Target is fixing its biggest weakness

  • Target is buying grocery delivery startup Shipt for $550 million.
  • The purchase will bring much-needed firepower to Target’s ailing grocery business, which is just 15% the size of Walmart’s.
  • The online grocery market is expected to grow exponentially over the next seven years, reaching more than $100 billion – or more than 20% of all grocery sales – by 2025.

Target has made it clear with the $550 million purchase of food delivery startup Shipt that it isn’t going to let its grocery business fade into total irrelevancy.

The retailer’s grocery business, which is just 15% the size of Walmart’s, has been described by industry analysts as “bland” and “uninspired.”

Some analysts have even suggested that the retailer cut its losses by quitting selling groceries altogether.

The purchase of Shipt could change all of that.

Target will use the delivery startup to offer customers same-day delivery of groceries at half of its 1,800 stores by summer, and at all of its stores by the end of 2018.

This will put Target far ahead of its main rival, Walmart, in terms of grocery delivery. Walmart is putting more focus on its grocery pickup program, in which customers order items online and Walmart employees load them into their cars at designated pickup points.

Target's grocery department in Richmond, Virginia.

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Target’s grocery department in Richmond, Virginia.
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Business Insider/Hayley Peterson

Walmart only has limited tests in place for grocery delivery, however.

The online grocery market is expected to grow exponentially over the next seven years, reaching more than $100 billion – or more than 20% of all grocery sales – by 2025.

About 30% of US shoppers have bought groceries online in the last year, according to Kantar Worldpanel. Of those who purchased food digitally, 30% say they spend about a quarter of their grocery budget online.

Moody’s analyst Charlie O’Shea praised Target’s acquisition as “an example of the speed with which Target is attempting to expand and enhance its online channel.”

“The fact that Target will have this service in place during 2018 will significantly improve its online competitive position as the service is integrated and rolled out to customers,” O’Shea said in a note to clients Wednesday. “This is yet another example of a brick-and-mortar retailer leveraging its physical assets to improve its online offerings.”