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Grocery Delivery Penetrates Markets, Faces Legal Woes

Technology has had a profound effect on the way we transact business, from automating inventory to connecting buyers and sellers around the world. Technology permeates the business world, from simple phone calls to massive databases. And now, technology is poised to profoundly impact the way food retailers, manufacturers, advertisers and distributors operate within their market.

According to research from BMO Capital Markets, online grocery delivery service penetration reached as high as 16% in New York City, 8% in Seattle and 4% in Los Angeles, showcasing the growth of said services. Amazon Fresh leads the pack with a 40% share of online grocery delivery in Seattle and 31% in Los Angeles. The service was even able to garner a 5% share in the New York market despite the fact that it only launched in Brooklyn last fall. The success of Amazon Fresh showcases what a major corporation can do when it decides to deliver groceries. Amazon is expected to increase investment into its Prime Fresh initiative due to a rather competitive market.

Smaller grocers and restaurants, however, may not have the same options and need to turn to smaller operations to succeed in the space. InstacartPostmatesCaviar and Google Express all offer “concierge-style” grocery delivery services that provide quick delivery of fresh food to a consumer’s door, part of the emerging trend towards grocery delivery. However, these concierge-style services are at risk due to the fact that they are third-party companies connecting food sources and consumers.

The business model espoused by Instacart, Caviar and Postmates is currently under scrutiny via a number of lawsuits being heard in California’s Northern District Court. The suit contends that the services try to distance themselves from the traditional employer-employee relationship and have violated labor laws by misclassifying workers as independent contractors instead of employees. The services would likely need to spend more if they need to adopt the contractors as employees, but it seems unlikely that a modest increase in price will affect the popularity of such delivery services.