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 has now grown into a $4.9 Trillion global market—a 16.8 percent increase from 2020, even in spite of loosened pandemic restrictions.
But that $4.9 Trillion estimate is still relatively conservative as we near the end of Q4 2021. 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 a pertinent example. 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 is projected to reach over $100 Billion by the end of this year, 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 an expected $14.5 Billion in online grocery sales for 2021. And that’s largely a result of 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 there is no physical Walmart presence? 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
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, in spite of an increase in 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 layout of the city itself is planned on a grid—hardly an accommodating base for the 187,000 square feet Walmart stores occupy on average. 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 in the metropolitan area.
Not that Walmart hasn’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 isn’t the only grocery delivery platform 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 last year 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 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.
A Portent of the Future for Walmart in NYC?
For now, Walmart’s partnership with Instacart is only available 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.
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