Instacart looked like a Savior. Now stores are not so sure.

Grocery Delivery Service Instacart Inc. once seemed like the perfect partner for supermarkets that wanted to shop on the internet. After a few years together, some groceries begin to question the relationship.

But many supermarkets say they do not make money through Instacart, mainly because the delivery company usually charges them a commission of more than 10% of each order. Some of Instacart’s retail partners believe that the service has too much control over customer interactions and expect it to take an increasing share of the money that food manufacturers spend on marketing. All that put groceries in a lower position as delivery continues to grow and becomes a necessity.

“We do not think we are making money from an Instacart order,” says Mark Skogen, CEO of Skogen’s Foodliner Inc., which operates more than thirty stores under its Festival Foods brand and started offering Instacart about a year ago .

Delivery remains expensive because his company Instacart pays a percentage of its online sales, Mr. Skogen said. The grocery still works with Instacart because it enables higher revenue, even when there is no profit.

Nilam Ganenthiran, Instacart’s president, said in an email that the company’s services are helping groceries grow without spending years of work and capital investment to build infrastructure.

“We do not compete with retailers,” he said. Ganenthiran said. “We do not work in warehouses and have not launched our own stores or retailers like other services that compete directly with groceries.”

The Save A Lot chain joined Instacart this summer because the service could be implemented quickly and easily, said Chris Hooks, head of merchandise at the Midwest grocery store, which operates more than 1,000 stores. He said Save A Lot sees Instacart as a way to appeal to existing and potential customers.

Instacart said it has added or expanded arrangements with more than 150 retailers in the U.S. and Canada this year, which includes partnering with more than 500 companies, including Kroger. Co.

, Walmart Inc.,

Aldi Inc. and 7-Eleven Inc.

Like most of its peers, the delivery service struggled to meet demand at the start of the pandemic, but said it had caught up in the meantime. Instacart said its orders sometimes increased 500% annually and that staff members of largely workers more than doubled to 500,000.

The business boom helped give Instacart its first profitable month, in April, since its inception in 2012. The company has raised nearly $ 500 million since March for a valuation of $ 17.7 billion. Instacart said it expected an initial public offering but declined to comment on the timing.

Over the years, Instacart has added services such as proposing replacements for out-of-stock items based on customer preferences and allowing consumers to communicate directly with Instacart buyers, Mr. Ganenthiran said.

Instacart began delivering non-groceries, such as prescriptions and alcohol. The company expands a website to build businesses and provides technological support to retailers.

Instacart also works with manufacturers to promote and download products on its platform. Mark Griffin, President of B&R Stores Inc. in Nebraska, said it means retailers and Instacart need the same pot of money that brands spend on marketing.

“We compete with what we consider to be a partner,” he said. When working with Instacart, B&R becomes part of an entire laundry list of retailers instead of the local customer store.

Ganenthiran, mnr. Instacart, said the advertising company is giving consumers access to discounts, which will eventually encourage them to buy more at supermarkets. Instacart is built to protect retailers and help them gain market share, he added.

When HEB MPs partnered with Instacart in 2015, the Texas-based chain raised prices on products it sold through Instacart to cover delivery-related fees, people familiar with the talks said.

The coronavirus pandemic has forced many Americans to accept new financial realities. WSJ’s Shelby Holliday traveled to a diverse neighborhood in Philadelphia to learn how neighbors deal with different viruses. Photo: Adam Falk / The Wall Street Journal

To maintain some control, others choose not to outsource their entire e-commerce business. Kroger, the country’s largest grocery store, handles pickup orders with its own staff. The company also encourages customers to order delivery through their website – rather than that of Instacart – by offering digital coupons and fuel savings at Kroger gas stations for members of its loyalty program. Kroger executives described Instacart as a major partner during a recent earnings call, but said the grocery store is always looking for delivery partners.

Retailers have more options at hand. DoorDash Inc.

and Uber Technologies Inc.

started delivering groceries this year while Target Corp’s

Shipt Inc. still expanding.

Associated Food Stores, a cooperative of more than 400 stores in Salt Lake City, said it will investigate using Instacart early next year. So far, it uses DoorDash, in part because of the service’s low commission rate of about 9% per order charged to stores, said Thomas Horne, a senior e-commerce manager at the company. According to Instacart, the rate is higher, although the rate varies according to the retailer.

Instacart said it wants to give all supermarkets a head start.

“It’s much more complicated to choose the perfect bunch of bananas or the best substitute for your favorite cookies than to give someone a burrito,” Ganenthiran said, adding that the company is still making investments to improve its operations.

Some supermarkets hold out. North Chain Weis Markets Inc.

prefers to encourage customers to order online and pick up in stores, CEO Jonathan Weis said. The grocery does not use Instacart, but relies on Shipt for delivery.

“They were a little expensive, we think,” he said of Instacart.

Instacart can remain just one of the many ways to buy groceries online. Farhan Siddiqi, chief digital officer at Royal Ahold Delhaize NV, said customers prefer specific delivery services. The owner of Giant and Stop & Shop chains uses Instacart in addition to its own delivery services Peapod and FreshDirect LLC, which it partners with a private equity firm to buy.

He added: “This is a very complicated world.”

Write to Jaewon Kang by [email protected]

Copyright © 2020 Dow Jones & Company, Inc. All rights reserved. 87990cbe856818d5eddac44c7b1cdeb8

.Source