solution

What is the major issue of this case? (has to be only one sentence)

Company Case Target: A Serious Contender in the Same-Day Delivery Business

Once upon a time, there were two major forces dominating the discount retail market: Walmart and Target. The two retailers offered similar merchandise assortments, and their stores were close to one another—often facing off from opposite sides of major boulevards. The two were constantly compared—the press rarely covered one without mentioning the other. Walmart was far and away the market leader. And although Target was a distant runner-up, its stylish “cheap chic” positioning and “Expect More. Pay Less.” mantra made it a formidable challenger to Walmart’s always-lowest-price positioning. In fact, for years Target grew at a faster rate than Walmart, nibbling away at the giant’s market share and posing a genuine threat. But what a difference a decade makes. Since the Great Recession of 2008, Walmart’s annual revenues have increased by more than $140 billion while Target’s have barely moved. Not only has Walmart improved its game, but increased competition from Amazon, Costco, Kohl’s, and dollar stores have flattened Target’s growth. Still, Target hasn’t given up. It has doubled down on improving its customer experience while at the same time cutting corporate costs. So far, however, its efforts haven’t seemed to make much difference. All that may soon change. Target has made a major investment that it hopes will help it to regain its edge in the retail world and restore its growth. For a cool $550 million in cash, Target recently acquired Shipt, the exploding startup with a thriving same-day delivery network across the United States. With online grocery sales exploding, the future of retail favors companies that can deliver goods fast and cheap. With the Shipt acquisition, Target is sending a message—it’s serious about establishing a competitive advantage in home delivery. Target plans not only to increase sales of its current inventory but also to become a major player in an area of retail where it has languished—groceries. A New Way to Deliver Groceries Founded in 2014 by a 32-year-old high school dropout, Shipt quickly established itself as a force in the home delivery business. After a few failed models, Shipt focused on groceries. Members get unlimited same-day grocery delivery on orders of $35 or more for just $99 a year. The Shipt app and website offer users a seamless experience for ordering and receiving groceries and general merchandise. But Shipt is not a grocer. It’s a home delivery service. Rather than invest in its own inventory, Shipt built its business by partnering with grocery chains such as Kroger, Publix, and, of course, Target. When a customer places an order, employees at partner stores don’t have to do anything. Instead, one of Shipt’s personal shoppers goes to the store, plucks the products from shelves, and delivers them to the customer’s home. Shipt shoppers wear green T-shirts with the company logo. But similar to Uber and Lyft, they are independent contractors. They drive their own vehicles and work when they want to. A Shipt personal shopper makes between $16 and $22 an hour. Shipt finished its most recent fiscal year with approximately 100,000 shoppers delivering approximately $1 billion worth of groceries and other merchandise. Experts have predicted a reliable model for home grocery delivery to the masses for the past 20 years. Until now, however, efforts have moved slowly, leaving behind many casualties. Today, same-day grocery delivery is a rapidly growing sector with many large retail competitors entering the fray. Fueled by the explosion in mobile devices and consumer expectations for instant everything, same-day grocery delivery is more in demand than ever. “One-stop shopping was convenient in the 1990s,” says one retail analyst. “But for today’s families you have to be able to do instant food delivery as well.” According to a recent report, online grocery shopping in the United States could expand fivefold, eclipsing $100 billion in annual sales by 2025. Why Partner When You Can Buy? Although the Shipt acquisition may seem sudden for Target, it was actually a long time coming. Target has always striven to stand out from the rest of the discount retail world by offering a more high-end customer experience. With Amazon and Walmart fast establishing their same-day grocery delivery capabilities, Target knew it had to make a move or risk falling further behind. But why buy Shipt instead of simply partnering with it? For starters, the acquisition sends a strong signal to competitors and customers that Target is serious about the grocery business and about delivering its goods better and faster than larger competitors. Purchasing rather than partnering with Shipt also gives Target more control. The acquisition lets the company take full advantage of the Shipt technology platform across its entire network of stores, letting it to provide faster and more convenient same-day delivery on a wide variety of goods. Now, just over a year after the acquisition, Target customers can take delivery via Shipt of groceries, home goods, and electronics, among other things. “By the end of 2019, we’ll offer same-day delivery on all major product categories at Target,” claims John Mulligan, Target’s chief operating officer. Prior to the acquisition, Target was already partnering with Shipt rival Instacart. But the strong compatibility between Target and Shipt was apparent to both companies. “What sets us apart, and really one of the big reasons we were drawn to Target, is the value we place on delivering quality, personalized experiences to our customers,” notes Shipt’s founder. “Our localized network of…shoppers goes above and beyond to make sure our customers are well served.” In the Race or Out in Front? The Shipt purchase was primarily prompted by developments at Target’s main competitors. At the time of the Shipt purchase, Walmart offered same-day grocery delivery in only six U.S. markets but had announced partnerships with delivery services Point Pickup, Skipcart, AxleHire, and Roadie that would expand capabilities rapidly. Well on its way, Walmart will provide same-day delivery from 1,600 of its stores in 300 U.S. markets by the end of the current fiscal year. For same-day delivery, Walmart customers pay a flat fee of $9.95 on minimum orders of $30. Similar to Shipt, Walmart also uses personal shoppers to assemble orders from shelves. But these shoppers are actual Walmart employees who also pick orders for its curbside pickup, a service that will be offered at 3,100 Walmart Supercenters and Neighborhood Market stores by the end of this year. All orders are taken to a designated holding area at the front of the store. But whereas Shipt uses the same delivery mechanism system-wide, Walmart’s store-to-household delivery is fragmented across a mix of service providers, including its own subsidiary Jet.com. Azon is also establishing itself as a leader in same-day grocery delivery. As the owner of Whole Foods Market, the dominant e-commerce retailer now has a bigger stake in the grocery business. And with its AzonFresh service, prim-e members who pay an additional $14.99 per month can get same-day grocery delivery on minimum orders of $50. Customers can even have orders auto-delivered every two weeks. Available in numerous markets throughout the United States, AmazonFresh warehouses groceries in its own facilities. In some markets, delivery is carried out by Amazon drivers and a fleet of big green Azon Fresh box trucks. In other markets, AmazonFresh is delivered by the U.S. Postal Service. So far, the quality of Ama-zonFresh delivery has been spotty, prompting complaints by loyal Ama-zon customers about late orders, missed orders, and missing items. “I feel like Amazon now has two very distinct divisions,” said one Los Angeles customer. “While I love Ama-zon Pri-me and even Pri-me Now, I don’t know what’s going on with AmazonFresh. It really leaves a bad taste in my mouth, because there are other companies that do grocery so much better.” The disruptions have led Amazon to pull back temporarily, halting AmazonFresh service in nine states where it relied on the USPS. But Amazon assures the public that it is regrouping, promising more cooperation over time between Whole Foods, AmazonFresh, and Prime Now. Although Target now owns Shipt, it’s business as usual at the Birmingham-based startup. Target is allowing Shipt to continue operating independently, and Shipt will continue to service its other clients and Target competitors. For now, that’s just fine by Target. The retailer gains an immediate strength in the same-day delivery business through one of the strongest players in the market. For Shipt, the acquisition provides a big boost to its already growing network, one that reaches 260 U.S. cities and counting. So how does Target stack up against its larger competitors? Target may now be in the best position of all grocers to establish reliable nationwide same-day delivery. Although Amazon is in the lead when it comes to all online grocery sales, it’s AmazonFresh same-day service lags behind Shipt and Instacart. According to one of Moody’s analysts, “The fact that Target will have this service in place … will significantly improve its online competitive position.” Based on calculations for the average home, Shipt’s service is the cheapest compared to Walmart and Amazon. More importantly, the consistency and reliability of the Shipt delivery system give Target the highest-quality customer experience. With the capability to extend its services in a more modern and flexible way, Target is making one thing clear—it won’t simply fade away. It will continue to do whatever it takes to serve its customer base. The competition in the same-day grocery sector gives even more options to shoppers looking for time savings and convenience. For customers, that’s good news. For the retailers, only time will tell