Running a tighter Shipt: Target-owned delivery service aims for growth (2024)

Business

Shipt has put in place new policies and strategies to gain market share in an increasingly competitive industry/

By Nicole Norfleet

September 26, 2020 at 11:01PM

Running a tighter Shipt: Target-owned delivery service aims for growth (1)

Anita Brands shopped the Target Midway store for a Shipt client. (Star Tribune/Star Tribune)

As shoppers shifted habits toward online purchases in the midst of stay-at-home orders in the spring, the Target-owned Shipt same-day delivery business grew its orders, workers and retail partners more in a few months than it did in the year and half before the pandemic.

Now, as the hectic months of change are slowing some, Shipt has put in place new policies and strategies as it wages an uphill battle to gain more market share in an increasingly competitive industry against the likes of Instacart and DoorDash. Like its competitors, it also is dealing with emerging labor disputes hitting the gig economy.

"We were excited about the opportunities in front of us as we came into 2020, and let's be honest, in March the playbook went out the door," said Kelly Caruso, CEO of Shipt, which Target agreed to buy in late 2017 for $550 million.

During April, May and June, Shipt's order volume nearly tripled from the same time last year, Caruso said. Target, which recently reported a record-breaking sales quarter, saw revenue on orders fulfilled by Shipt grow more than 350% year-over-year in the second quarter.

Online orders are of growing importance to Target as it looks to the future of retail.

"I think the acquisition was a positive one and I think it's given them the ability to offer this service and not be third-party. … As we all know the consumer is looking for more convenient options," said Brian Yarbrough, an analyst with Edward Jones.

Shipt and Target would not disclose economic results, but analysts predicted at the beginning of 2018 Shipt would reach $1 billion in annual sales that year.

Caruso is convinced grocery delivery is here to stay.

"People leveraging same-day delivery is going to remain at a high level and that won't change," she said.

In the past few months, the company has made several significant changes to its business that Caruso thinks will help Shipt in the long term, past the surges that have defined the COVID-19 economy.

In August, the company rolled out a pay-per-order option, allowing a customer to buy a pass for one to five orders. Before that, customers had to pay either a $99 annual or $14 monthly membership.

"It was important to us that we make sure that Shipt is available to all and not considered a luxury, but rather a convenience," Caruso said.

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Also during the summer, Shipt began to implement a new pay model and rebrand a service it now calls Shipt Driven, where its drivers deliver products for retailers but don't complete the actual shopping.

In addition to Target, Shipt shops and delivers orders for stores such as Costco, Hy-Vee, CVS and Kroger. In total, it has more than 120 retail partners, a 50% increase from last year.

During the spring, it doubled the number of people who do the shopping — contract workers it calls "shoppers" — to 200,000 as it raced to fulfill the increased number of orders. It currently operates in 5,000 cities.

Last month, U.S. grocery delivery and pickup sales totaled $5.7 billion, a drop from June's peak of $7.2 billion but nearly five times the sales the market garnered this time last year, according to research by Brick Meets Click and Mercatus. About 30% of all U.S. households are considered monthly active users of online grocery services.

As of the beginning of the month, Instacart fulfilled 44% of online grocery sales, outpaced slightly by Walmart, with Shipt far behind at 7%, according to data-analytics firm Earnest Research.

"[Instacart]'s ability to partner with multiple grocers gave it a scale that store-centric services couldn't match," said Michael Maloof, Earnest Research's associate director of consumer brand insights, in a statement.

"However, the question now is if consumers will continue to pay the premium to get their groceries delivered, or if they will return to stores as restrictions ease."

In some ways, Shipt's commitment to its essentials and grocery product base could end up being a risk as more companies like DoorDash enter the grocery delivery game, said Chris Walton, a retail expert and co-founder of Minneapolis retail lab and co-working space Third Haus. Shipt, like other grocery-delivery companies, needs to grow through subscriptions and the number of retailers and items it delivers.

"If consumers for delivery needs gravitate toward Instacart, Amazon and DoorDash and maybe Uber … if Shipt doesn't play that game, they can be maybe left out," Walton said.

Shipt, like the other services, also will need to keep its workers happy.

For Anita Brands, someone who has enjoyed grocery shopping since her mother bought her a play set as a child, the flexibility of being a Shipt contract worker fits her life perfectly.

One Friday earlier this month, while she was off from her full-time job, she scheduled eight hours of work for Shipt.

"I love it," said Brands, 35, as she perused a St. Paul Target for an order. "It doesn't even feel like work."

Brands, who has shopped part-time for Shipt for two years, keeps a clipboard on her phone of messages she will send to customers during her shop. The interaction and service aspect of her job are important to her.

"For me it's about making a difference in our members' lives," she said.

Earlier this month, Shipt rolled out its new pay structure in the Twin Cities and several other markets.

Shipt workers went from being paid mostly based on the total cost of an order to one that considers other factors such as estimated drive time, the number of items in the order and whether it was during peak shopping windows.

The new system will be implemented in all markets by the end of the month and is based on feedback from the workers that said pay "did not always reflect the amount of effort that went in to doing a shop," Caruso said.

The workers also will see a pay range of what they would make on an order before they accept it. Even if some of the items are out of stock and the order total goes down, there is still a minimum that the workers would make, Caruso said.

The changes do not satisfy all of the workers, though. Groups of Shipt workers in metros across the country staged "walk offs" earlier this summer in protest of the change that some have said reduced their pay by 25 to 50%.

Jason Schaal, who works full time as a contract worker for Shipt in the Twin Cities, said he does not like the lack of transparency on how different factors are weighed in the new pay model.

He tries to make between $15 and $20 per order and work between 30 to more than 50 hours a week, but he estimated his pay was about 8% less for his first handful of orders with the new system.

Also, the sharp increase in the number of contract workers and the declining number of orders — compared with peak traffic as the stay-at-home orders took hold — have meant more competition in getting the best orders and also having to drive farther away from his home in the Champlin area to make enough money. Drivers aren't reimbursed for their travel time and must also pay for their gas, car maintenance and taxes.

"I have to take a look and see financially for my family if this still meets that need," Schaal said about continuing to work for Shipt.

Shipt's average shopper is paid $21, including tip, per order. It usually takes about 45 minutes to fulfill an order, Shipt said. Most of its shoppers, it said, work about 14 hours a week.

Some of Shipt's contract workers also staged a walk-off in April to demand hazard pay and more immediate access to face masks and other protective gear.

The company did provide bonuses to some top workers and free masks and gloves for everyone, and also started a financial-assistance program for workers who test positive for COVID-19 or have been told by a doctor to quarantine.

Being owned by Target, some of the contract workers also have pointed to the rich benefits of those who work for Shipt's parent company. An online petition in support of the workers' grievances has garnered close to 31,000 signatures.

"Companies are constantly relying more on gig workers to drive their profits which is exactly what Target is doing," said Karin Roland, a campaign organizer with PL+US (Paid Leave for the United States) who partnered with advocacy group UltraViolet. "They are relying on Shipt shoppers to drive their profits, but they aren't offered the same protection."

Caruso said Shipt and Target operate "very independently," however, Shipt financials are usually lumped into Target's quarterly financial reports.

Yarbrough said he doubts Shipt and other services will continue to see the same amount of rapid growth as they did earlier this year. Despite this, Target's ownership of Shipt is a benefit to the company, he said.

"I'm not sure if [Shipt] is contributing to the bottom line much, but what I think is positive for Target is it's creating a [consumer] to stick with Target," since it has the delivery option, he said.

Shipt spokeswoman Molly Snyder, while declining to discuss specifics, said although the delivery-industry economics are tight, "we firmly believe we are on the right strategic path."

And the changes won't end, Caruso said.

Shipt won't be partnering with big Target competitors such as Amazon and Walmart and won't get into the restaurant delivery business.

Opportunities to grow will include delivering a wider range of products from retailers and increasing its business-to-business orders.

"Undeniably, we are well positioned going into fourth quarter to not only deliver groceries and household essentials but all the gifts that are necessary: Think home items, electronics items, apparel, things like that," Caruso said.

Running a tighter Shipt: Target-owned delivery service aims for growth (2024)

FAQs

Running a tighter Shipt: Target-owned delivery service aims for growth? ›

Shipt won't be partnering with big Target competitors such as Amazon and Walmart and won't get into the restaurant delivery business. Opportunities to grow will include delivering a wider range of products from retailers and increasing its business-to-business orders.

What are the benefits of Shipt Target? ›

Shipt makes it easy to find the things you need from Target and other local retailers in your neighborhood.
  • Browse through thousands of items available for same-day delivery.
  • Choose a convenient delivery window, pay, and tip your shopper – all in the app.
  • Save go-to lists and tag favorite items to place orders fast.

How much did Shipt sell to Target for? ›

In December 2017, Target acquired Shipt for $500 million. Part of the deal allotted that Shipt would remain an independent entity and stay headquartered in Smith's hometown of Birmingham. “Target was always my dream. I always wanted Target to work with us from Day One,” Smith says.

Does Target still use Shipt? ›

Yes! You can place orders on Target.com or through the Target app for same-day delivery with Shipt. If you're a member of Target Circle 360, you'll have free delivery on any same-day delivery order over $35. If you're not a member of Target Circle 360, you can order same-day delivery for a fee of $9.99.

Is Target a subsidiary of Shipt? ›

About Shipt

Headquartered in Birmingham, Alabama, Shipt brings people the flexible solutions they need with the above-and-beyond service they expect. Shipt is an independently operated subsidiary of Target Corp. and available in more than 5,000 U.S. cities. For more information, please visit Shipt's Newsroom.

What is the downside to being a Shipt shopper? ›

The main downside of working for Shipt is that order volume can vary greatly by market. This means pay can be inconsistent, so using several apps is important. Finally, jobs like DoorDash and Uber Eats let you deliver via bike, car, or scooter. But you need a car if you want to deliver for Shipt.

How is Target 360 different from Shipt? ›

Target Circle 360 is a paid membership that gives Target guests access to same-day delivery with no product markups, the ability to add preferred personal shoppers through Shipt, and access to order from any retailer in their area on the Shipt app or website.

Did Target separate from Shipt? ›

Yes, Shipt is an American delivery service owned by Target Corporation. It is headquartered in Birmingham, Alabama. In December 2017 it was announced that Target Corporation was acquiring Shipt for $550 million and that it would operate as an independent subsidiary following the acquisition.

Do I tip my Shipt shopper Target? ›

Shoppers do accept tips! If you're happy with the service you've received, we encourage you to tip your shopper as well as rate them.

Why does Target Shipt charge more? ›

It's super simple! The price you see in the Shipt app is the price you pay. Shipt prices will vary slightly from store shelf prices to help cover the costs of picking, packing, and processing. For example, a loaf of Wonderbread costs $2.29 in the store and $2.59 to have it delivered to your door using Shipt.

Why do I need Target 360 if I have Shipt? ›

Both the annual and monthly Target Circle 360 membership offer the following benefits: Get unlimited $35+ Same Day Delivery orders to multiple addresses. Be able to place same-day orders from dozens of retailers through the Shipt Marketplace. Enjoy no-rush returns with an extra 30 days.

Is delivering for Shipt worth it? ›

Overall, most Shipt shopper reviews are very positive — drivers genuinely seem to enjoy the culture, picking their hours, and making extra money shopping for Shipt.

What company does Target use for deliveries? ›

TLMD is a shipping method Target uses to deliver packages via a local, third party delivery partner, such as Shipt, in select markets.

Who is the competitor of Shipt? ›

The best overall Shipt alternative is Instacart. Other similar apps like Shipt are goPuff, Burpy, FreshDirect, and Rappi. Shipt alternatives can be found in Grocery Delivery Software but may also be in Food Delivery Software or Last Mile Delivery Software. Have you used Shipt before?

Who is the leader of Shipt? ›

Kamau Witherspoon serves as the CEO / President of Shipt.

What did Target pay for Shipt? ›

On Thursday, Target is rolling out same-day delivery at its stores in Washington, D.C. and Baltimore, thanks to Shipt, the online same-day grocery delivery service the retail giant bought in December for $550 million, one of its largest deals yet.

What are the perks of being a Shipt shopper? ›

Shopper Perks is a customized program through Benefitfocus for shoppers that includes discounts for insurance, prescriptions, and more. There is no obligation to enroll, and shoppers only pay for the perks they choose to enroll in.

How do target Shipt shoppers get paid? ›

Shoppers with Shipt are independent contractors and are paid per order. Orders will be offered with an estimated pay based on the effort it takes to complete the order. Payment can be accessed instantly once per day* or received via direct deposit every Friday for the work completed the previous Monday through Sunday.

Why does target Shipt charge more? ›

It's super simple! The price you see in the Shipt app is the price you pay. Shipt prices will vary slightly from store shelf prices to help cover the costs of picking, packing, and processing. For example, a loaf of Wonderbread costs $2.29 in the store and $2.59 to have it delivered to your door using Shipt.

How much is Shipt membership target? ›

Unlock Shipt membership

Get a $99 annual membership for personalized shopping – plus perks, exclusive deals, and a whole lot more.

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