Rick Watson on why Walmart joined the Instacart Marketplace – Grocery Podcast S4 E1
For our first episode of season 4, Rick Watson shares his insights on why Walmart has joined the Instacart Marketplace. What does this say about Walmart’s position in the market? Is this a response to Amazon? Rick, Sylvain and Mark consider these questions and how this move will impact other grocers listed on the Instacart Marketplace.
Hosts, Sylvain and Mark begin by considering recent key trends in grocery. The surge in eCommerce is easing off, shoppers continue to buy their groceries online. DoorDash has entered the space, offering last-mile grocery delivery and now their own direct-to-consumer convenience option, DashMart. Sobeys alsolaunched their new online grocery service, Voilà, which has stepped up the game in Canadian grocery.
When asked why he thinks Walmart has joined the Instacart Marketplace, Rick shares three hypotheses:
• Instacart is leading online grocery sales ahead of Walmart, and Walmart is looking to gain ground.
• Walmart feels like they can’t keep up with Amazon’s digital investments.
• Walmart is conducting research for its own competitive intelligence.
Sylvain adds to the list, noting Walmart’s competitive advantage on price in the marketplace, and their need to scale delivery because of Amazon’s delivery route density.
The pandemic has pushed retailers to adapt and change to meet the new reality of grocery, Rick Watson notes that more could be done. “We definitely do see the importance of direct to consumer increasing, but it’s still slower than you would think. Even with the acceleration in the pandemic, of buyer behavior.”
What can grocers do to fortify their businesses, with a potential second wave of COVID-19 on the horizon? Tune in to the podcast for more insights from Sylvain, Mark & Rick
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Rick Watson, CEO and Founder, RMW Commerce Consulting
Rick Watson is the CEO and Founder of RMW Commerce Consulting. He’s a world leading expert in marketplaces, and offering key insights on the industry. He launched the third-party marketplace at Barnes & Noble.com, expanding the company’s product catalog by over 1M items. Most recently, Rick directed the cross-border product strategy of Pitney Bowes, comprised of Borderfree and the eBay Global Shipping Program.
Sylvain Perrier: Welcome ladies and gentlemen to Mercatus’ podcast, and I guess now a video series, Digital Grocer. It’s episode 37, season 4, and this is really exciting. And I am as usual joined by my faithful host, I’m not sure why I use the word faithful, but anyway, Mark Fairhurst.
Mark Fairhurst: Am I giving you a reason to think I’m not?
Sylvain Perrier: No, I don’t know what it was, I apologize for using that word. But you are Mercatus’ VP of marketing and you are, I think, stashed in the safety of your home bunker, is that right?
Mark Fairhurst: I am, but I’m disguising it through electronic means.
Sylvain Perrier: I think we… I don’t… My home office isn’t ever a brick wall behind me. Let’s be-
Mark Fairhurst: No, but it’s cool, I like the effect.
Sylvain Perrier: Yeah, this is new. So Mark, I want you to kind of let people know all this crazy new stuff that we’re doing, I think this is amazing.
Mark Fairhurst: Yeah. The response to what we originally started out as an experiment has been huge, to put it mildly. And I’d like to think that we really kicked off a trend in the grocery space, because it seems like everybody now has a podcast. So, knowing how competitive we are, we decided to amp it up a little bit, take it to 11, and add in video. And as part of that, we decided to build on the brand of the Digital Grocer, so we developed a new website, digitalgrocer.com. So, our content is a little easier to find.
Sylvain Perrier: Yeah.
Mark Fairhurst: And now we’ve developed our own YouTube channel, so we’d love it for people who are listening, our audience to subscribe, like, review, hit the bell for notifications for when you know there’s a new show posted, and provide us comments, thumbs up, thumbs down, what you don’t like or what you do like.
Sylvain Perrier: Yeah, that’s exciting.
Mark Fairhurst: And we want to hear your feedback.
Sylvain Perrier: And we… You guys did it in record time.
Mark Fairhurst: Yeah. This was a little project over the last few summer months and a little more difficult because we’re all working from homes, so it’s… But we had… I have a great team and some great external resources we can tap, so it’s… We’re excited, this is going to be fun.
Sylvain Perrier: Yeah, this is really great. So, since the last time that we recorded a lot has happened in the industry and we… I think you and I know we did a webinar for our friends over at Brick Meets Click, and the results that we co-published out in the industry for the month of June were just amazing. So, grocery e-commerce sales hit 7.2 billion, and that’s in US dollars. That’s 600 million more than the previous month. Mark, any sense what the prediction may be for the month of July?
Mark Fairhurst: Yes, that’s a great question. Actually, I was talking to our friend, David Bishop, over at Brick Meets Click yesterday, and they’re producing another research report with our help, which will be coming out next week actually. David has been seeing what he’s calling normalization, basically the dawn of the new normal.
Sylvain Perrier: Right.
Mark Fairhurst: Monthly sales are off a little bit from the high, but still very much up from pre-COVID. Which is showing two things, I think, the regional effect of shelter-in-place or people feeling they need to shelter-in-place and therefore you use online grocery, but also there’s building in of that habit, once you try something three times you sort of start to develop that experience and a preference for it.
Sylvain Perrier: Yeah. It’s interesting that you say that because one of the things that I was pouring through our data yesterday and I think most people don’t know this, we actually pull in a lot of transactional data in our Tableau infrastructure, so that gives us kind of this really interesting opportunity to kind of slice and dice the data. And we are seeing in some cases in less effective coastal areas where sales have on a weekly basis probably started to decline 2-5%, but they are still much higher than they were call it pre-March 11th. There are certain areas in the country though, that in fact what’s interesting is the numbers have remained consistently high and we’re not seeing a decline. And part of me wonders if this is an opportunity for us to take some of this data and overlay it against the net new COVID cases on a state by state basis. I mean, food for thought, I think that’d be kind of interesting to look at.
Mark Fairhurst: Yeah. I mean, the great thing we do have through the benefit of our retail clients, we do have that national view in the US.
Sylvain Perrier: That’s right.
Mark Fairhurst: So, that’s a great exercise and something that I’ll definitely look into.
Sylvain Perrier: Now Mark, we’re launching mid-September a really important report, is it okay to talk about this report now or?
Mark Fairhurst: Yeah, let’s do it. You’ve seen some of the preliminary analysis. Just to give the audience some context, we engaged with a research firm, Incisiv, led by some great guys, former team over at EKN, which used to be owned by Ensemble Group. We commissioned them to do a research report through our retailers’ shoppers, we need to understand the preferences and behavior compared to pre-COVID, during COVID, and then post shelter-in-place orders.
Sylvain Perrier: Mm-hmm (affirmative).
Mark Fairhurst: And what we’re seeing… First of all, the response rate, we had over 60,000 responses from across the US, we developed over 48 million data points.
Sylvain Perrier: Wow.
Mark Fairhurst: So, this… And I asked the folks, I said, “Is this on a scale that you’ve seen before?” And their feedback is, to their knowledge, they have never seen a survey of this size and magnitude and statistical significance as a result. So the insights coming from it will be, dare I say, definitive, I’m sure someone’s always going to find an angle to take that as covariant, but it’s going to be significant in terms of gauging where the US grocery shopping public is currently and where they’re going.
Sylvain Perrier: Yeah. The aggregate report that was prepared is, that I had the chance to kind of go through and provide some thoughts and ideas on how we can leverage some of the findings, is just amazing because you’re now able to contrast what’s happening on the West Coast, what’s happening in the South of the United States or in the East Coast or in the Midwest.
Mark Fairhurst: The Midwest, yeah.
Sylvain Perrier: And that’s interesting when you’re, A, if you’re a retailer and you’re trying to make a business decision, at least it’s an informed decision more than anything.
Mark Fairhurst: A hundred percent. Yeah. And it’s coming out the week of September 15th.
Sylvain Perrier: That’s great. Well, that’s great work to the team at Incisive and certainly to your team, Mark.
Sylvain Perrier: … To the team at Incisiv and certainly to your team, Mark. So big news DoorDash jumped into on demand grocery delivery. And Mark, I’m curious your thoughts on that.
Mark Fairhurst: Yeah, they did it in a big way. Not only did they jump into grocery, but they also announced their own direct to consumer grocery convenience option as well. I think from our perspective, it’s good to have choice in the market.
Sylvain Perrier: Yep.
Mark Fairhurst: To have another grocery, last mile delivery provider is a good thing for retailers.
Sylvain Perrier: Mm-hmm (affirmative).
Mark Fairhurst: DoorDash has a very different model than Instacart.
Sylvain Perrier: That’s right.
Mark Fairhurst: DoorDash doesn’t mind being the white label delivery platform. And they’re flexible in that regard. Whereas, Instacart has been a little more focused on the marketplace and keeping their relationship primary between them and the shopper.
Sylvain Perrier: Yeah, I find it interesting, like it’s really ballsy of DoorDash to open up kind of a virtual convenience store for consumers to take advantage too and I’m sure retailers, grocery retailers don’t really care because they don’t want their customers anyways using their stores as convenience stores, because the margins are tight enough. You don’t want people just cherry picking low margin items off the shelf. But I got to think for some of the other customers DoorDash could be going after. I’m sure they must think it’s a bit of a conflict.
Mark Fairhurst: Yeah. Like the 7-Elevens of the world.
Sylvain Perrier: Yeah.
Mark Fairhurst: The Wawas, those types of convenience chains, I think they got to be concerned.
Sylvain Perrier: Yeah. Well, we’re excited at Mercatus to be doing an integration with the team over at DoorDash. And I think that the more choices that we can bring into our network of retailers in terms of last mile delivery just makes a tremendous amount of sense in any case. So we’re really excited to be doing that. So also in Canada, when we never talk about our home country, this is some big news. So at the … I know, we’re laughing and chuckling. We are patriotic don’t get me wrong. I celebrate both holidays, right? What’s that Mark?
Mark Fairhurst: Which holidays, Christmas and New Years?
Sylvain Perrier: Christmas. And I’ve been to the Macy’s Thanksgiving Parade in New York.
Mark Fairhurst: Yep.
Sylvain Perrier: And I celebrate the Independence Day. I celebrate Canada Day, which only lasts an hour, anyways. Sorry. So in Canada at the end of June, Sobeys launched the Voila, their eCommerce solution with home delivery, and that was done in partnership with Ocado.
Mark Fairhurst: Yep.
Sylvain Perrier: Listen, I got to tell you, we wrote about this, there was a piece that was just recently published in Winsight magazine. I took the opportunity to really step back research what they were doing, how they did it, and then bought a bunch of … Probably bought too many groceries, had them delivered, got into the delivery truck. They let me in, I couldn’t take pictures. It’s kind of interesting. Reality is, is the investment Sobeys is making and most people may not know this. They are building for CFCs. So what they call customer fulfillment centers. The first one is in Vaughan, Ontario, it’s just North of Toronto proper. That first CFC is 396,000 square feet, probably around … It has 1,500 employees, roughly maybe 1,100 robots, 39,000 SKUs being sold online.
Sylvain Perrier: The total of these four CFCs. And the second one is being built on the West Island of Montreal. And the other two are going to be Calgary and Vancouver will give Sobeys the capability of actually servicing 75% of the Canadian population. That’s impressive.
Mark Fairhurst: Yeah. It’s brilliant. I mean, after you told me your experience, I tried it and I liked the customer experience angle of this.
Sylvain Perrier: Yeah.
Mark Fairhurst: These guys, they’ve won it hands down.
Sylvain Perrier: Yeah. And I think that the thing that they’re doing differently, Sobeys.com is a different digital property versus Voila.ca.
Mark Fairhurst: Mm-hmm (affirmative).
Sylvain Perrier: And the experience on Voila.ca, whether it’s you go on the mobile app or on the website, it’s very utilitarian. In the sense that it’s not a Swiss Army knife. There isn’t a blade or a tool to do 75 different things. This only does eCommerce and it does it really well. There’s a couple of things that are nagging and I didn’t write about them in the article, but they do auto correct inside the search. So if you write baby bok choy, first of all your browser, and I use a Safari on a Mac. It kind of overrides everything and now it’s searching for baby bok boy, which I’m sure grocer’s don’t sell that stuff.
Mark Fairhurst: Ugh.
Sylvain Perrier: Right.
Mark Fairhurst: No.
Sylvain Perrier: But it’s just kind of those little things. I know they’re tweaking, but I built an order of 21 items under six minutes and it wasn’t just random items. I had them written down on a piece of paper. So kudos to them. I think this is going to fire up the Canadian grocery eCommerce wars. And we’ve not yet seen here, what Amazon’s going to do.
Mark Fairhurst: Right.
Sylvain Perrier: You can order some items on Amazon.ca, but not like you can … Amazon Fresh isn’t available to us yet. So it’ll be interesting to see if Amazon thinks there’s an opportunity to enter this space. My only feedback to Sobeys was I think that they built this experience that’s all about the CFC. So delivery trucks, I think they have to start thinking other parts of Canada where they’re not servicing and I know they’re going to do this in Nova Scotia. How do you jam in and click and collect? How do you jam in curbside?
Mark Fairhurst: And to your point, we’ve always been advocating, it’s experiment and don’t close the door on one solution at the expense of another.
Sylvain Perrier: Well, it’s not a one size fits all. And we think our research has proven. I mean, if you look in LA for example, versus parts of the other, I would say other states, and I wouldn’t say it’s not ubiquitous across the country, but delivery far out ranks click and collect by least 10 basis points.
Mark Fairhurst: In our data, in the report that we’ll be sharing shows that.
Sylvain Perrier: Yeah. Versus if you go into parts of the South where people are more predisposed to actually wanting to use curbside, and even at the height of the pandemic in the US, the increase in wanting to use delivery was marginal at best. So I think, if you’re a retailer and not only do you have to worry about operationalizing so many different things. I think you just can’t put all your eggs in that one basket. I think, that’s the reality of it. And also in the news, Walmart announced on August 18th, they’re Q2 numbers.
Sylvain Perrier: … announced on August 18th their Q2 numbers. And the one standout was their eCommerce sales grew by 97%. That is astonishing to say the least, specifically for Walmart. And my gut’s telling me they’re crushing it. And they recently announced Walmart Plus, which you can call it their membership, which a competitor to Amazon Prime and so on. I think the biggest news that also came out was the partnership with Instacart where they-
Mark Fairhurst: That certainly got a lot of attention.
Sylvain Perrier: Yeah, it did.
Mark Fairhurst: Not necessarily in the best way.
Sylvain Perrier: No, not amongst the community retailers, for sure. Now they ended up they’re piloting, I think, in four areas over in California. And I think they’re doing somewhere in the Midwest.
Mark Fairhurst: Yeah. I think it was Tulsa.
Sylvain Perrier: Tulsa and Oklahoma. And so this should be quite interesting in terms of where could this partnership lead? And we just don’t know. Now, the thing that we do so well on this video series podcast … I’m not sure what to call it. I’ll just say what we do so well on Digital Grocer.
Mark Fairhurst: That’s right. Digitalgrocer.com.
Sylvain Perrier: Yes, I’m showing the social channels right now, just below you and I. And what we do so well here on Digital Grocer is we bring the experts to the table.
Mark Fairhurst: And we’ve been fortunate to have some great guests.
Sylvain Perrier: Yeah. And we haven’t spoken to this gas since we recorded with him in studio, in Manhattan. He is a very smart individual and I think you guys will recognize just by the description. He says strategic eCommerce consultant, CEO, and founder of RMW Commerce. And by far an extremely brilliant strategist. And I want to welcome to the show, Rick Watson.
Rick Watson: Thanks so much Sylvain and Mark. I appreciate you having me back on. I’m wondering if the expert guest will join us soon?
Sylvain Perrier: Oh, you’re too modest. You’re too modest. So-
Mark Fairhurst: You’re on LinkedIn all the time, great thoughts. Great insights.
Rick Watson: Appreciate it, guys.
Sylvain Perrier: Yeah. You certainly know how to leverage the power of LinkedIn versus me who just gets people wanting to sell me consulting time and cheap labor overseas. I’m not sure what to do anymore. Rick, I’m really curious, what are your thoughts on this whole pilot between Walmart and Instacart?
Rick Watson: Yeah. I have two thoughts regarding this pilot. The first, my gut reaction is to feel bad for Walmart a little bit. And if you look at, even if you do some preliminary research, Instacart has pulled ahead of Walmart in online grocery just in the last few months. And so you can’t help but wonder if this is a response to that. In some way that they feel like they’re losing ground and they need to get more exposure, especially if they feel Amazon on their heels.
Rick Watson: So that’s kind of one. Second is, I think the other thing that could be happening is that Walmart feels they can’t keep up with Amazon’s digital investments. If you look at, what would Amazon do in this situation? First of all, never go on Instacart. You’re never going to see them in a million years on Instacart. But what about Walmart would make them want to go on that would make Amazon not want to go on? And what does that say about their longterm position in the space?
Rick Watson: Generally, it doesn’t say good things. And I think probably the only other final point I would have about this is, is there an angle where Walmart is testing it to gain data? And just using it for their own competitive intelligence, it’s not something they plan to continue, but Instacart can’t say no. And Walmart learns something, in which case Walmart actually has the upper hand here. So, that’s the other scenario we can probably dive into.
Sylvain Perrier: Yeah. I think you touched on something for sure. I mean, Mark and I have been discussing two things. One, could Walmart leverage the Instacart marketplace to its advantage to further … look at it this way, the prices that they upload to the Instacart marketplace could be considerably lower than everyone else. So that’s a significant advantage. So that could be stealing market share through the marketplace. That’s that’s number one.
Sylvain Perrier: Number two, I think the reality is right now, Instacart is the only opportunity for Walmart to scale its delivery service immediately. And I think Instacart is the backbone for Walmart Plus in the long run. Go ahead, Mark.
Rick Watson: It’s a bold statement.
Mark Fairhurst: It’s a density issue.
Sylvain Perrier: It is a density issue.
Mark Fairhurst: You can’t compete with Amazon especially if you look at the markets that they’re in, in Southern California. They can’t compete with Amazon on route density. So if they’re going to make a play for that market, who better than Instacart?
Sylvain Perrier: Yeah. And I’ve seen the speculation in the market about, well, could Walmart acquire Instacart? But what are you acquiring? Yeah, you’re acquiring the technology, the base of gig workers and so on. But the reality is evaluation based on what? Because I think what’s going to happen is the retailers that are currently on Instacart would start delisting. So you’re losing revenue right now. And maybe Walmart doesn’t care about that if they were to contemplate an acquisition.
Sylvain Perrier: But I get concerned for the further retailers that compete against Walmart. That suddenly you’re on a platform you have zero control, zero differentiation and price becomes the key differentiator potentially. And we’ve seen the studies that were published by Barclays, I think this was in 2018, 2019. And the brand loyalty from the consumer to the retailer doesn’t exist in the marketplace. It’s really all fundamentally about the Instacart brand. What are your thoughts, Rick, on Walmart, Plus I’m kind of curious. Is this a competitor to Amazon Prime?
Rick Watson: I think there are a lot of people that are Walmart shoppers that aren’t going anywhere. They aren’t going to do most of their shopping online. Target has shown that you can definitely have people pick up in the store. They fulfill about 90% of their online orders from their stores. I don’t know what Walmart’s numbers is for those same effects. So it’s kind of a no brainer, how do we get to 2020, and Walmart not have a unified loyalty program? And the biggest reason-
Rick Watson: … Walmart not have a unified loyalty program, they’re the biggest retailer in the world, it makes no sense. So that’s where I start from. As two weeks ago, I knew the numbers of how many Amazon Prime households are the top percentage of Walmart families. The number’s increasing quite a bit.
Sylvain Perrier: Wow!
Rick Watson: It’s like 30, 40% of the top Walmart spending families are also Amazon Prime members. So they definitely feel that threat. I’m not sure it’s a replacement. I think you’re going to have both, particularly in the affluent shoppers, which is the ones that everyone’s shopping for. No one’s going to balk over spending another $80 a year if you’re a frequent Walmart shopper. But you’re probably also going to buy on Amazon. So that where I start from on this.
Sylvain Perrier: Yeah. I think the big hook for Walmart Plus is the fact that they’re kicking in a fuel rewards program where you get five cents off every gallon. I mean, I did a quick calculation yesterday evening. So if your car has a 16 gallon tank and the average cost of a gallon is $3.85 cents and say, you save five cents. If you gas up once a week, you’ll pay for half of your membership in one year. I think the economics just make sense. Yeah.
Rick Watson: I don’t know their gas rates similar to… I mean, Sam’s Club and BJ’s, and all these other warehouse clubs also have gas programs as well. So it’ll be interesting to see if that changes usage there or not.
Sylvain Perrier: Rick, what are you hearing from retailers through the pandemic right now? I mean, to me, it seems like a hodgepodge of people are not doubling down on strategy. It’s just like, “Let’s just keep the doors open.” No one’s taking the opportunity to reinvent themselves. What are you seeing out there?
Rick Watson: I do see some signs that some retailers are looking to leverage online channels, not necessarily make it core to what they’re doing. For instance, there are a lot of brands that drop ship for major department stores everywhere, but there are many that don’t, drop shipping is a foreign concept. When you can’t sell… And the wholesale is really their business, that’s the mindset of the CEO on everyone on down, everyone in the merchandising team, wholesale, wholesale, wholesale, because online, is what? Maybe 5% of their sales, or 8% of their sales. All of these people suddenly had 12 drop ship projects on their roadmap overnight.
Sylvain Perrier: Wow!
Rick Watson: So a lot of these brands are scrambling to keep up with that roadmap and to get good at something that they’ve never had to get good at before, which is fulfilling directly to consumers in eaches. So I wouldn’t call that digital transformation by any stretch. In fact, you might call it the opposite. They were forced to do something while revenue was zero, literally zero for at least a month in retail for wholesale buys. What else are they going to do? But it doesn’t change fundamentally the organization. You’re not going to redo any IT systems in three months, particularly the older ones.
Sylvain Perrier: No.
Rick Watson: So we definitely do see the importance of direct-to-consumer increasing, but it’s still slower than you would think, even with the acceleration in the pandemic of buyer behavior.
Sylvain Perrier: Yeah. Yeah. I think the next six to 12 months are going to be even more interesting. I think we’re going to continue seeing dynamic changes in the marketplace. I think players that are there today are no longer going to be. I mean, we’re seeing that in the grocery retail industry, I think it was Steinmart filed for bankruptcy. I think we’re going to continue seeing those as well. I think this is an opportunity for those retailers to really… I think is not just doing, I mean, that’s what’s happening today, but I think an opportunity to think longterm really where they want to be with their business. I mean, we’re still seeing some retailers struggle operationally to handle the volume and there is this underlying fear, if a second wave comes in, that’s much, much stronger than the first, will grocery stores be asked to shut down and only service their consumers through curbside, click-and-collect, or delivery? I mean, we had that discussion on our webinar yesterday with one of the vice presidents from FMI. So it’s certainly on top of mind. Rick, I want to say thank you so much for joining us. How do people get ahold of you?
Rick Watson: Yeah, so obviously you can find me on LinkedIn, search for Rick Watson. You’ll find me, the one with all the eCommerce there. My email address is rick@RMWcommerce. com. Or you can reach me on the web, RMWcommerce.com, the website.
Sylvain Perrier: Perfect. Thank you so much. Mark, always amazing to record another episode with you.
Mark Fairhurst: First one in the can.
Sylvain Perrier: First one in the can. Ladies and gentlemen, thank you for tuning in, really appreciate and do not forget to go ahead and visit our website, digitalgrocer.com and like and subscribe on the social channels. This will be available on YouTube and also on your favorite podcast player. Thank you everyone.