Grocery Game Changer? Online Soars, but the Store Endures

If you're looking for commercial winners from the pandemic, add Instacart to the list. The Silicon Valley — and Canadian-founded — tech darling raised another US$100 million last week, adding to the US$225 million it attracted from private investors in June.

That gives Instacart a valuation of US$13.8 billion. Not bad for a company that University of Waterloo graduate Apoorva Mehta founded in 2012 when he decided his former employer, Amazon, couldn't figure out the fresh food business.

Mehta once called grocery delivery "the largest market in plain sight." Delivery services had been around since the 1800s but failed to transform in the Internet age because they didn't put the customer first. Instead, they expected people to wait for refrigerated trucks that operated on a company's schedule. A bit like the cable guy.

Mobile apps and the gig economy changed that, allowing intermediaries like Instacart to access different suppliers and hire freelance "shoppers" to get groceries to you on your schedule.

COVID-19 turned the model into a rocket ship. In the U.S., Instacart's share of the online grocery market spiked to 55 per cent in the third week of May, up from 30 per cent in February, and customer order volume has been up by as much as 500 per cent year-over-year.

But that doesn't spell the end of grocery stores.

"Customers love their local grocery stores, and that connection has been built over generations," Instacart president Nilam Ganenthiran (also a Canadian) says on a new episode of the RBC Disruptors podcast.

While Instacart works with several chains, it pioneered its Canadian model with Loblaw, the retail giant that employs 200,000 people across several subsidiaries, including Shoppers Drug Mart, No Frills and Real Canadian Superstore.

The partnership, formed in 2017, accelerated through the crisis as Canadians opted to shop from home for almost anything.

Sarah Davis, Loblaw's president, says the shift is now pushing the company to focus on both its store and digital experience, and consumers want both – for different reasons.

"We really do want to have a sense of our customers feeling like they belong with us and this sense of emotional attachment to us," she says on the podcast.

She thinks consumers will still value the choice and curation that goes into the store experience. But demand for the convenience of delivery – especially for seniors and busy parents – is growing too.

Pre-COVID, only 1.5 per cent of Canadian groceries were purchased online, compared to 7 per cent in the US and 10 per cent in the UK. In April, research done for PayPal by Angus Reid found that 30 per cent of Canadians had shopped for groceries online.

What else have Loblaw and Instacart learned from the crisis?

1. Our relationship to the home is changing.

Now that remote work is a norm, we're developing new habits: spending evenings in, gardening, baking bread and knitting. Loblaw is selling more knitting needles than ever. As spending habits change, stores need to be nimbler with inventories and supply chains.

2. The future of grocery will be a blend of digital and in-store.

Grocers need to position themselves to deliver digital experiences and connect them with a rapidly changing store model.

3. Proximity matters.

Canadians want to feel connected to their food and to their local grocer. A part of community is knowing where your food comes from and supporting those who produce it.

4. Understanding the consumer has never been more important.

Data needs to help create a seamless end-to-end experience that not only makes it easier for customers to interact with brands, but enhances their relationship with the store.

5. The grocery experience should be fun.

Food is personal and shopping for it should be an enjoyable experience that can be shared.

To hear more from inspiring thought leaders, find the full RBC Disruptors Podcast on Apple Podcasts, Google Podcasts and Spotify.