Target has acquired Shipt, an online same-day delivery platform, in a deal valued at $550m.
Enables Target to offer same-day delivery
This acquisition significantly advances Target’s digital fulfilment capabilities, enabling it to offer same-day delivery services to its shoppers at around half of its stores by early 2018. The retailer plans to extend this service to almost all of its stores before the 2018 holiday season.
Membership based delivery model
Shipt is a membership-based grocery marketplace that delivers fresh foods and household essentials from a range of retailers. Members pay an annual fee of $99, and order via an app, providing unlimited free delivery for orders over $35. The company uses a network of 22,000 ‘Shipt Shoppers’ to pick and deliver orders across 72 US markets. Target’s customers will need to pay the annual membership fee to be able to use the service, which could deter some customers who are already Amazon Prime members. Recently it expanded its partnership with Lidl for grocery delivery in the US, and also works with major retailers such as Costco, Publix and Meijer. It remains unclear how the deal will impact Shipt's relationship with these businesses, many of which are Target's competitors.
All major product categories to be offered by the end of 2019
At launch, Target will offer same-day delivery of groceries, essentials, home, electronics and other products. By the end of 2019, Target expects to offer all major product categories through the service. This will be a major change for Shipt which has focused on grocery deliveries to date. The acquisition is in line with the retailer’s plans to improve its fulfilment capabilities. Earlier this year it acquired Grand Junction to help it offer same-day delivery in the New York market. The acquisition enables Target to reduce delivery lead times from days to hours, accelerating its ability to offer same-day delivery across the entire US.
Acquisition enables Shipt to scale up its model
Shipt will operate as a wholly-owned subsidiary of Target and will continue to run its business independently. It will continue to work with other retailers and develop new partnerships with companies seeking to offer same-day delivery. Although Target could have opted to partner with Shipt in the same way as other retailers have, by acquiring the company it will be able to significantly accelerate its ability to offer same-day delivery and help Shipt scale its business model. Shipt CEO, Bill Smith, will remain in his current role and will report to Target’s Chief Operating Officer, John Mulligan. Target will also aim to optimise Shipt’s expertise as it strengthens its supply chain, including integration with Grand Junction.
Source: Target, Shipt
Last mile: the new battleground
Last mile, same-day delivery has become the new battleground in US ecommerce. Recently Walmart acquired Parcel to enable same-day delivery in the New York market. It has also partnered with Uber and Lyft to offer same-day delivery from its stores, while also rapidly expanding its grocery pick-up service. Target has been making progress in this area as part of its strategic plan, having lagged many of its competitors for some time. It has been working with Instacart in selected markets to offer same-day delivery, testing a ‘Drive Up’ pickup service at selected stores, and developing its ‘Restock’ program for next-day delivery. Both Walmart and Target have focused on reducing delivery lead times as shoppers’ expectations around fast and convenient delivery have continued to be reset. The growth and development of programs such as Amazon Prime and Prime Now, along with third-party delivery services such as Instacart and Shipt, have been central to this.
Since Amazon’s acquisition of Whole Foods Market earlier this year, there has been a significant increase in activity in this space, with several grocery retailers partnering with companies such as Shipt and Instacart to offer same-day delivery for the first time. We expect this deal will further intensify retailers’ efforts in this area.
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Stewart Samuel, Program Director, IGD Canada: based in Canada, Stewart heads up all of IGD's research and coverage on Target. He is also responsible for shaping IGD's research program across North America. Contact Stewart at email@example.com for further insight on the region's markets, channels and retailers. Follow Stewart on Twitter: @Stewart_IGD