Grocery Outlet makes e-commerce debut with Instacart

Just over two months after disclosing talks with potential e-commerce partners, Grocery Outlet Holding Corp. has begun testing same-day delivery via Instacart at 68 stores in California.

Grocery Outlet said Thursday that the pilot is slated to run for six months, with groceries, daily essentials and other products available from the chain’s independently owned and operated stores through the Grocery Outlet storefront on Instacart’s online marketplace and mobile app. Instacart personal shoppers will pick, pack and deliver the orders within customers’ designated delivery time windows.

For Grocery Outlet, the partnership with Instacart marks the Emeryville, Calif.-based value grocer’s debut in the online grocery market.

“The pandemic has changed the retail experience and how people shop, advancing e-commerce by a decade in just a year-and-a-half,” Grocery Outlet CEO Eric Lindberg said in a statement. “We think it’s important to make our great-value products available across another platform and to a greater audience, introducing Grocery Outlet to customers who may not have shopped with us before. Consumers are telling us that convenience is more important than ever, and we are listening. We’re using this program with Instacart to continue expanding the strong foundation of touching lives for the better that Grocery Outlet was built upon 75 years ago.”

Related:Grocery Outlet to take e-commerce plunge

Independent store owner-operators will offer on-demand delivery through the Grocery Outlet storefront on Instacart’s mobile app and online marketplace.

In Grocery Outlet’s second-quarter earnings call in August, Lindberg had told analysts that discussions with potential third-party online grocery providers were under way and one or more pilots would launch within months. He noted that the food-at-home trend fueled by the COVID-19 pandemic swayed the company to rethink e-commerce.

Until now, Grocery Outlet’s unique yet successful business model had led the self-described “extreme value” retailer to forgo online grocery service, since its customer proposition relies largely on the in-store experience. The chain touts big discounts on brand-name products and has said a typical shopper basket is priced about 40% lower than that of conventional grocers — with prices ranging from 40% to 70% less — and 20% lower than leading discounters. Stores are run by independent owner-operators from the communities they serve, allowing locations to cater closely to changing customer preferences. Shopper savings is achieved through a sourcing model of procuring surplus inventory and product overruns directly from thousands of supplier partners. That includes a changing assortment of products with “WOW!” prices, fostering “treasure hunt” shopping.

Related:Grocery Outlet hits the 400-store mark

Retention of that treasure hunt experience in the online realm was a key factor in Grocery Outlet’s e-commerce launch with Instacart, the companies said. Grocery Outlet called San Francisco-based Instacart a “neighbor in the Bay Area” and said the online grocery giant will serve as a retail enablement platform in providing customers added accessibility and “the best e-commerce offering possible.”

“For 75 years, customers have relied on Grocery Outlet to feed their families, and we’re proud to now partner with them to bring their incredible brand online for the first time ever,” Instacart President Carolyn Everson stated. “Customers can now have Grocery Outlet’s unparalleled selection of affordable groceries and pantry staples delivered from the store to their door in as fast as an hour. We’re proud to unlock this new e-commerce solution for Grocery Outlet and create even more ways for their customers to save, no matter how they choose to shop.”

Overall, Grocery Outlet’s retail network includes more than 400 stores in California, Washington, Oregon, Pennsylvania, Idaho and Nevada.

Jefferies analyst Randal Konik called Grocery Outlet’s partnership with Instacart “a step in the right direction.”

“Other value retailers have partnered with Instacart and witnessed success, so this initiative will likely benefit Grocery Outlet, too,” Konik wrote in a research note on Thursday. “Other value retailers, such as Aldi, Family Dollar and Five Below, have partnered with Instacart, and they have witnessed success from the initiative. Dollar Tree has cited positive feedback from shoppers, and management has noted that these transactions have materially higher average ticket and higher gross margin. We believe Grocery Outlet should benefit from this partnership as well, given it unlocks additional new customer acquisition opportunity and enhances the customer experience.”

On-demand service has become an increasingly bigger piece of the online grocery sales pie, Konik noted. “Delivery and pickup grew share of U.S. online grocery sales from 77% in August to 80% in September, and monthly active users for pickup and delivery combined grew more than 33% over the past year. By adding an e-commerce offering, we believe Grocery Outlet is ultimately better-aligned with industry trends.”