BOSTON — It only has been about five months since Sprouts Farmers Market partnered with Instacart in a move designed to expand the Phoenix-based grocer’s home delivery service, and only a little more than a month since the grocer’s partnership with Amazon Prime Now ended, but already the Instacart business has grown “at a faster pace than we had expected,” said Bradley S. Lukow, chief financial officer and treasurer.
“We were very intentional and deliberate around rolling out the home delivery service across well over 100 stores because our core focus was to make sure we weren’t going to disappoint the customer,” Mr. Lukow told analysts during a June 19 presentation at the Oppenheimer Consumer Conference in Boston. “The first time you order online, and you get a rotten apple or a tomato that you wouldn’t have selected yourself, you lose that customer.”
Prior to joining up with Instacart, Sprouts partnered with Amazon Prime Now for more than two years for its grocery delivery needs. Despite ending its relationship with Amazon, Mr. Lukow said one of the things Sprouts benefited from during its time with Amazon was learning how to perfect operational execution at the store level.
“The fact that we skew to fresh and 24% of our business being produce, meaning, that we turn that inventory over 2.5 days, we’re guaranteed fresh for our customers,” he explained. “So we were very intentional to roll that service out across the network slowly to make sure the operational execution was there.”
He said Sprouts did not want to begin significant marketing and advertising efforts for the service until the operational execution was in place.
“From the perspective of growth with no promotion, it’s exceeded our expectations in terms of how fast the growth of the average weekly sales and baskets have been with the Instacart program," he said.
Taking a look inside the characteristics of Sprouts’ Instacart orders versus in-store orders or orders previously placed through Amazon Prime Now, Mr. Lukow said the company is seeing Instacart orders that are about 20% larger than the Amazon Prime Now Orders, which were two times the size of what in-store basket orders were.
“I think part of the reason for that is when someone raises an order for home delivery on Instacart, it’s with intentionality,” he said. “They’re not also building a basket for non-grocery, and they’re taking advantage of leveraging their annual fee across the network of retailers that are on Instacart, and so they’re consolidating their orders, their more attractive orders. The mix is better. When we look at the department mix, it’s a more profitable basket for us relative to the Prime.”