Has the pandemic proven Instacart’s business model?

Discussion
Source: Instacart
Jun 19, 2020
Tom Ryan

Instacart, which has seen orders catapult as much as 500 percent during the pandemic, has secured a $13.7 billion valuation in a new funding round, up from $8 billion after the last round in 2018.

The COVID-19 rush helped drive Instacart’s share of online grocery as high as 55 percent in the third week of May, up from about 30 percent in February, according to data from Second Measure.

The grocery delivery app moved well ahead of Walmart, which saw its share shrink from an average of 40-to-50 percent last year to about 25 percent in March, according to Second Measure.

Comparatively, Instacart is believed to be benefiting from its many partnerships.

The company in a statement said it accelerated its launch cadence with retailers since the start of the year and now partners with more than 400 national, regional and local retailers across more than 30,000 stores in North America. The service reaches more than 85 percent of households in the U.S. and more than 70 percent in Canada.

The firm was also able to hire 300,000 independent delivery contractors, known as “shoppers,” since March and announced plans in April to hire 250,000 more to get back to offering one-hour and same-day deliveries.

“COVID-19 created a massive shift for the grocery industry and forever changed how people view the necessity of on-demand services,” said Apoorva Mehta, CEO of Instacart.

The company has also continually upgraded its offering, adding alcohol and prescription delivery over the last year as well as “fast and flexible” and “order ahead” options in April.

Instacart plans to invest the $225 million in funding in shoppers and partners, its new advertising platform and elevating the customer experience.

Investors appear to have few concerns over Instacart’s independent contractors’ long fight for guaranteed pay and benefits or disputes over how tips are handled. In March, shoppers won 14 days of paid sick leave for those diagnosed with the coronavirus and extra safety measures after a threatened nationwide boycott, but their demands for hazard pay of $5 per order and other protections went unanswered.

DISCUSSION QUESTIONS: Has Instacart proven itself as the delivery partner for grocery with its response to the pandemic? What questions or concerns do you still have about Instacart and its on-demand delivery model?

Please practice The RetailWire Golden Rule when submitting your comments.
Braintrust
"Instacart has only proven that they can move nimbly during a crisis, the real trick will be if they can become a profitable, sustainable business."
"Instacart now has earned a $13.7 billion dollar valuation on the backs of their “team” of Instacart shoppers."
"As long as it can turn a profit, it’s the winner. Period. Let’s put it this way, Amazon Fresh can’t touch it..."

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22 Comments on "Has the pandemic proven Instacart’s business model?"


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Suresh Chaganti
BrainTrust

Instacart has enormous revenue growth potential, but I am not sure about profitability. It has only recently made very small operational profits for the first time. But that has been the story of some of these biggest of the unicorns.

When venture capitalist fund their growth, they will grow.

Michael La Kier
BrainTrust

Instacart has only proven that they can move nimbly during a crisis, the real trick will be if they can become a profitable, sustainable business. Beating Walmart in the grocery business and achieving a stunning $13.7 billion+ valuation are vanity metrics. It took a pandemic to get consumer demand for e-commerce grocery shopping in the U.S. to where it should have been years ago. Instacart has multiple factors going for them that CAN position them as the “go to” for grocery delivery (for both consumers and retailers) but we all loved Webvan, too…

Bob Phibbs
BrainTrust

Sorry, I used Instcart once. I don’t trust the shoppers, the substitutions were odd, the pricing was odd and for me was more complicated than just going to the store. Sorry digital natives, as the country reopens, most people want to pick their own produce and do not want to add an extra, more complicated step to getting what they want. More companies will develop their own last-mile capabilities.

Gene Detroyer
BrainTrust

Bob, we had the same experience. As I wrote the other day, “What the COVID-19 situation gave me an opportunity to do was to try various third-party delivery options by different retailers. Without a doubt Instacart was the worst in terms of performance, to the point that if that was the option the retailer offered, I would not purchase from that retailer. ” I tried them several times and each time each was a huge disappointment. It will be a long, long, long time before I buy from any retailer that uses Instacart.

I blame Instacart’s poor experience on Instacart. My conclusion is that they are just a poorly run operation. But I blame my personal experience with them on the retailer for engaging with such a poorly run operation — their willingness to do so tells me that the retailer doesn’t care one bit for their customer.

Paula Rosenblum
BrainTrust

It takes time. The software is weak but is improving. I was very unhappy with it for a while, and now I think they are doing quite well. Shipt had issues because Target’s inventory is inaccurate, and Amazon Fresh was out of stock on EVERYTHING.

Bob Phibbs
BrainTrust

Very important distinction too, Gene. Poor performance looks bad on the retailer probably more than on the third party.

Neil Saunders
BrainTrust

Instacart has always been a great model for retailers that want to offer online sales without investing too much in platforms and systems themselves. However, while elevated levels of online shopping have undoubtedly helped Instacart they may also be the catalyst grocery retailers need to invest in e-commerce themselves. If they do that, the reliance on Instacart fades – just as we saw when Amazon took over Whole Foods and put in place its own online proposition. I have no doubt that Instcart has a future role in grocery fulfillment, but I wonder whether that role will be reduced in countries like the U.S. in the years ahead. If so, that’s not great for already thin profitability.

Bob Amster
BrainTrust

I think that is an easy one: yes! If they cannot take advantage of the market penetration that they are experiencing, shame on them!

Ananda Chakravarty
BrainTrust
Mehta has been enormously successful with Instacart and without a doubt there is a need for the service. Even before the pandemic this service was valuable and attracted the busy, unavailable working professional. Now it attracts a far larger constituency. For groceries, the service was a lifeline to almost non-existent IT departments and opened up access to the digital space. On top of that, the rapid delivery service with personalization and back and forth engagement with Instacart workers buying products made it a perfect match for the typical regional grocer. Without a doubt the business model was proven long before. What we see with the pandemic is still an anomaly. Companies like Kroger and Albertsons have already invested in their digital experiences. The expansion of the grocery sector will still be relatively slow in digital, due to tight margins and talent shortages, and Instacart fills the gap perfectly as these grocers transform into digital/physical entities. The question is how Instacart will evolve the business model over time as groceries key in on building their own… Read more »
Paula Rosenblum
BrainTrust

In a word, yes. Grocery delivery is addictive and as Instacart has improved its software and training of personnel, it has only gotten better.

As long as it can turn a profit, it’s the winner. Period. Let’s put it this way, Amazon Fresh can’t touch it

Phil Rubin
BrainTrust
3 months 4 days ago

Long-term loyalty for Instacart users and grocers is a big question mark, especially as others like Walmart and Amazon/Whole Foods do it themselves. The issue is quality, trust and pricing and at least from our own experience, Instacart is terribly inconsistent, expensive and non-human in terms of its customer service and problem resolution.

Its valuation is typical for this market and time will tell regarding the level of exuberance for the company and how irrational or rational it is. I’m not a fan, at least not at this point.

Dave Bruno
BrainTrust
I am speaking mostly from personal experience, so take my comments with a grain of salt, but the though of Instacart hiring an additional quarter of a million shoppers and throwing them into the fray makes me seriously doubt they can sustain their position for the long run. As they rushed to scale, it appears that they neglected to scale their training programs or their quality assurance programs. Yes, they have increased capacity, and wait times have diminished, but I have not received a “perfect order” from an Instacart shopper in weeks. Every order is either missing items or includes wrong items. Our most recent order, which included numerous frozen items, took over three hours from the time the shopper added the first item to their cart until it arrived at our door. All the frozen items had thawed, and many of the refrigerated items were warm. We waited three hours for the order to arrive, then had to wait an additional two hours for the re-shop of the spoiled items. Another order was shopped… Read more »
Doug Garnett
BrainTrust

We need far more to “prove” a business model. After all, Instacart’s demand is driven by a once-in-100-years pandemic.

So what DO we know? Not much. And let’s remember how many premature declarations of “business model proof” we have had before:

  • Dollar Shave Club proved you can pay people to take razors you deliver to their home.
  • Amazon proved people love internet shopping as long as they don’t have to pay an economically viable price.
  • Uber proved people want better taxis — then proved they didn’t know how to make a profit.
  • Groupon proved there is a small portion of the population who loves coupon clipping. Then there’s the rest of us.

We will only know what Instacart proved AFTER the pandemic is over and “normal” has returned.

Ken Morris
BrainTrust

I’m glad Instacart has been here during the pandemic but the model is broken. Sending waves of people picking in a grocery store creates congestion and risk. The interaction required with out-of-stocks creates an extended shopping transaction that just adds to the problem. Retailers need to have real-time grocery inventory and be able to commit and reserve product. This can only be accomplished with technology and I believe micro-fulfillment is the answer either in a hub-and-spoke dark store scenario (where a dark store supplies a number of satellite stores) or a semi-dark environment in which auto-pick and traditional shopping co-exist.

Ron Margulis
BrainTrust

As fast as Instacart has grown during the pandemic, other vendors that offer much better deals for retailers have strengthened their capabilities. These competitors are in the form of comprehensive e-commerce platforms and automated micro-fulfillment centers, and have long term advantages for the retailer that Instacart doesn’t offer.

Peter Charness
BrainTrust

I have used Instacart a number of times over the past few months. Once they scaled up and had availability, the service was OK. Using Instacart for Costco gives me heartburn as the markup they take (yes they warn about it) seems outrageous. Is it a sustainable model? Frankly I don’t see it when they can be replaced by a robot, or an in-sourced service from the retailer. Will retailers replace Instacart? I can’t see it being a priority at the moment, but over time …

Jason Goldberg
BrainTrust
I was not that bullish on Instacart pre-pandemic. The transition to digital grocery was inevitable, and Instacart was a great solution for helping retailers that didn’t want to make their own investment toe-tip in digital grocery. But as digital grocery grows in adoption, retailers simply can’t outsource something that important to a third party. Much less a third party that runs a marketplace that can complete with the retailer. For that reason, I’ve expected and observed most major retailers move away from Instacart to their own in-house solutions. Obviously Whole Foods/Amazon moved off. It can’t be part of Sam’s Club, Costco, or Aldi’s long term strategy to outsource the majority of their customer experience to Instacart. So Instacart needs to pivot to smaller grocers and particularly independents that will continue to want to outsource. Pre-COVID-19 Instacart was moving to smaller operators for that very reason. COVID-19 dramatically increased bigger retailers’ dependency on Instacart in the short term, but makes it even less likely that Instacart is the long term solution for those same clients. Unfortunately,… Read more »
Cynthia Holcomb
BrainTrust
In the world of COVID-19, this is how I’ve seen Instacart shoppers shop: no mask, constantly looking at the phone to rush ahead to the next item, meanwhile going the wrong way down aisles or squeezing in between socially distanced shoppers to grab an item. At times I have witnessed Instacart shoppers outnumbering regular shoppers in Kroger, Trader Joe’s and other stores. While my observations could be described as anecdotal evidence, most humans in day-to-day life operate on how something makes them “feel.” I do not blame the Instacart shoppers themselves — they are boxed into the act of shopping as fast as possible to earn a living. Instacart now has earned a $13.7 billion dollar valuation on the backs of their “team” of Instacart shoppers. It is so difficult to watch all human shoppers become the widgets of corporate billion-dollar valuations. Layer that on top of shopping becoming a competitive sport requiring pedestrian shoppers to wear PPE gear due to the influx of untrained Instacart shoppers. COVID-19 grocery shopping is stressful enough without the… Read more »
Jeff Weidauer
BrainTrust

Instacart has made it this far because it can continue operating at a loss. Retailers didn’t want to get into the ecommerce game directly because they couldn’t figure out how to make a profit. Until that problem is solved, retailers will stay away. Once it is solved, retailers will all implement and Instacart will be pushed out.

Joe Skorupa
Guest

Instacart is here to stay. The efficient post-COVID shopper: Have basics delivered to your home. Go to farmer’s markets for your produce. Go to Costco for bulk. Best of all possible worlds.

Inna Kuznetsova
Guest
3 months 3 days ago

Until March according to 10data’s data, Instacart added about 19% of new users a month. Over March and April the number jumped up to 46% but the trend stopped and returned to 20% in May. It is still a healthy growth given that over 69% of new users added last year stayed, but it may be a bit different with those who only joined due to the lockdown situation. History will show how many will stay after the full re-opening.

Francisco Lyons
Guest
3 months 3 days ago

Currently, Instacart is a great solution as it allows us to get our groceries delivered at home in as little as one hour. Now, is it really making the brand’s path to the consumer more efficient? Many large CPG companies feel the current route to market is very inefficient as there are too many layers (distributor, warehouse, retailer, etc.) between the product and the consumer. Thus, the problem with Instacart is that it’s an additional layer to an already complicated RTM. Many companies such as Amazon and Boxed are redesigning the route. Additionally, CPG companies are also trying new ways to get the product into people’s hands in the most efficient way possible.

The outcome of all these RTM improvements could impact Instacart’s future.

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Braintrust
"Instacart has only proven that they can move nimbly during a crisis, the real trick will be if they can become a profitable, sustainable business."
"Instacart now has earned a $13.7 billion dollar valuation on the backs of their “team” of Instacart shoppers."
"As long as it can turn a profit, it’s the winner. Period. Let’s put it this way, Amazon Fresh can’t touch it..."

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