‘Out of stock’ items plague grocery delivery services. Personal shoppers at Target’s Shipt aim to fix that

ST. PETERSBURG, Fla. — Jeremy Fetters spends his days shopping for other people as a contract worker for Shipt, Target’s third-party delivery business.

In the early days of the pandemic, the 41-year-old former bartender kept a giant pack of toilet paper in his car. He would give a free roll to customers whenever he couldn’t find any at the store to fill their orders. Fetters has driven out of his way to hunt down a pack of chicken breast. When he sees cold or cough medicine on customers’ lists, he sometimes buys them a small plant, flower or “get well” balloon.

In a crowded delivery landscape, Shipt is using customer relationships to retain both the families who order from the service and the gig workers who shop for it — and ultimately, to increase sales.

Founded in 2014, Shipt has grown significantly during the Covid-19 pandemic, as consumers sought safe and convenient ways to shop. Sales for the same-day service more than quadrupled in the fiscal year ended Jan. 30, compared with the year prior. Its pool of gig workers, which it calls shoppers, tripled to 300,000 from the start of the pandemic to the end of last year, according to the company.

“Our shoppers matter. … They’re our secret sauce,” said Shipt CEO Kelly Caruso. “They’re what sets us apart from the competition.”

Since August, customers have had the option when placing an order to request the same shopper who picked out their items before. Shipt also added a feature that flags customers’ dietary restrictions, such as a gluten-free diet. Over time, that shopper gets to know a person’s preferences, too. This means shoppers can recommend an appealing substitution when an item is out of stock, reach out for last-minute shopping list additions or even suggest items to add to a basket.

Shipt is one of the reasons Target has captured additional market share during the pandemic, said Karen Short, an equity research analyst for Barclays. She describes it as a “sleeping giant,” since it is both an underappreciated growth driver for Target and a formidable competitor in the world of delivery.

Shipt delivers orders for more than 130 retailers, ranging from regional grocers such as H-E-B and Publix to Petco and CVS Health. It covers roughly 80% of U.S. households in about 5,000 cities. Yet it has plenty of room to run, Short said, if it can sign on more retailers, attract additional customers and expand to new regions. Instacart, one of Shipt’s best-known competitors, serves more than 600 retailers.

Short recently estimated Shipt’s value at $15 billion. That’s a steep jump from the $550 million that Target paid to acquire the company in 2017. And Short doesn’t think Target’s own market value of nearly $112 billion prices in Shipt’s full value. Short has an overweight rating on Target’s stock, with a price target of $280 — more than 20% above where it’s currently trading.

The delivery service does not disclose its revenue or customer numbers and is not yet profitable, but its sales have continued to rise this year, according to Target. Sales through the service grew 86% in the first quarter and about 20% in the second quarter compared with the same year-ago periods.

Shipt’s Caruso said when hiring the company looks for delivery people who know how to shop and have strong communication skills and an eye for detail. That strategy is different from those of Shipt’s rivals, she said. She sees that firsthand with her teenage son, who ferries fast-food orders for DoorDash.

“He’s a young guy who’s very transactional,” she said. “He can bring Chipotle from point A to point B. What he can’t do is navigate a supermarket on a Saturday morning.”

By shopping in a more personalized way, Shipt can boost sales for its retailer partners and itself, Caruso said. It gets a cut of sales, which can vary from company to company. It also makes money from advertisements, delivery fees and annual subscriptions.

A savvy Shipt shopper can alert a customer if they see a favorite brand of tea on sale — even if it’s not on the shopping list, Caruso said. Shoppers can also suggest adding an item that seems uniquely suited for that customer, such as a new flavor from a favorite brand.

Above all, Caruso said, shoppers can intervene during a common pain point for online grocery orders: out-of-stocks. Instead of skipping the item, shoppers are encouraged to call or text the customer and find an alternative.

“Our shoppers know how to substitute, and they save the sale, and that is meaningful for both our consumers and for retailers,” she said.

In a recent grocery study, consulting firm Bain & Company found out-of-stocks and a poor checkout experience were the two frustrations that are most likely to scare customers away. On the other hand, the consulting firm found, retailers and delivery companies can win customers’ favor if they seem knowledgeable and can guide them toward an ideal alternative.

When compared with competitors, Bain found, Shipt had one of the highest customer satisfaction ratings for how it selects substitutions for out-of-stock items.

Linda Nelson, a Shipt shopper, teaches that kind of critical thinking. She is metro advisor for the Tampa, Florida, area, a role that earns her extra income and gives her a chance to pass along advice.

When the pandemic began, Nelson saw a wave of new shoppers join the region’s Facebook group for Shipt and post “newbie questions.” They included former restaurant staff, displaced hotel workers and parents who suddenly became part-time teachers for virtual school and needed to abandon their prior jobs. She began teaching Zoom classes on how to pick bananas, check expiration dates and look for cracked eggs.

Nelson, a former PTA mom, joined Shipt in 2015. She has learned her regular clients’ dietary preferences. And she uses techniques to encourage them to pick her again, such as placing delicate items to one side of the shopping cart, examining fruit closely for any bruises and keeping chilled items in an insulated bag.

She said roughly 70% of her clients are people she’s shopped for before, which helps her pick out groceries and even know if they would prefer paper or plastic bags.

“I shop like I’m shopping for my own family,” she said. “The shoppers who do well at this are people-pleasing perfectionists.”

The pandemic has inspired so many job changes and departures that the trend has gotten its own name: “The Great Resignation.” The most recent U.S. monthly jobs report fell far short of expectations, underscoring the challenges of getting Americans back into the labor force even as some companies raise wages and sweeten perks.

Flexibility is what many job seekers want, according to a survey of about 1,500 full-time workers in late July and early August by professional services firm Grant Thornton. Nearly 80% of survey respondents said they want flexibility in when and where they work. Slightly more than half — 51% — said they would give up a salary increase for more flexibility, with 40% saying they will look for another job if forced to return to the office full time. And one-third of employees surveyed said they were looking for a new job.

The gig economy is poised to attract more people if that trend continues, said Tim Glowa, a principal at Grant Thornton who does market research about how companies can attract, engage and retain employees.

“We have seen gig workers increasing 15% to 20% a year pre-pandemic,” he said. “If we look at employees wanting to be empowered to control their own career, we are going to see more of that.”

Caruso said the flexibility of gig work may be allowing Shipt to continue to attract shoppers and motivate them to fill orders. She said some shoppers only work during certain seasons, such as teachers who shop during summer months and parents who make extra money over the holidays.

To motivate shoppers who haven’t picked up an order in awhile, it doles out bonuses. For instance, it sent an email to less active shoppers in the Northeast around Labor Day to dangle $150 in extra pay to those who completed 10 orders between that Thursday and Tuesday.

About 75% of Shipt shoppers are women, with most between the ages of 25 and 54, according to the company’s survey. On average, Shipt said shoppers make more than $21 per shop including base pay, promo pay and tips.

Barclays’ Short said delivery companies will have to build the right culture to keep contractors engaged. She said Shipt may be doing that by encouraging shoppers to form bonds with regular customers.

“It’s more empowering to the shoppers because you feel needed,” she said.

Some gig economy companies have been criticized for using contract workers to avoid paying steady wages and fair benefits and for tinkering with algorithms in a way that leads to lower pay. That issue has gotten even more attention from policymakers during the pandemic as delivery workers took on added risk. New York City recently passed bills aimed at improving work conditions and pay for gig economy workers.

Before the global health crisis, Fetters said he couldn’t imagine doing anything besides pouring drinks. He had worked as a bartender for 15 years. But the nightclub where he worked abruptly shut in mid-March 2020. Fetters applied to Shipt and began delivering orders. Each week, he said, he completes about 45 to 50 orders and makes about the same amount of money that he made as a bartender — but without the late-night shifts and weekend hours.

The pandemic and the death of his father from Covid last fall changed his perspective.

“With losing my dad, I didn’t get to spend as much time with him as I should have, whether it be working or the holidays or him wanting me to come up,” he said. “It was, ‘Oh, I’m working’ or ‘We’ll do it next year’ or ‘We’ll have more time then.’ But we didn’t get that time.”

Now, Fetters said, he can take time off for vacation and relax on the weekends with his husband. He said he has grown close to some customers. He has lifted groceries for elderly customers and dropped off foods that pregnant customers craved. Once, he sat beside a customer on her porch to console her after her dog died.

“It [the pandemic] gave people time to reflect on ‘Is this really what I want to do? Am I really happy? Do I go to work every day and want to go to work? Am I fulfilled?'” he said. “When you ask yourself, ‘Do I get excited or motivated to wake up every day to go to work?’ I think a lot of people would say no.”