Target has teamed up with established grocery delivery startup Instacart to begin a pilot program in its hometown of Minneapolis, Minnesota. Customers in some areas of the city will be able to order from two local Targets' full stock of groceries, home supplies, and other commodities like pet food and baby products. You can then have the items delivered that day for $3.99, which is Instacart's lowest delivery fee.
Target, which built its business on being a trendy place to shop for cheap, has a lot to gain. The retailer's grocery department accounted for more than 20 percent of revenue last year, or around $18 billion. The online grocery market is nearly $11 billion in the US, with an expected annual growth rate of around 9.6 percent, according to market researcher IbisWorld.
Everyone wants in on food delivery
And Target isn’t the first brick-and-mortar retailer to test the waters of grocery delivery: Instacart does the same for companies like Whole Foods, Safeway, and Costco and makes money both through its own $3.99 delivery fee, as well as mark-up on groceries from certain stores. Instacart does, however, have to pay rather high wages for contract shoppers to pick up the groceries and drive them to users.
Both Instacart and Target have a common enemy: Amazon. The Seattle-based online retailer has been ramping up its own established grocery delivery service, Amazon Fresh, and has also begun ramping up a hot food delivery operation under its new Amazon Restaurants division. Grocery heavyweights afraid of Amazon eating their lunch have every reason to turn to partnerships like that between Target and Instacart to try and fend off the effects of an online grocery boom.