being New York City.


But there's an elephant in the room that even a $560 Billion entity can't avoid—the cost of commercial retail space.


New York isn't the only major commercial hub lacking a Walmart. The retail giant is notably absent in Boston, San Francisco and Seattle, all of which have reported skyrocketing retail space costs over the past two years—even in spite of an increase in commercial vacancies.


But New York is a peculiarity. Not only were rents in some prime retail locations exceeding $2,000 per square foot as recently as January, but the very layout of the city itself is planned on a precise grid—hardly an accommodating base for the 187,000 square feet the average Walmart store occupies.


Combined with long standing opposition from both residents, unions and elected officials, it isn't surprising that digital outreach may be one of the few viable assets remaining for the retail giant in the metropolitan area.


Not that they haven't tried to make digital waves by targeting metropolitan residents in the past. Most notably, the acquisition of Jet.com in 2016 promised to be an eCommerce breakthrough for the retailer by appealing to a considerably younger, more affluent and urban-dwelling demographic than their physical storefronts.


But Jet.com underperformed considerably more than expected, resulting in its eventual shuttering only a few months prior to the pandemic. Can Walmart's partnership with Instacart in New York help drive its visibility in a highly skeptical retail market recently estimated at $55 Billion?


Understanding the Instacart Appeal

Instacart mobile application

Instacart isn't the only delivery platform for groceries available, nor are they the first. Both DoorDash and Uber's grocery delivery service saw impressive year over year growth rates during 2020, and it's not likely that growth will be decreasing anytime soon.


But they pale in comparison to Instacart, which saw a staggering 500 percent increase in orders in 2020 and resulted in partnerships with over 400 retailers in North America, including pilot launches with Walmart in San Francisco, San Diego, Los Angeles and Tulsa.


Part of Instacart's appeal has been the result of its existing leverage with retail chains; in particular Amazon-owned Whole Foods, with whom they had previously secured investments and partnership from as an exclusive delivery provider.


But while it may have seemed like Amazon may have viewed Instacart as an additional asset when they acquired the upscale organic chain in 2017, the feeling was hardly mutual. Instacart severed their relationship with Whole Foods in 2018 to focus on their own infrastructure; chiefly, as an independent entity with the potential for a much broader reach than even Amazon could provide.


It was a bold move. One which paid off considerably.


Today, Instacart is valued at $39 Billion and employs over 500,000 full-time employees and part time independent contractors—a far from insignificant portion of the burgeoning gig economy in the US. And in a city which reportedly has a cost of living index over 33 percent higher than the national average, gig work is no longer a discretionary supplement for many New York residents. It's a vital necessity.


Criticism of Instacart as a Business Partner

Not everyone is satisfied with Walmart's partnering with Instacart. Walmart's chief distinguishing factor in brick and mortar has historically been the same as Amazon's: a one stop shop for everyday consumer needs.


Yet it's driven by a business model of every day low pricing, a model which frequently only applies to Amazon's in-house brands. A partnership with a third-party service which offers relatively high prices and service fees could potentially dilute Walmart's carefully cultivated brand image.


But there's more at stake than money alone. While Instacart boasts that their service fees go directly to support their associate shoppers and delivery people, claims against the platform have included demands and expectations based on unrealistic performance metrics which only serve their profits, not their workers.


More recently, it was reported that the delivery platform recently settled a $46.5 Million dispute from the San Diego City Attorney’s Office indicating that the company misclassified its workers as independent contractors as opposed to employees, denying them compensation for fuel, maintenance and personal protective equipment. The dispute followed directly on the heels of a separate $2.5 Million lawsuit claiming that misleading service fees intended for delivery people and associates were paid directly to the company itself, not their employees.


A Portent of the Future for Walmart in NYC?
Does Manhattan represent Walmart's last holdout?

For now, Walmart's partnering with Instacart only in the outer boroughs of Brooklyn, Queens and the Bronx. The real test of their potential for digital market penetration in the NYC area is contingent on whether or not delivery service extends to Manhattan proper; an area which has been historically less than welcoming in accepting the presence not just of Walmart, but discount retailers as a whole.


One thing is for certain. The lines between brick and mortar and online retail are becoming increasingly narrow in 2021. There may be over 32,000 retail establishments in New York City alone, but there's still a need for both price advantage and convenience. And that's precisely what both Walmart and Instacart are hedging their bets on.


It's not a question of if the partnership will be a good match for New York. It's a question of just how that match will play out.

 

Find all the latest news affecting your Amazon and Walmart business at Color More Lines.


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