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August 6, 2024
Can Instacart’s Efforts Help the Company Overtake the Competition?
Instacart has been making significant moves in the grocery delivery market. But will they pay off?
According to data from Statista, in 2024, the U.S. grocery delivery market is expected to generate $257.50 billion in revenue, with an average revenue per user (ARPU) of $1.86K. User penetration in the market is forecasted to be 40.5%, with the number of users projected to reach 180.3 million by 2029. The market is anticipated to grow at a compound annual growth rate (CAGR) of 12.07%, reaching a total market volume of $455.20 billion by 2029. Additionally, the retail delivery market is expected to achieve a volume of $195.40 billion in 2024.
Competition has intensified with various players in the market, especially two of the biggest giants in the retail industry: Walmart and Amazon.
According to two recent articles by CNET and Forbes, Amazon has been chosen as the overall best grocery delivery service of 2024. Yet Instacart was also included in both lists with specific advantages.
CNET named Instacart as the best delivery service to use for variety with “a larger total selection of grocery items than most services.” But Instacart does have some downsides. Although it saves time compared to shopping in-store, tracking your delivery and managing these interactions can still be time-consuming. Additionally, users need to stay attentive for out-of-stock items, which can be demanding. Instacart also adds markups on groceries, up to 14% at times, and includes delivery fees and suggested tips, making it a pricier option. In addition to delivery, Instacart offers in-store pickup at some locations.
Forbes echoed similar observations, highlighting the ability to “shop around to get the best prices” by purchasing from various local retailers.
To do more than just survive amidst other delivery giants, Instacart has been expanding its business model and pursuing other innovations to remain relevant and continue thriving.
Recently, Instacart launched new advertising solutions designed to boost consumer engagement and brand discovery on its platform. These tools, per the press release, include visual recipe ads with meal ideas, curated collections to “encourage cross-aisle exploration and discovery around specific themes or moments,” and strategic product bundles, which all aim to create immersive shopping experiences and enhance product discovery beyond traditional in-aisle placements.
According to the company’s announcement, “In a grocery store, consumers might find crackers next to the cheese counter, or salsa next to tortilla chips. Instacart’s new tools pair that same ease and inspiration with the flexibility of the digital shelf, helping brands curate more immersive experiences for consumers across every aisle.”
Already, Instacart has started piloting recipes from certain brands to test customer reactions, so far seeing positive results. For instance, Mondelez is testing a Chips Ahoy! Ice Cream Pops recipe, while J.M. Smucker Co. is trying out recipes like Caramel Apple Pie Cold Brew and Strawberry Fruit Dip.
In another recent update for the delivery company, Instacart has expanded its partnership with Albertsons Companies by introducing new services across the U.S. Instacart now offers pickup at over 2,000 locations, including Safeway and Albertsons, and has launched Albertsons Rapid for delivery of convenience items within 30 minutes. Haggen Food & Pharmacy also offers same-day delivery through the Instacart app. Pickup services are free, while Albertsons Rapid delivery costs $2.99 per order, with no fee for Instacart+ members. These updates aim to enhance customer convenience and better cater to busy lifestyles.
On the heels of that partnership, Instacart and ALDI SOUTH Group have expanded their global collaboration by introducing Instacart’s Connected Stores technologies to ALDI locations across the U.S. These technologies include In-Store mode to help customers see what’s in stock, Carrot Tags for easier product location, and improved pickup fulfillment. Per the company’s press release, “Instacart’s Connected Stores technologies are a suite of products designed to help grocers like ALDI SOUTH Group build a unified, seamless, and personalized shopping experience both online and in-store.”
Additionally, ALDI SOUTH Group is testing Instacart’s AI-powered Caper Carts in Austria, which streamline the checkout process by letting customers scan items and track their total. This expansion marks Instacart’s first entry into the European market with these carts.
Discussion Questions
How will technologies like Instacart’s Connected Stores and AI-powered Caper Carts affect competition between major grocery delivery players in the next decade?
What long-term impacts might Instacart’s new advertising solutions have on consumer behavior and loyalty in the grocery delivery market?
Given the projected growth of the U.S. grocery delivery market and rising costs, what will determine Instacart’s ability to maintain its market position and profitability?
Poll
Loading …BrainTrust
David Biernbaum
Founder & President, David Biernbaum & Associates LLC
John Hennessy
Retail and Brand Technology Tailor
James Tenser
Retail Tech Marketing Strategist | B2B Expert Storytelling™ Guru | President, VSN Media LLC
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Instacart’s growth is solid, driven by bringing more retailers on board and the continued uplift in ecommerce penetration. Advertising revenue is also growing nicely, which is important as it makes a rich contribution to the bottom line. The increasing addition of restaurants into the ecosystem, and the interest in connected solutions like digital shelf-edge pricing from retailers, also add more strings to the Instacart bow. I also think the risk of retailers internalizing some of their own ecommerce and technology development has been mitigated by a much tighter environment for capital spending. That plays in Instacart’s favor, at least for the moment.
If I use Instacart (or whomever) once a year, am I a “user of delivery services”? How ’bout if I order something from Omaha Steaks…or Harry and David? I’m guessing that few of us would answer affirmatively to either scenario, but that it would qualify in the (IMHO greatly inflated) claim of 40% penetration. Which is why I don’t put a lot of faith in numbers thrown out, let alone estimates of the future. Online/delivery has a very basic problem – people value it, but don’t want to pay enough to make it consistently profitable – and I’m not confident technology will really change that. Expansion (into group even less willing/able to pay) doesn’t seem like a promising avenue for growth.
From the beginning I regarded Instacart (and other 3rd-party delivery services) as digital interlopers. I warned retailers against permitting outsiders to become the face of their digital ordering businesses.
In some ways I was right — gig-work shoppers sometimes cleared the shelves of high-demand and promoted items. In some instances their activities undermined inventory management processes. Inconsistent experiences and ham-handed substitutions sometimes reflected badly on the retailers, not Instacart. I urged retailers to put their own digital order fulfillment processes in place, to protect their brands.
At the same time, I also underestimated the extent to which Instacart would become a useful collector and broker of shopper transaction information. Its horizontal views of individual shopper ordering decisions across multiple retailers provided an alternate take on behavior that no single retailer can assemble from its own POS or loyalty data streams.
When then new Instacart CEO Fidji Simo announced in 2022 that the company expected to make 100% of its profit from retail media revenue, the light-bulb went off for me: Instacart was transforming into a shopper data company.
The Connected Stores innovations which followed were natural extensions of this strategic pivot. Its Carrot Tag ESLs and Caper Carts, in particular, enable views into store behavior that would augment digital behaviors and provide a more complete shopper picture for brand marketers.
Today I must concede the possibility that Instacart’s 2022 pivot was a genius move. To the extent that it can consistently deliver a nationwide retail media audience to brands, it may be positioned to be a leading RMN.
Delivery costs remain a challenge, but if the media profits are high enough, the total equation just may add up.
The Caper Cart and Carrot Tag are outstanding AI innovations that will become increasingly popular with consumers because they provide a realistic way for people to shop “in” stores from the comfort of their homes.
In terms of other developments and innovations at Instacart, I believe that each will contribute to customer loyalty, but I do not believe that any will adversely affect competition in the near future, if at all.
Rather than anything else, it is the fact that Instacart has been able to bring on board new retailers – and will continue to do so – that is the main story about the company. As a result, advertising revenue is also able to flourish – – faster. – Db
Instacart offers several advantages, including same-day delivery, a wide selection from multiple retailers, and a user-friendly interface. However, it has drawbacks such as higher prices due to service fees and markups, and potential quality control issues. While Instacart provides a convenient but potentially more costly alternative to traditional grocery shopping, competitors like Walmart and Amazon offer online shopping and delivery without product markups and often with low or no-cost same-day delivery. Cost-conscious consumers are likely to gravitate towards these competitors that provide similar services at lower prices.
Instacart is committed to evolving with the market and its customer. This is a tough space for US consumers because we just don’t grocery shop online at the rates that consumers in some other markets do. Any changes they make that align better with the habitual nature of grocery shopping will pay off, but this is will be a long-term effort.
Instacart charges for services that retailers are reluctant to charge for. But if those services have value, retailers and instacart will both from attaching a fee to those services. It won’t be all shoppers using the premium services, but it will likely be a self-selected group of top spending shoppers. Not a bad audience to serve.
Instacart’s other initiatives allow it to capture value elsewhere and expand its relationship with shoppers. As instacart gets better at serving high value shoppers, retailers will be the bottleneck. Picking from store floor, even with pick to light carrot tags, has built in shopper disappointment. An unregulated store inventory does not equal high fill rates or high shopper satisfaction. As it expands services, Instacart could become the go-to brand for high quality online shopping with supermarkets being simply a faceless supplier.
I am taking a contrary view here. Home delivery of groceries had its “moment” during the pandemic, and that moment has crested. Sure, there is a market for delivery from restaurants, etc. however that market is increasingly crowded.
Just ask yourself how many people do you know who are getting their groceries delivered to them on a regular basis. My guess is that number is well into single digits.
Is this a market. Of course. Is this an attractive market with healthy consumer oriented competition? I highly doubt it.