Why California’s largest grocery retailer is partnering with Instacart

The bundle of beefed-up in-store technologies includes artificial intelligence-powered smart carts. Part of Instacart’s pitch to grocers is that these newfangled baskets on wheels feature branded advertisements, revenues from which are shared with retail partners like Save Mart. The smart carts let shoppers track their spending, gain access to coupons and deals through the company’s loyalty program and check items off the list as they’re dropped into the baskets. Save Mart will also be using Instacart’s order management system, known as FoodStorm, and the company’s Storefront Pro to power its e-commerce capabilities.

This push is all part of Instacart’s strategy to expand its business beyond grocery delivery by wooing brick-and-mortar retailers with cutting-edge technology and advertising. In 2021, the San Francisco-based platform bought smart cart startup Caper AI for $350 million and has since introduced the carts at a variety of retail locations, including Kroger, Fairway Market, Geissler’s, ShopRite and Schnucks, with thousands expected to be deployed by the end of 2024. In January, Instacart said it would show advertisements on its smart carts as part of its burgeoning ads business. The grocery tech company’s ads business raked in $871 million in 2023, nearly 30% of its overall revenue. 

Instacart faces stiff competition from the likes of Amazon, which last week rolled out a grocery-delivery service for its estimated 180 million Amazon Prime members. Amazon’s new service is priced at $9.99 a month for unlimited deliveries from Whole Foods or Amazon Fresh on orders over $35. While Instacart charges customers fees that can start at $3.99 per order, Amazon said it isn’t charging any service fees. The tech giant has also begun to sell its Dash Carts to other retailers — a move that takes a page out of Instacart’s playbook.

Data suggests people will do more of their grocery shopping online, a trend that surged during the coronavirus pandemic. Grocery e-commerce sales through 2028 are forecasted to grow three times faster than in-store grocery sales, Brick Meets Click said in a new report released last week. 

At the same time, people still do most of their grocery shopping in physical stores. Total grocery e-commerce sales are projected to reach nearly $120 billion annually by the end of 2028, accounting for 12.7% of total grocery sales in the U.S., the report found.

Modern Retail spoke with David McIntosh, Instacart’s vp & gm of connected stores, and Tamara Pattison, chief digital officer at The Save Mart Companies about the future of grocery shopping, changing consumer behavior and standing out in the crowded grocery-tech marketplace.

This conversation has been edited and condensed for length and clarity.

The grocery-tech marketplace has gotten extremely competitive, with companies like Amazon selling smart carts to third-party retailers as well as supermarket giants like Walmart bringing in-store advertising to its aisles. How does Instacart stand out from the rest of the pack?

McIntosh: This isn’t about any one product. This is really about a full omnichannel suite that we’re delivering to customers with products like Caper fully connecting to the other product lines, whether it’s Storefront Pro or FoodStorm. A lot of our retail partners are seeing some of the massive players in the market get really aggressive about digitizing their customers, so they’re looking for a technology partner to do so, and they’re coming to Instacart because of our leadership in the space. 

Instacart’s business has really grown beyond the grocery-delivery model. Instacart is selling e-commerce technology and tools to retailers. It’s getting into advertising. Is there a part of the business that you think best represents the company’s core focus? Is that still pairing consumers with independent contracts to do their grocery shopping? Or, is it something else? 

McIntosh: The way I really look at it is that the first phase of our business was bringing retailers online. It was helping retailers digitize. Now, we’re taking all of the strength that Instacart has built online — the personalization, the convenience — and extending it in-store.

We really think about these products as connected parts of the same ecosystem. Our vision is that in five years users won’t have to think about whether they shop online or in a store. It will be one single unified mode powered by Instacart. 

In-store grocery technology can be an expensive investment for a business like a supermarket, where profit margins tend to be slim. How did Save Mart decide that what Instacart was offering is worth the expense? 

Pattison: I’m sure if you’ve ever gone grocery shopping, you have probably more than once at some point left the store and later thought to yourself, “Oh my gosh, I forgot this or I forgot that.” Those are dollars that are left on the table. Instacart’s solutions give us the opportunity to make sure that we have that level of personalization shoppers are looking for — whether that’s building a shopping list, showing them some type of advertising about new products that they seem to be interested in or allowing them to look at what their past orders were. It gives us better insight into how we can recommend or share new products with them. And that translates into, candidly, better shopper loyalty and oftentimes bigger baskets.

One of the challenges of bringing high-tech grocery tools into stores can be getting customers on board to use them. How are Instacart and Save Mart going about changing consumer shopping habits?

Pattison: For us, it’s just making sure that our shoppers know that this type of toolset is available to them. One of the things that is really exciting for us is that we are in a pretty digitally-engaged market. Being in Northern California, there are also a lot of other retailers out there that all have pretty robust digital footprints. Honestly, oftentimes our customers want more sophistication than we can provide because they’re used to that in all aspects of their lives.

McIntosh: When I talk to customers and ask them ‘What are the top things you love about the cart,’ everything from the screen is in the top three list of reasons. So, that’s what we’ve been focused on: leveraging the screen that’s in front of customers – whether that’s syncing it with the loyalty program, building shopping lists or maximizing the scale of our ads business to bring personalized ads to customers on the screen.

Although digital grocery shopping surged during the pandemic and is expected to grow further, data shows most people still head to their local supermarket when they want to shop. How is that trend factored into Instacart’s corporate strategy?

McIntosh: We see a lot of people doing both at the same time. They’re sometimes ordering online or sometimes going into the store. That’s why the strategy really focuses on unifying these two modes and really making them two sides of the same coin.