Has the pandemic proven Instacart’s business model?


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.
- Instacart Announces $225 Million In New Funding Led By DST Global, General Catalyst And D1 Capital Partners – Instacart/PRNewswire
- Instacart nabs nearly $14 billion valuation in new funding round – CNBC
- Instacart raises $225 million at $13.7 billion valuation – TechCrunch
- Instacart Valued at Nearly $14 Billion in Latest Funding Amid Online Sales Boom – Reuters/The New York Times
- Instacart Blows Past Walmart in Online Grocery Business – The Information
- Speeding past Instacart, Walmart Grocery is top U.S. online grocery service – Second Measure
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?
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22 Comments on "Has the pandemic proven Instacart’s business model?"
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Co-Founder and Executive Partner, VectorScient
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.
Principal, What Brands Want, LLC
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…
President/CEO, The Retail Doctor
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.
Professor, International Business, Guizhou University of Finance & Economics; Executive Director, Global Commerce Education
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.
Managing Partner, RSR Research
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.
President/CEO, The Retail Doctor
Very important distinction too, Gene. Poor performance looks bad on the retailer probably more than on the third party.
Managing Director, GlobalData
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.
Principal, Retail Technology Group
I think that is an easy one: yes! If they cannot take advantage of the market penetration that they are experiencing, shame on them!
Retail Thought Leader
Managing Partner, RSR Research
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
CEO, rDialogue
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.
Director, Retail Market Insights, Aptos
President, Protonik
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:
We will only know what Instacart proved AFTER the pandemic is over and “normal” has returned.
Managing Partner Cambridge Retail Advisors
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.
Managing Director, RAM Communications
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.
Retail Strategy - UST Global
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 …
Chief Commerce Strategy Officer, Publicis
Founder | CEO, Female Brain Ai & Prefeye - Preference Science Technologies Inc.
Principal, SSR Retail LLC
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.
Influencer, Consultant and Strategic Advisor
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.
CEO, 1010data
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.
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.