As the industry picks up its speed of innovation around e-commerce and delivery, Instacart’s role as the digital glue of grocery is growing increasingly complex.
Instacart has been adding new capabilities to its business model and diversifying revenue streams as it seeks to “bring all of the grocery store online,” according to chief business officer Nilam Ganenthiran. That includes expanding one-hour delivery and order pickup options to cover more of the country; building out Instacart Enterprise, which uses Instacart software and backend logistics to power retailers’ e-commerce sites, digital loyalty programs and online catalogs; and ramping up Instacart’s advertising business by adding more ad products to areas of the shopper experience like search, checkout and couponing.
And aggressive moves in acquisitions and delivery from companies like Walmart and Amazon have only shifted Instacart’s role for the rest of the industry further into focus: The company is now valued at $7.9 billion, having raised $1.2 billion in venture capital last year alone in three separate funding rounds. According to Instacart, it’s profitable in most of its mature markets, and profitable on gross margins per-order when not accounting for administrative expenses.
In the same way Shopify has helped direct brands scale online, Instacart wants to do the same for grocery, an area that’s still under-penetrated online: According to eMarketer, only 2% of food and beverage sales take place online. That means there’s a lot of ground left to cover, and Instacart’s main goal is making sure the first time a new customer shops for their groceries online, the experience doesn’t turn them off.
“Candidly, it’s an OK experience right now industry-wide,” said Ganenthiran. “It needs to be as good or better than the store.”
Ganenthiran explained how Instacart is plotting its roadmap for grocery’s online turning point, the influence of the delivery wars being fought by Amazon and Walmart on the business, and why the company won’t open its own grocery store.
As Instacart develops new avenues of business, how are you thinking about your role in brand and retailer relationships?
We see an opportunity to drive a ton of growth with our CPG brand partners with our advertising products. As the customer is coming online, brands need to find new ways to connect. So Instacart wants to be at the forefront for brands to connect with customers at the point they’re buying their groceries, to help them be more precise with their marketing and the measurement in return on investment.
It’s a completely different dynamic today [in retail advertising], and everything is moving faster. Fifteen years ago, I started my career in brand management at P&G and I would show up to work every week, look at my market share reports, and it would go up .1 or down .1 — and that’s all the share we were fighting for. The customer in the digital environment is choosing who to put in their basket when buying their groceries online. The digital opportunity, and challenge, is once a customer puts a brand in the online basket, that’s pretty sticky — much stickier than in a physical environment. So marketers are in a fight to get in that basket first. We offer brick-and-mortar grocers a way to capture dollars that are leaking from Facebook, TV and Google, with the purpose of bringing these grocers to life online.
How does the activity in the grocery space, particularly from retailers like Amazon and Walmart, influence Instacart’s business?
Nothing has helped us more than the brick and mortar grocery industry realizing that their customers need e-commerce. There have been multiple inflection points in the journey of Instacart, and one of those inflections was the Amazon-Whole Foods acquisition. That was a tipping point that forced innovation in e-commerce.
Instacart’s role in that journey was to be the technology leader and innovation partner for our 300 grocers. Walmart and Amazon’s moves have shown us and our retailer partners that the customer needs things like pickup. Walmart specifically has proven that. So that’s why we’re scaling pickup aggressively as we are. All the other competitors are causing us to work with our retailers to bring more innovation to market, be it deeper enterprise solutions, better service or new ways to connect with grocers. The competitive pressure is the best thing that can happen to us. It serves as a tailwind, because retailers then realize that customers want this service.
“At some point, an IPO is on the horizon.”
Does Instacart plan to open its own stores or launch its own brands?
I want to be unequivocal and direct about this, because it’s been speculated about for a long time: Instacart will not be in the grocery business in terms of owning our own merchandise or launching our own brands. We work in partnership with our retail partners. Our reason for being is to be a software and logistics layer for the grocery industry. We have no interest in backward integrating into the category.
At the highest level, it’s not the business we want to be in. We don’t want to be grocers. Digging deeper, it makes no sense practically or economically for us. Our hack on this system was proximity: We have access to 22,000 retail stores today that are located next to the consumers with the exact assortments that the customers in that area want to shop for, at the price point and with brands that matter to that area. The reason Instacart has pioneered in the industry was that original insight, that proximity matters. Not just for logistics and getting stuff to customers cheaply, but because these grocery brands grew up in these communities. We think it’s a fool’s errand to try to build another company to compete with that.
What does Instacart’s roadmap look like from here? Is there an IPO coming up?
We’re currently in the process of making sure our retailers will know exactly what the customer wants, when she wants it, and how she wants to get it. It sounds simplistic but it’s all solving different technical and product problems that require different levels of understanding.
Today, we are a late-stage private company. We’re in a position where the business works on a unit-economic basis, and we can be considerate about an IPO. We’ve been consistent that we intend to be an independent company. That’s the only path. We can stay private as an independent company, but at some point, an IPO is on the horizon.
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