The Instacart Imperative for CPG Brands

It’s hard to believe how much has changed in such a short amount of time! Last April, I wrote the article “Why Your CPG Brand Needs an Instacart E-commerce Strategy.” Since then, Instacart’s growth has kicked practically all competitors to the curb, and the company’s influence is not expected to wane anytime soon, even as total vaccinations increase. With consumer shopping behavior showing a tendency for not being tied to a single online outlet for any category, Instacart’s growing marketplace is ideally situated to take advantage of a variety of purchase criteria such as product availability, location and price.

This article will serve as a follow-up by highlighting the key developments Instacart has made since the previous article was published last year. It will also seek to further explain why the platform should be a major focus for all CPG e-commerce teams, and it will provide a few key predictions for the company’s future.

Instacart “Year in Review”

Key Growth Metrics

Grocery is the world’s largest retail category, but it’s still in the early innings of digital transformation. That being said, the double-shot in the arm that the “COVID-19 Effect” gave grocery e-commerce has been undeniable. In fact, almost three out of every four consumers have bought grocery items online during the last quarter, compared to only 17 percent in 2017. This increase in the adoption of online grocery shopping was largely driven by Instacart. According to a report from 1010data, in a “normal” (pre-pandemic) month, around 19 percent of Instacart’s shoppers were new. During April 2020, however, that number grew to 46 percent. The company gained a total of 12 share points in 2020 and now holds the majority market share (28 percent) for total online grocery sales, with total year-over-year growth of 323 percent.

Additional Partnerships

The Instacart brand is still most closely associated with the grocery category, but many of the 200 new retailers and 15,000 new locations that were added to the platform in 2020 specialize in other verticals. These include The Vitamin Shoppe, Michaels, Family Dollar, Sephora, Best Buy, Rite Aid, Staples and Walgreens. Instacart was also able to secure an expanded partnership with Walmart, the largest retailer in the world, whose Walmart+ program offers same-day grocery delivery as a main value proposition. This expanded marketplace is an important piece of Instacart’s larger flywheel that seeks to attract more customers with a convenient, all-encompassing shopping experience.

SNAP Capabilities

As of November 2020, approximately 21.6 million American households received Supplemental Nutrition Assistance Program (SNAP) benefits, an increase of just over 13 percent year-over-year. With stay at home orders in effect throughout much of that timeframe, online shopping for SNAP-eligible products exploded, growing 6,900 percent in 2020. Amazon and Walmart were early champions of the U.S. Department of Agriculture’s SNAP online payment program that started in April 2019, seeing it as a strong incremental sales boost to a low-margin grocery business.

Instacart was also quick to understand just how critical accessibility of online grocery services is to SNAP recipients (and subsequently its business). It recently rolled out a SNAP online partnership with Aldi and now offers same-day delivery and pickup for SNAP-eligible products at 1,700 stores across 29 states. In February, Instacart launched a similar partnership with Food Lion, making SNAP online purchasing available at more than 350 stores across nine states. With hundreds of retail partners also interested in serving SNAP receipts online, Instacart is perfectly positioned to see further growth by ramping up this program.

Increased Capital & Upcoming IPO

Before the pandemic impacted American consumers, Instacart was valued at $7.9 billion. Since then, the company has raised several rounds of funding and more than quadrupled its valuation. In June 2020, Instacart raised $225 million at a $13.7 billion valuation. In October, it raised another $200 million at a $17.7 billion valuation. This past March, the company raised an additional $295 million and saw its valuation balloon to $39 billion. The combined $720 million in new funding over the last year could soon become even more if Instacart decides to proceed within the traditional IPO framework.

High-Profile Human Capital Additions

Instacart has been aggressive in adding respected and accomplished talent from other high-profile companies. Readying itself for the public markets, it hired ex-Goldman Sachs investment banker and IPO specialist Nick Giovanni as its Chief Financial Officer. It also grabbed Daniel Danker, the previous Head of Product at Uber Eats, to be its Vice President of Shopper and Fulfillment.

Instacart is also adding to its Board of Directors. This includes three recent appointments:

  • Fidji Simo: Leads the team behind Facebook’s app
  • Barry McCarthy: Former Chief Financial Officer for Spotify and Netflix
  • Frank Slootman: Chairman and CEO of enterprise software specialist Snowflake

What Could be Next?

To better understand what could be next, it’s important to refresh our memories on the pivotal moment four years ago that eventually led to Instacart becoming the powerhouse it is today. When Amazon announced it was acquiring Whole Foods Market in June 2017, it provided Instacart with both a massive challenge and opportunity. At the time, Instacart’s biggest retail partner was Whole Foods Market, and the writing was on the wall that this M&A transaction would end that relationship. On the other hand, Amazon’s decision created havoc in the grocery industry that left all legacy competitors scrambling for stronger e-commerce solutions. Instacart became the challenger brand to Amazon that the grocery industry could partner with to bridge the gap of digital disruption.

All that being said, Instacart is now at a crucial crossroads in its business…

Stay Friends with Grocery Partners

The four-sided Instacart marketplace still provides a great deal of value to grocers. Despite this, grocery retailers have started to question how reliant they’ve become on Instacart. To dissuade the largest grocers from leaving to build their own platforms, Instacart can make its service even more valuable by building a fulfillment-as-a-service model that relies on autonomous micro-fulfillment centers, thereby rivaling technology partnerships between Kroger and Ocado and Albertsons and Takeoff Technologies. Instacart could also sustain its challenger brand approach by offering grocery retailers deeper analytics, something that Amazon has notoriously been against throughout its marketplace history.

Make Enemies with Grocery Partners

It’s very likely that the largest grocers will slowly but surely realize the power of controlling the entire end-to-end online experience. The reasons grocery retailers didn’t create full ownership from the beginning was because of an accelerated speed to market that internal innovation wouldn’t allow for, as well as the lack of profitability when you layer in the additional e-commerce costs in the legacy grocery business model. With four more years of experience under their belts, large grocers have begun to build internal profit centers, such as high-margin retail media networks, that are focused on offsetting these higher e-commerce cost layers.

With the largest grocery retailers transitioning first, it will create a sizable loss for Instacart that will need to be backfilled for business continuity purposes. The most logical method is to attack downstream in the market, which Instacart has been executing on by welcoming more than 125 new small and mid-sized retailers to the marketplace last year. On the other hand, the most highly-speculated method is that Instacart will begin to open “dark grocery stores” by investing heavily into autonomous robotic fulfillment centers. While this would fundamentally change their positioning in the market and relationship with partners, it might just be the type of aggressive move needed to grow its market capitalization in the public markets after the IPO process.

OneSpace Can Help

Designed to ease the burden on manufacturers, OneSpace’s full-service Instacart solution helps brands improve performance at a time when a record number of new online shoppers are flocking to the platform. Our solution features daily management of paid advertising using Instacart’s new self-service advertising platform, as well as product content optimization and deployment. Each part of the solution can be used independently or combined depending on the needs of the manufacturer. Contact OneSpace to learn more.

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