Instacart filed its S-1 on Friday, August 25 — and with it came a glimmer of hope that the 18-month tech IPO drought may be ending. EquityZen’s head of market insights Brianne Lynch reports that some 1400 private companies worth $1B or more are sitting on the sidelines, waiting for a better time to test the waters in the public markets. Whether Instacart opens the Tech IPO floodgates or turns the spigot into something more like a constant trickle, we’ll wait to see.
Its filing puts to rest the endless speculation about its financial performance, its business model and its role within the $1.5 trillion U.S. grocery ecosystem.
It also offers new insight into the five ways that Instacart is driving the digital transformation of a sector that, until 2020, generated nearly all its sales from consumers who shopped inside their physical stores.
Instacart reports that its Marketplace platform reaches more than 95% of U.S. households, with 7.7 million monthly active users who shop at one of the 1400 retailer brands on the platform. Since its launch in 2012, Instacart says that it has processed more than 900 million orders containing some 20 billion items, accounting for $100 billion of gross transaction volume.
On any given day, Instacart says its users can shop one of 50 localized brands and roughly one million items from regional, national and local grocery chains who upload tens of thousands of grocery SKUs onto its platform.
| Instacart is the grocery store’s advocate, not its antagonist. |
Instacart’s S-1 reports that for the first six months of 2023, overall order volume was 132M and revenues were $1.5B, reflecting growth rates of 4% and 31% respectively, compared to the same period in 2022. Its reporting of a $428M profit is admittedly a little sleight of hand, since 83% of it is described as a tax benefit in the filing. That said, being profitable when going public is something about which only few tech companies can boast, so give credit where credit is due.
Like Amazon, Instacart is a powerful platform that uses sophisticated tech to aggregate a massive and massively fragmented industry and deliver a slick online user experience.
Unlike Amazon, Instacart isn’t a marketplace — it doesn’t aggregate and sell individual products outside of the branded store experiences on its platform. It also does not produce and sell private label brands. It doesn’t show users a choice between Wegman’s and Costco’s rotisserie chicken offers. Instacart is also licensing its tech so that retail brands can use it to power their own retailer-branded online experience.
Instacart is the grocery store’s advocate, not its antagonist.
Instacart makes its money by incenting brands to drive more volume online, taking a commission on those orders and ad revenue from brands who want to boost their sales. It sells subscriptions to consumers that include free shipping and offers co-branded cards that pay interchange when consumers use them. Its incentives are aligned to make grocery stores successful by giving them a better way to compete more effectively in the digital world. This includes Amazon, which has set its sights on grabbing more grocery share and has a captive grocery store with an omnichannel shopping experience and Prime Members to leverage.
Instacart has done all of this for a sector that has historically underinvested in digital technology at scale because its executives never thought that consumers would want to shop for food anywhere but inside their stores. And because they were too small individually to make the investments necessary for state-of-the art tech to simplify the complexity of shopping online for 20 to 30 very different items during one shopping session.
Case in point: Peapod. Peapod, the early innovator in the online grocery delivery space, had a 23-year head start on Instacart, but it is largely invisible in 2023. The big chain in Massachusetts that was Peapod’s anchor store, Stop & Shop, is one of the grocers that can now be shopped on the Instacart platform. A poor user experience and limited selection of products available to order online plagued its early attempts to move groceries online — and, ultimately, its opportunity to scale online grocery and delivery.
I was one of those 7.7 million Instacart shoppers on Saturday and Sunday. Probably some of you were, too — at least one of those days. During the pandemic I started using Instacart weekly to order groceries for my dad, who lived in another city, and continued that tradition post-pandemic. Some of you probably did that, too.
The ability to reduce the 60 hours a year, on average, that consumers reportedly spend shopping for groceries is a big part of the friction/time value proposition that has helped Instacart scale. Many consumers are willing to trade the value of their time for the cost of the delivery fee.
Those statistics understate one of the biggest advantages that the Instacart platform provides consumers.
| Maybe they’d rather try a store they would otherwise skip because it requires a 40-to-50-minute round-trip drive. |
Instacart has eliminated consumers’ need to consider proximity in their decision about where to shop for groceries. Maybe shoppers want to shop using Instacart at the same store they’d otherwise visit in person. But maybe they’d rather try a store they would otherwise skip because it requires a 40-to-50-minute round-trip drive — as many now do. Those are the stores that consumers can shop on the Instacart platform.
The drive-time loyalty lock-in that used to define grocery store competition and shopper behavior is no longer a slam-dunk predictor of who gets the consumer’s grocery store spend. Instacart and digital are forcing grocery stores to up their game and changing how grocery stores compete while giving consumers the ultimate choice in where to buy their food.
Advertising is one of Instacart’s revenue bright spots, contributing 30% of overall revenues, and will be important to driving new flows forward. Advertising on the Instacart marketplace gives brands a way to promote their products — and first-party data that they don’t get when customers pull those products off their shelves in the store. And they get that data without cannibalizing the grocery store channel that still drives most of their sales.
With that first-party data comes the ability for brands to monitor purchase trends and inform product and promotional strategies. In a world where grocery stores favor their own private label brands, Instacart’s ad platform gives brands a way to fight back. Brands also have a shot at putting the purchase of frequently purchased brand name products that are candidates for competitor subscription offerings back in the weekly virtual shopping cart, helped by digital coupons that brands can extend as an incentive to buy.
These offers could potentially chip away at Amazon Subscribe and Save, which is out to claim a big part of the grocery store center-aisle spend. PYMNTS has been tracking Amazon Subscribe and Save consumer trends since 2020 and has observed a slight decline in the number of consumers who say they have used this subscription offer over the last 18 months.
| In a world where grocery stores favor their own private label brands, Instacart’s ad platform gives brands a way to fight back. |
Although it remains one of the more highly valued retail subscriptions, PYMNTS reports the share of consumers with Amazon Subscribe and Save declining from 8.8% in 2021 to 6.4% as of July 2023. As a long-time Amazon Subscribe & Save customer, the frequency with which my preferences are cancelled has increased, along with the prices of the items themselves. For many, the combination of those two things may be enough to seek online alternatives.
Instacart describes itself as a digital-first platform focused on making grocery shopping easy and convenient. With the acquisition of smart cart manufacturer Caper, that value proposition now extends in store. The grocery stores that enable Caper give customers the ability to log into their cart with their Instacart credentials (including payments), scan and bag items as they shop, and skip the checkout line when their shopping journey is complete.
More than a way to deliver an omnichannel experience for grocery stores and Instacart shoppers, it’s an opportunity to create a digital grocery shopping identity that also connects to grocery store loyalty programs that can save consumers time and money while shopping in store. It also gives brands another channel to encourage shopper behavior in the moment, offering recommendations based on what is scanned and put in the cart and reminders not to forget the important items on their stored grocery lists.
Although not yet at scale — and not yet at the level of a biometric identity a la the Amazon Palm Pay experience — log in with Instacart at the grocery store could be a first step step in the direction of giving consumers a cross-channel, personalized online grocery identity.
I sense the virtual eye rolls. But hear me out.
Instacart’s growth over the years has been helped by adding more grocery brands to the platform and the order volume that follows. For Instacart’s growth to continue, more consumers must buy more of their groceries online, which they will. But Instacart must also add a diverse group of retailers to the platform to keep the order and transaction revenue flywheel going, and new services that drive new payments flows.
| A personalized online grocery identity saves customers time and money regardless of how and where they shop. |
PYMNTS data is clear that consumers want the convenience of buying the things they want every day from a single platform that makes order and delivery easy and convenient. It’s how most people use Amazon. Food obviously falls into that category — but so do prescriptions, health and beauty products and what my mother used to call “sundries.” According to PYMNTS data, 44% of consumers want the ease and convenience of such an experience on a single platform when it comes to purchasing those products.
That may not be much of a stretch for Instacart, since adding non-grocery brands seems to be part of their strategy. Neither could be adding pharmacy options using some of the new healthtech platforms that are innovating in this space. Or embedding subscription or replenishment options for frequently-purchased products from the grocery stores and retailers consumers shop for on their platform.
In March of 2020, a paltry 2% of grocery purchases were made online. The pandemic changed all of that, for obvious reasons. It’s easy to forget how scared we all were to step foot into a physical store, and the social distancing requirements in physical establishments that made shopping in them in 2020 and even a lot of 2021 extremely challenging. Standing in lines outside of their go-to grocery stores turned a 60 minute weekly shopping trip into a half-day investment of time, complete with masks and gloves.
Consumers turned to online grocery platforms like Instacart as a safer and less friction-filled shopping experience, even for those who did little online shopping before and probably no online grocery shopping at all.
According to the latest PYMNTS study of online grocery conducted in July 2023, nearly 19% of consumers shopped online to buy some of their groceries, even though no one thinks twice today about going to a physical store to shop. Although we have seen the trend moderate somewhat over the last 12 months, buying groceries online is two times the level it was pre-pandemic. Nearly three quarters of those orders were purchased using Instacart, with many of those orders placed by millennials and consumers earning more than $100,000 a year.
More interesting are the trends we observe as more consumers return to work, even if only a few days a week. Unlike some digital trends that moderate as consumers return to the physical world, including their offices, we see an increase in the use of online grocery ordering. Not only does PYMNTS data find that 23% of consumers order groceries while at work, but most online grocery shoppers also place their orders during the week, and not the weekend.
Although consumers are eager to reengage in the physical world, increasing numbers aren’t that interested in spending their time shopping for groceries that way. At least not in the way that they did pre-pandemic.
It seems clear that the shift is permanent and increasing. What’s not clear is whether Instacart’s approach to scaling its platform will position it as the retailer-friendly Amazon challenger. At the moment, it’s the closest thing we’ve seen to a platform that thinks like Amazon — organizing and deploying leading-edge tech at scale for retailers — without some of the conflicts that keep many retailers from participating. Whether that’s Instacart or someone else, there’s half of all retail sales up for grabs for whoever perfects that balance.
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