Target needed more on-demand delivery resources so why not buy a turnkey company in Shipt? That’s just what they are doing as the following article reports on the deal that gives Target a major foothold in the same day grocery deliveries business.
Another domino just fell in the wake of the Amazon-Whole Foods acquisition. Target announced on Wednesday morning that it plans to make one of its biggest acquisitions in recent history by purchasing Shipt, a startup that delivers groceries on the same day customers place an order, for $550 million.
Like its chief rival, Instacart, Shipt partners with a network of brick-and-mortar grocery chains to pick orders off of their shelves and deliver them to customer’s doors on the same day they are ordered. Target plans to join the Shipt marketplace, while Shipt intends to keep serving its other retail partners. Eventually, Target will offer the Shipt same-day delivery service on Target.com and the Target app.
Shipt customers pay $99 a year for unlimited deliveries from a selection of partners that include Harris Teeter, Meijer and Texas grocery giant H-E-B. The company operates in 72 U.S. cities currently, and has said it plans to be in 140 markets, including most major U.S. metro areas, by the end of next year.
The announcement comes just a few months after Amazon closed its giant acquisition of Whole Foods, sending shock waves through the board rooms of big retailers and grocers who expect the move to push grocery delivery more into the mainstream. In the wake of that deal, Shipt competitor Instacart has signed up a string of major grocers as partners.
The deal also marks the latest move by Target to modernize its logistics and fulfillment efforts. The company recently launched its own curbside pickup tests at about 50 stores, after initially working with a startup as a partner in previous years. It is also expanding how many of its stores serve as mini-fulfillment centers to source inventory for online orders.
Starting early next year, Target customers who want to order their groceries through the Shipt service will have to pay for a Shipt membership and order through the startup’s website or app. By summer, about half of Target’s 1,800 stores will have joined the Shipt platform; by next holiday season, all Target stores should be on board.
On-demand shopping, especially growth in the grocery sector, is driving demand for deliveries services. This means Shipt will fill a vital need for Target that has been trying to strengthen its own grocery department. Shipt will continue to service its other grocery merchant clients, so whether this creates any conflicts remains to be seen. Meanwhile Shipt could be used to ship non-grocery goods from Target’s large and expanding e-commerce channel. Same day delivery is becoming table stakes as Amazon and Walmart are setting the bar. Target is buying Shipt to be part of this fast delivery competition as well.
Overview by Raymond Pucci, Associate Director, Research Services Advisory Service at Mercator Advisory Group
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