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Target took a big step yesterday in its efforts to compete with and keep pace with Amazon and Walmart, announcing that it will spend $550 million to acquire Shipt, an Instacart-like grocery delivery service.

The Wall Street Journal writes this morning that “Target said the acquisition would allow it to offer same-day delivery services in about half of its Target stores by early 2018. It plans to have the service in all major markets before next year’s holiday season. Currently, the retailer has used a partnership with Instacart to deliver groceries in three markets … Target said Shipt will operate as a subsidiary and seek to maintain its partnerships with other chains, but it won’t utilize the customer data of other retailers on the platform.”

Shipt, like Instacart, uses independent contractors to buy products at retail stores and then deliver them to customers, typically at a slight premium; it also charges customers a $99 membership fee, and a delivery fee for orders below $35. It has a presence in some 70 markets, uses more than 20,000 shoppers, and has worked with retailers that include Publix, Costco, and HEB.

Engadget writes: “The deal should close by the end of December. Provided it does, Target will join Walmart in scrambling to offer same-day delivery services as quickly as possible. They're clearly concerned that Amazon's widening same-day delivery plans and integration with Whole Foods will cut directly into their core businesses, and they're betting that you'll stick with them if you can get comparably hasty service.”
KC's View:
Interestingly, Bloomberg did a story just before the Target-Shipt deal was announced, talking about how companies like Shipt and Instacart have thrived since Amazon acquired Whole Foods, because retailers feel the pressure to do something, anything, in order to keep up.

In many ways, this deal creates more questions than answers.

Will retailers like Publix and Costco want to continue using a Target-owned Shipt? It is one thing to outsource your delivery business to a third party, but another to outsource it to your competition.

Does this immediately put Instacart in play for a possible acquisition? And if it were to be acquired by another retailer - say, Walmart or Kroger - what would that mean to all the retailers doing business with it?

Will Target screw up Shipt? To what extent will Shipt allow Target to really compete with Amazon and Walmart? And, perhaps more importantly, differentiate it from those two competitors?

Give Target credit. This was a bold move. It is trying to create its own ecosystem. But the most important thing for it to remember is that this is just one small step in what has to be a continuing journey.