Walmart (WMT) is currently pilot testing 4 brands in California and Oklahoma with Instacart (ICART) for home delivery of groceries, alcohol and other products. The move points to a possible expansion into other markets, which will significantly increase Walmart’s delivery capabilities and allow it to fill more on store tracking channels such as order pickups.
As reported by CNBC:
“Today we welcome Walmart to the Instacart marketplace for the first time in the US Instacart now supplies Walmart locations in three California markets – Los Angeles, San Francisco and San Diego – as well as Tulsa, Oklahoma,” said a spokesman for Instacart in a statement. “The new partnership brings thousands of items – from groceries, alcohol and pantry stacks to home decorating and enhancement, personal care, electronics and more – to low-cost Walmart stores to customers’ doors every day. an hour. “
Thesis: The partnership with Instacart could further strengthen Walmart’s same-day delivery capabilities, giving its upcoming Walmart + initiative much more substance in terms of competing with Amazon’s Prime Now (AMZN) likes.
The general shift to digital ordering and home delivery has given rise to a rich and diverse omnichannel ecosystem for shoppers. Companies like Instacart and Shopify (NYSE: STORE) have made it easier for traditional retailers to get on the ‘Attack Amazon’ bandwagon and start delivering products to their shoppers in just an hour from the time of ordering.
For Walmart, the Jet acquisition and subsequent integration gave it a strong presence in the online grocery segment on the order side, but the company had to learn the hard way when it came to making deliveries or getting the products into the hands of customers. get their stores.
That said, the company has moved fast in recent years and seems to master Amazon’s own art form. Walmart has even launched its own fulfillment initiative – Walmart Fulfillment Services – which enables third-party vendors from their own eCommerce marketplace to store, package and ship products to consumers from centralized locations.
The partnership with Instacart will reduce Walmart’s home delivery costs by leveraging the former’s shopper network and technology-related assets. In turn, Instacart will benefit from the large volume of orders that Walmart customers are likely to forward. As such, it is a highly synergistic partnership that both companies will benefit once expanded to a larger selection of markets.
Of interest is the fact that Instacart now has more than 750,000 shoppers in its network. For COVID-19, that figure was about 200,000. In two massive hiring tranches, the head count has nearly doubled, making Instacart an even more desirable destination for traditional brick-and-mortar retailers looking to grow their customer bases on the back of digital.
Since the beginning of the pandemic, eCommerce has consistently experienced ultra high volumes. According to a relatively recent report by Deloitte, as reported by PYMNTS.com:
… eCommerce growth was up 68 percent on May 1, above 40 percent of total retail sales. And eCommerce was by far the category that showed the largest percentage of that growth at 47 percent of the total.
And that growth is not just on the backs of essential items. In its Q1-20 call, Target (TGT) reported that clothing sales rose again in the second half of April, which is the end of the quarter. That means the months of May to July will also have seen a comeback in clothing. However, this growth has mainly gone to eCommerce portals of larger retailers with a good product mix, such as Target. I noticed this in my recent article titled Purpose: These 2 Pandemic-born growth drivers point to long-term sustainable gains. This article contains all relevant links to reports and revenue for Target reports.
The new partnership between Walmart and Instacart should keep Jeff Bezos awake at night (probably not, though). He already recognizes Instacart as an emerging competitor to Amazon. In his July 29 statement to the U.S. House Committee on the Judiciary, Mr. Bezos noted (emphasis, mine):
Walmart’s online sales grew 74% in the first quarter. And customers are increasingly flocking to services invented by other stores that Amazon can not yet match on the scale of other large companies, such as pick-up and in-store returns. The COVID-19 pandemic has put a spotlight on these trends, which have been growing for years. In recent months, the pick-up of the online order restriction has increased by more than 200%, in part due to concerns about COVID-19. We also face new competition from the likes of Shopify and Instacartcompanies that traditionally enable physical stores can set up a full online store almost instantly and to deliver products directly to customers in new and innovative waysand a growing list of omnichannel business models.
Investor Angle
This test runs with Instacart, apparently, will never move the fate for WMT anytime soon, but they do offer the company a way forward, as delays plague their Walmart + delivery initiative on the same day. Instacart will give you the charge required to guarantee same-day deliveries, as Instacart, in most of its markets, already offers delivery times of less than one hour from the order placed. .
If this partnership is a success, it could mean expanding to all of Instacart’s catchment areas in the not too distant future. Once that expansion is worked out as a formal agreement, Walmart + will gain even more traction in a short period of time. Of course, the current economic environment could ask Walmart to hold on to the launch for now, but building up its same-day capabilities with Instacart does not have to wait.
I believe this is strategically a very beneficial move for Walmart and will add some real substance to the Walmart + offering. Prime Now could finally face some serious competition across the United States. As such, this represents a significant potential disadvantage for Walmart stock if it plays out in this way. Incidentally, a nationwide rollout of this partnership could also play a pivotal role in a possible Instacart decision to go the IPO route.
Announcement: I / we have no positions in named shares, and no plans to initiate positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I do not receive compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose supply is mentioned in this article.
