Not content to have Amazon and Walmart steal all the thunder, Target has begun a pilot of a grocery delivery service called “Restock,” with terms that are designed specifically to make its rivals look slower and more expensive.

Testing within the home turf of the Twin Cities, Target's Restock promises next-day delivery of up to 45 pounds of goods for $4.99. By comparison, Amazon's Prime Pantry service offers two-day delivery and a $5.99 per-box fee on top of annual Prime membership.

Target's approach is hardly surprising given the aggressive competitive landscape for grocery retail. Amazon’s $13.7 billion acquisition of Whole Foods demonstrated clearly to incumbent retailers that whatever perceived barrier there was between bricks and clicks was officially gone.

But while Amazon was not shy of competing on grocery and big box stores' turf, there was little to suggest those stores were bringing the fight to Amazon. Walmart's most recent efforts seem to be an inconsistent and experimental mix of unmanned kiosks and volunteer-based employee delivery; is Target's strategy any better?

Shopper in a Target store
Bloomberg News

A stealth innovator

Other retailers may steal the spotlight in fintech, but Target has set itself up for years as something of a laboratory for other innovators.

Perhaps most notably, it was Target's point of sale technology that allowed 2009's original Starbucks Card app to expand from 16 stores in Seattle to 1,000 Starbucks locations nationwide — those 1,000 Starbucks locations were all inside Target stores. Today, Starbucks has become a trend-setter in store-branded mobile payments.

Target was also a testing ground for Amex's low-fee prepaid card and shopkick's location-based reward system. Going back even further, from 2001 to 2004 Target offered a cobranded Visa card that used an EMV chip long before there was ever an expectation to support EMV in the U.S. That card did not survive, but it was a sign of things to come.

Food for thought

On whiteboards in Bentonville, Minneapolis and Seattle, there are likely to be lists of criteria for winning over customers in grocery delivery.

Target’s new service seems to undercut Amazon in every way, but is it sustainable? Even with Whole Foods, Amazon's physical retail presence doesn't compare to Target's, and that has to affect speed, cost, product range, service and loyalty. Even so, quality is a factor — will consumers be happy if they can't squeeze the produce before buying? AmazonFresh is already dealing with these issues, such as customers posting pictures on its website of spoiled or moldy food they received through Amazon's service.

Clearly, there are advantages to having retail stores throughout the U.S. that already handle perishable items. However, as Amazon’s metamorphosis from online to offline locations ramps up, this advantage will diminish.

There will be a point where increasing speed of delivery means incurring significant additional costs in bespoke transportation, which will probably define the point at which grocery delivery speed is capped.

It is also worth considering that this grocery delivery, not live organ transportation. Delivery speed is not typically a mission critical consideration for households awaiting their weekly shop. Rather, delivery when someone is present is more important, which is why services like AmazonFresh require customers to schedule a delivery time in advance.

A race to the bottom for fees

If the cost of delivery is going to be a selling point for grocery delivery, then this too will quickly reach a threshold where players hit the lowest point possible. Walmart’s recent pilot of delivery leveraging its own employees demonstrates already the degree of pressure it is under to cut costs and corners.

But while price sensitivity is a factor in consumer choice of groceries, it is unlikely to be a deal breaker. According to the USDA, an average weekly shop for a family of four is around $200 per week. At $4.99, this comes out to a 2.5% fee for having someone else fill up the cart, which seems pretty reasonable.

With a yet to be reached, but rapidly approaching bar for how fast and how cheaply groceries can be delivered, retailers may want to consider other options for longer term market share gain. Amazon can be expected to continue to push the limits of what is possible in terms of technology innovation in retail, but there are other areas where traditional grocery stores can make inroads.

Winning hearts and minds

One of the first things you notice on entering a Walmart store is a “greeter”, someone who may assist customers with cart selection, offer coupons, or simply welcome people to the store. Introduced by Sam Walton in the 1980’s, it has become an iconic characteristic of the brand, humanizing the sterile experience of pushing a cart around a warehouse.

Other companies recognize the importance of this personal touch. Kroger's ClickList allows shoppers to order online and bypass the cashier at a store, but they are still greeted by a store employee who can help load the groceries.

Personalization, and even the perception of personalization, could be extremely important in cementing repeat business for grocery delivery services. Note, that the Target box can be filled with up to 45 pounds of goods. With an ageing and sedentary population, it seems an obvious way to build trust and loyalty to a brand would be to have the delivery driver bring a heavy box of groceries into the consumer's kitchen and unpack it.

Bringing the human element literally to the table may well a winning idea over online-ordering services that rely on local post offices or require customers to pick up their groceries in a manner reminiscent of a McDonald's drive-through.

Subscribe Now

Authoritative analysis and perspective for every segment of the payments industry

14-Day Free Trial

Authoritative analysis and perspective for every segment of the industry
Nick Holland

Nick Holland

Nick Holland is a Senior Analyst at PaymentsSource. He has previously held analyst roles at Javelin Strategy & Research, Yankee Group and Aite Group.