Target’s Acquisition of Delivery Startup Shipt Is an Effort to Catch Up With the Rest of the Industry

Hoping to stay competitive with Amazon, Walmart and other retailers

Shipt will allow Target to offer same-day delivery in early 2018.
Shipt

Target’s New Year’s resolution: figuring out same-day grocery delivery, considering the company’s latest acquisition of startup Shipt.

The $550 million acquisition is yet another move to keep up with Walmart and Amazon. It is Target’s second acquisition of the year, having bought another startup, transportation tech company Grand Junction, in August. With the Shipt purchase, however, industry insiders question whether this bet will pay off for the Minnesota-based retailer.

What we’ve really seen in the U.S. is fast, same-day delivery is super appealing for general merchandise but delivery is not working super well for perishables,” said Jason Goldberg, svp of commerce and content practice at SapientRazorfish. Instead, he added, curbside pickup for perishable goods appears to be working better for retailers like Walmart and Kroger, as both companies expanded their services into the option.

Walmart and Kroger each added its 1,000th grocery pickup location in September and December, respectively. It makes sense; delivery services like Amazon can easily leave behind a package containing books, which can sit outside and not go bad (though they may get stolen), but fresh food can’t sit on a stoop in the middle of summer. Unless you like rats.

With Shipt’s $99 yearly membership you get groceries delivered to your door, as well as any other “essential” items—toilet paper, toothpaste, etc.—you might need. But according to Sucharita Kodali, a retail analyst at Forrester Research Inc, that might be too high of a price point for consumers.

“The percent of people who would pay for same-day grocery delivery and do it in a way that could break even [for a company] is very small,” Kodali said. And while the acquisition might be a great way to gain repeat customers, she continued, it might not be profitable—especially without heavily subsidizing the service through venture capital investments.

Additionally, buying Shipt doesn’t necessarily mean it’s a better bet than curbside pickup or the right investment needed to take consumers and their wants more seriously. Target originally rolled out curbside pickup in October 2014, only to pull it in June 2016, and then start up again this October by testing a similar pick up service in Minneapolis-St. Paul, Minn. One analyst pointed to a key issue that explains this hot and cold decision making on curbside pickup: Target’s original choice to use the startup Curbside to fulfill orders, rather than investing and training its own employees in it. “If you’re a major retailer, you can’t solve your customer experience problems by [hiring] a third party to do it for you,” said Goldberg.

Either way, Target’s trying to stay competitive in the grocery delivery business—and that’s a positive for the consumer, who now has an array of choices to shop for groceries online.

While Goldberg thinks the acquisition “was a bit reactionary,” Vanessa Cartwright, CEO of Fluid, believes it was a necessary move and one that retailers will continue to take. Consider it Darwinism for grocery shopping.

At least we know they’re making a serious effort to change not only with the times and keep up with competitors but to serve their customers better and meet their needs,” said Cartwright.

After all, the customer tends to get what they want—even if it’s not always what’s best for them.

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