Dive Brief:

• Kroger’s tie-up with Ocado could impact the grocer’s business with Instacart and put pressure on the home delivery company, according to Reuters. Instacart currently fills online grocery orders from Kroger stores in 45 markets.
• Experts told the news service that Ocado’s automated fulfillment methods could push Instacart to change its business model. Instacart currently relies on personal shoppers to pick and deliver customer orders, while Ocado utilizes both robot and human workers in large off-site warehouses.
• A Kroger spokeswoman told Reuters its recent announcement with Ocado does not impact its relationship with Instacart. The grocer sees the two services as complementary.  

Dive Insight:

Instacart wants to grow its relationship with the country’s largest supermarket and is no doubt alert to any obstacles to its prospects here. But the threat of Kroger’s tie-up with Ocado may be overstated at this point.

That’s because Ocado and Instacart operate two different models. Ocado is for the next-day online order — it packs up orders in its automated warehouses, which are often miles away from the customer, and then its vans fan out to deliver numerous orders along optimized routes. Instacart, meanwhile, specializes in on-demand delivery, utilizing personal shoppers and stores that are close to the customer.

This is why Kroger characterizes these two services as complementary. One is for the shopper that prefers to plan ahead of time, while the other is for the shopper that craves speed and same-day fulfillment. By working with both services, Kroger can reach more online shoppers.

That’s not to say that Ocado can’t eventually cut in on Instacart’s business with Kroger, especially if the service is good and the prices are compelling. Many of those same-day shoppers could easily become next-day shoppers. Kroger could also work with Ocado to bring fulfillment closer to its customers — perhaps even in its stores.

Instacart remains the top third-party ordering and delivery provider for U.S. grocers, though its coming under pressure from numerous directions. Shipt, which long lagged behind Instacart, will soon offer nationwide delivery from Target stores, while on-demand delivery companies like DoorDash and Postmates have gotten a foot in the door thanks to Walmart.

There’s also a collection of emerging companies that promise to bring automation to on-demand delivery, fulfilling from micro-sites that operate similar to mini Ocado warehouses. This includes Takeoff and CommonSense Robotics — neither of which have a presence in the U.S. yet but are in advanced talks with American retailers.

Instacart, for its part, plans to remain nimble and collaborate closely with its retail partners. In a recent interview with Food Dive, Nilam Ganenthiran, Instacart’s chief business officer said the company’s current model may very well change as grocer needs and consumer demand evolve. Increasing automation, he said, is certainly on the table.

“The store of the future is going to have to change,” he said. “We've got stores doing 15, 20, 25% of their volume through Instacart in a single box. That box needs to continue to adapt itself between space allocation to back room orientation for the in-store shopper and orientation for e-commerce fulfillment.”