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What we can learn from the Target/Deliv acquisition

15 May 2020 / By: Tory Gundelach

It’s no secret that COVID-19 has spotlighted the need for better omnichannel logistics. Not that retail execs would have denied that before COVID-19, but a hotter fire has now been lit. While not necessarily specifically related to COVID-19, one of the first major efforts we are seeing by retailers to shore up their delivery capabilities is Target’s pending acquisition of Deliv. 

Target is no stranger to acquiring companies to help enhance its omnichannel capabilities, having purchased both Shipt and Grand Junction in recent years. (Although it is worth noting that this recent trend diverges from the corporation’s long-standing approach to building the majority of capabilities itself). The biggest thing that Deliv will give Target is the ability to batch orders that are going to the same areas. While it will take time to understand how the companies will merge technologies, there are some higher-level takeaways we can glean now.

Build, Buy, Partner

This is an age-old question, but it is central to the discussion about how retailers build out their omnichannel capabilities.  Many retailers do not have the time or talent to completely build out omnichannel capabilities that keep up with quickly evolving shopper demands, and quickly evolving competitors. New store prototypes take years to develop and build out, but in the digital space, the needs of the business could be completely different in a few years. That is why we have seen more retailers turn to partnership or acquisition: it gives them the ability, sometimes overnight, to enhance their capabilities or offering. Similarly, many retailers don’t have tech development teams that are big enough to take on some of these more nuanced digital technologies. It’s not that they couldn’t build out those teams, but everything has an opportunity cost.  If digital tech development is not your core competency, do you want to spend time and money to build that out (and build it out quickly)?  We will, of course, see retailers’ tech teams grow over time, but at the end of the day, it’s hard to build the expertise of a tech company one hire at a time.

What the Target/Deliv acquisition highlights is the growing complexity of opting to buy or partner.  Props to Target for recognizing that we live in a world of continuous improvement and that it needed to improve its ability to batch and route orders. But Target’s omnichannel ecosystem is massive and moving at a million miles per hour. Integrating a new technology is like building the plane as it is flying. That’s hard enough on its own, but it gets even more difficult as the plane gets bigger and is flying faster. And that is exactly what we are going to see happen over time. As retailers’ omnichannel systems get bigger and more complex, it can be that much harder to ‘fix’ or improve.  Expect to see that retailers do more testing of capabilities in smaller pockets to ensure they don’t break the whole system, but also look for change management to become a core competency of successful companies. Managing the change is going to become equally important to the new enhancements themselves. 

Consolidation in the fulfillment space

One of the trends that is emerging out of the COVID-19 pandemic is the ‘strong getting stronger’ and the ‘weak getting weaker’.  We expect to see broader consolidation in the retail space, and last mile fulfillment will be no exception. Instacart is generally regarded as one of the winners in this situation, so what happens to the other players in the field?  Shipt is obviously in a different situation since it is retailer-owned, but smaller, weaker players may not fare as well. Deliv will cease operations with other retailers beyond Target. Given Target has allowed Shipt to continue many of its retailer partnerships, the termination signals that the Deliv relationships were not that healthy to begin with. As mainstream shoppers get further into the online delivery space for both groceries and other food, we should expect they will want to learn to navigate fewer systems and apps. Further complicating the situation are talks around limiting how much delivery apps can charge partners. This is a time to choose partnerships wisely. 

Overall, we can expect more continuous change and improvement in the retail world, but the stakes are getting higher as the omnichannel prize gets bigger – particularly with acceleration from COVID-19.  While ‘Build, Buy, Partner’ and ‘Consolidation’ are not new themes, how they come to fruition is evolving. 

 

For more information, please contact:

Tory Gundelach, SVP

tory.gundelach@kantar.com


Tory Gundelach

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