What is the growth story of Instacart?
Instacart is a grocery delivery and pickup company based in the United States. Customers order from Instacart partner retailers through the website and mobile app and receive merchandise from personal shoppers.
The company was founded in 2012 by former Blackberry, Qualcomm and Amazon engineer Apoorva Mehta and was initially funded with $120,000 through a Y Combinator Accelerator. The entrepreneur had previously endured over a dozen start-up failures between 2010 and 2012.
However, the entrepreneur had both the connections and the tenacity to grow his start-up by strategically positioning it in a unique market niche: offering a delivery service that was even faster than its competitors’ one-day offering.
Instacart makes profit by charging delivery fees for grocery and pickup orders, charging $3.99 for same-day orders over $35 with a minimum order of $10. Fees vary for hourly deliveries, club store deliveries, and delivery on orders under $35.
Many customers subscribe to an annual membership for $99 or $9.99 monthly, which offers free off-peak shipping and peak-time discounts. There is also a service charge, which depends on several factors, including whether alcohol is included and the size of the order.
After several rounds of funding, the startup launched in 20 cities by 2014 and began signing deals with industry giants like PepsiCo. And after raising over $2.7 billion in private funding rounds, the company grew in value from just $3.4 billion in 2017 to $17.7 billion as of October 2020.
The company’s strategy of making it easier for consumers to shop for groceries quickly while allowing smaller businesses to take advantage has paid off. In 2016, the partnership with Whole Foods granted Instacart exclusive shipping rights prior to subsequent purchase by Amazon.
However, the Amazon purchase has left supermarkets so unsettled that many have chosen to partner with Instacart. 350 retail partners signed up to deny Amazon market power.
Then the Covid-19 pandemic gave Instacart a much-needed boost. With order volume skyrocketing 500% during mandated lockdowns, Instacart generated $1.5 billion in revenue in 2020 and $1.8 billion in 2021.
According to eMarketer, Instacart was responsible for just under 11% of e-commerce grocery sales in 2019. By the end of 2020, that market share had doubled to 22%. And grocery sales alone grew from $7 billion in 2019 to more than $23 billion in 2020.
A spokesman told investors that 2021 would see record highs in orders, gross transaction value, revenue, advertising revenue and gross profit, but declined to give exact numbers.
In its most recent funding round during the 2021 pandemic heyday, Instacart had reached a $39 billion valuation. But a few weeks ago, that figure was lowered to $24 billion to reflect the market slump in U.S. tech stocks.
What now the pandemic fades?
The growth injection has seen Instacart expand into various geographic markets, launching new products and partnering with retailers specializing in merchandise ranging from alcohol to medical prescriptions to beauty products.
But as lockdowns end and the pandemic subsides, consumers are becoming more confident about shopping in person, and Instacart sales could decline. Partnership talks with Uber and DoorDash have also come to nothing so far.
And Instacart has several competitors, including those that use the same model of delivery through third-party grocers like Shipt and also source models like FreshDirect directly. There are also meal kit providers like Blue Apron and the ubiquitous Uber. However, with its gargantuan market share, Instacart’s competitors are struggling to gain ground.
In the fall, the company postponed initial IPO plans to focus on growing non-delivery services for retailers. Several websites and apps, fulfillment services, advertising and data insight technology were introduced under new CEO Fidji Simo. Simo has told investors she wants to “develop the technologies that can power every single grocery transaction.”
The CEO plans to go much further than just deliveries. Together with Amazon, Tesco and various other outlets, it is working on the smart shopping of the future. It has bought AI start-up Caper AI, which is developing an intelligent AI cart using computer vision that recognizes products as they’re added and automatically charges shoppers for purchases.
Instacart plans to offer the technology to other companies that don’t have the funding or expertise to develop their own solutions as a natural progression from the convenience of self-checkout.
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