Target tests grocery delivery service, enters $23 billion market segment

Target tests grocery delivery service, enters $23 billion market segment

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To date, fewer than a dozen online grocery services with the potential to be viable on a national level or across a wide swath of the country have emerged from the competitive fray. But as we all know, convenience is king in the American culture. And the desire for near-instant gratification when ordering online has only boosted reliance on same-day delivery services and fostered ever greater competition in this trending market segment.

Presently Amazon and Walmart are the main beneficiaries of requests for same-day delivery. Data from Packaged Facts’ August 2015 national consumer survey featured in the recent report American Consumers in 2020 reveal that 44% of consumers have purchased both food and non-food products online from Amazon for same-day home delivery, while 37% have requested same-day delivery from Walmart in the past 12 months. However, the growing popularity of online delivery services such as Instacart and other retailers could challenge for greater market share in coming years. This is especially true in regards to the delivery of perishable products such as grocery items.

Retail giant Target already has 24% of consumers making same-day delivery purchases online, and could eventually prove to be the greatest threat to the market dominance of Amazon and Walmart. Target recently announced that it had teamed with Instacart to test grocery delivery to shoppers beginning September 15 in the Minneapolis area, where Target is headquartered.

Beyond fruits and other perishables, the service would provide consumers with household, pet, and baby products that are delivered in either a one hour or two hour windows depending on shopper preference. The investment in same-day grocery delivery is part of Target’s plans to expand to other markets and boost its online business under CEO Brian Cornell, who joined the company in August 2014.

Target’s venture into the online grocery delivery business is timely, as the market is on the upswing. In the report Online Food Shopping and Grocery Delivery in the U.S.: Future of Food Retailing, Packaged Facts calculates that online grocery sales of food and beverages exceeded $23 billion in 2014, a 22% increase over sales in 2013. 

Over the next five years, online grocery service providers are expected to develop models that solve lingering logistics problems while being profitable for the operators. As this happens, online services will become more widely available throughout the country and consumers will become more confident in shopping for food and beverages online. Packaged Facts expects these developments to take place in leaps and bounds, so that the market will advance at uneven rates, beginning at 49% in 2015 and peaking at 67%. The growth rate will gradually drop to the low double digits by the end of 2019 as the online share of grocery sales begins to reach critical mass at approximately 12%. 

Any success that stems from the Target and Instacart team up will inevitably further brighten the already sunny outlook for the grocery delivery service market.

-- Daniel Granderson