With staggering growth behind it, Target's Shipt delivery business faces a now-what moment

After a year of intense growth, Target Corp.'s grocery-delivery business, Shipt, is starting to level off and its pool of competitors keeps expanding.

More shoppers embraced the convenience — and safety, from a health standpoint — of grocery delivery as the pandemic unfolded. But as in-person shopping returned, delivery specialists like Shipt had to come up with new ways to make the momentum count and better serve customers and retail clients.

"As time drove on, what I was particularly proud of was the sustainability of our model and how we were able to keep up with that never-anticipated level of demand, but not only keep up but continue to evolve and improve the experience," Kelly Caruso, chief executive of Shipt, said in a recent interview.

In the last year, Shipt added some key features to its platform. Its users can now enter dietary preferences and indicate their favorite shoppers, options that are designed to personalize their shopping experience and set Shipt apart from other delivery services.

Most Americans had not shopped online for groceries before the pandemic. As of the summer of 2019, 81% of consumers had never bought groceries online for delivery or pick-up before, according to Gallup's annual survey of consumption habits. But as fears about COVID-19 made the weekly grocery trip less appealing, more people turned to ordering groceries online.

For many companies, the question has been just how many of those first-time grocery-delivery customers will stay around when people return to their normal shopping habits.

As of this year, Gallup reported the amount of U.S. adults who were surveyed and said they order groceries online at least once a month has doubled, from 11% in 2019 to 23%.

"What started out as that forced behavior, it got really sticky because you saw big companies ... publicly announcing that, 'Hey you can work from home permanently now,'" said Harvey Ma, a senior vice president at Chicago-based consumer data analytics firm NielsenIQ. "Those employees, they are all consumers at home now."

Last year, Shipt tripled its national network of personal shoppers. Shipt in September said the company experienced a 252% increase in year-to-date orders compared to the same period in 2019. And compared to last year, order volume was up 40%.

However, outside numbers point to a leveling off of growth at delivery providers.

According to Earnest Research's consumer data, as of late October, sales growth for Shipt was down by more than a third compared to the same time last year. Shipt's market share also was reported to hover at about 5%, around half of what it was in 2018. Instacart has also seen its sales growth drop from the huge three-digit growth numbers it put up last year.

Emory University business professor Daniel McCarthy, who analyzed the Earnest Research data in a LinkedIn post, said in an interview that Shipt's market-share losses are likely a "combination of rising competition from a growing number of competing delivery companies coupled with the possibility that, now that they are owned by Target, some third parties are not quite as keen on listing on their platform."

Earnest Research's data doesn't include sales made on third-party sites that Shipt is integrated into, including Target.com. In its third-quarter earnings report, Target earlier this month said the Shipt business grew more than 30% on top of last year's Shipt surge of 280%.

Meanwhile, the grocery-delivery space is getting more crowded. Last year, Uber and DoorDash launched grocery delivery. DoorDash announced this past summer that it has partnered with grocery chain Albertsons Cos. to offer one-hour grocery delivery from its stores. Instacart continued to expand its retail partners, including a partnership with the Kroger grocery chain to test 30-minute deliveries.

Shipt hasn't stayed still. It recently announced its largest expansion in three years, with nearly 1,000 more store locations added that its shoppers will service.

This summer, Shipt started allowing customers to select dietary preferences to show what type of foods they prefer. Shoppers can indicate that they like Keto-friendly foods or gluten-free items. The firm also launched a feature to allow customers who rate their shoppers with five stars to add them to a "preferred shopper" list. That way, that shopper can be prioritized to fulfill the customer's future orders.

It's this personalization and the quality of the shopper experience that Caruso said are linchpins for Shipt's continued success. Shipt shoppers who know their customers can also help "save the sale" when items are out of stock by finding suitable replacements, which will be especially important during this holiday season, Caruso said.

"Our shoppers know how to shop," Caruso said. "They are able to create strong relationships with our customers and they are able to have strong communication skills when doing a shop to ensure that they are getting exactly the right item."