Three questions about Aldi’s new online venture

Over the last weeks, there has been some discussion around Aldi's plans to develop its online grocery platform (link to the press release). Aldi currently tests the online platform with selected customers in the US, and Aldi seems to be planning to launch also in its home market Germany (link).

The plans raise the following three questions.

#1 Why now?

Why is Aldi developing online now, and why did it start with in-store picking? Has Aldi figured out something that the rest of the industry has not? 

The discounters have long resisted getting into the online grocery business. Now with online grocery hangover after the explosive growth during the pandemic, there are more attractive grocery retail channels than online. 

With its platform, Aldi does get significant amounts of first-party data. The own platform also creates freedom to price products more flexibly (Instacart marking up prices). 

#2 Why one-hour delivery?

One-hour delivery resembles the quick delivery players, which are currently exploding. Fast delivery puts much pressure on the picking and delivery processes. That makes it more challenging to batch orders together. Batching would enable more efficient operations and eventual profitability. One hour is significantly longer than the 10-15 minutes offered by the quick delivery players. 

The convenience of fast delivery is also a critical aspect of grocery discounters. The discounters do offer a more efficient assortment and small stores. That enables faster picking in the stores.

If Aldi can drive up volumes fast enough, they may get the deliveries to operate efficiently. That leads to the third question.

#3 What happens to Instacart?

Instacart (like many other online grocers) has seen significant headwinds over the last one to two years. During the previous year, the company had to slash its valuation three times (link). That has led the valuation of the company to crash by 66%. 

Aldi's plans to set up its online business are a bad sign for Instacart's ambitions to become an online grocery powerhouse. As one of the most critical customers leaves the platform, what will it do to the trust of the other Instacart clients? Will Instacart become a white-label picking and delivery service for the incumbent grocery retailers?