DTC Era   /   July 26, 2022

DTC Briefing: How startups are using Instacart’s advertising platform

This is the latest installment of the DTC Briefing, a weekly Modern Retail column about the biggest challenges and trends facing the volatile direct-to-consumer startup world. To receive it in your inbox every week, sign up here.

With more brands that started out direct-to-consumer entering retail doors, many are testing out new ways to reach those retailers’ customers. 

Naturally, advertising is a popular choice. While many have been using retail media networks like the ones Target and Walmart have built out, more and more startups are testing out third-party services like Instacart and their nascent ad capabilities for brands.

This week, we checked in with a number of consumer brands on how they’re using Instacart’s growing suite of marketing tools. Executives from brands utilizing these features told me that Instacart’s self-serve platform makes it easy to start testing Instacart ads. However, the program is still in its early stages, making it challenging to target specific geographical demographics or shoppers brands want to reach — at least for now. As it stands, brands are still trying to understand the platform’s algorithm, how to optimize search keywords, along with allocating the time and resources to make Instacart ads successful.

A new digital retail channel

When Instacart launched its ads platform back in May 2020 — at the height of its pandemic boom — the grocery delivery service promised more marketing opportunities for brands and retailers. Since then, the company has been running beta programs to expand on sponsored products and banner ads. More recently, Instacart announced that it was testing shoppable videos with CPG giants like Unilever and PepsiCo. 

Functional soda brand Poppi started using Instacart in 2020, when the brand first launched. However the beverage brand’s distribution was still limited, so it wasn’t until the spring of 2021 that it started growing its advertising budget and boosted its campaign targeting.

“We’ve been using Instacart display banners on the platform for about four months, and have seen great performance as another touchpoint that drives awareness and traffic while bringing our colorful personality to life,” said Poppi co-founder Allison Ellsworth.

Even with these units, Poppi still funnels traffic to Instacart and, in turn, its retailers, through influencer and social media campaigns. “We’ve seen Instacart traffic spike when our influencers direct their followers to it,” Ellsworth said. 

Detergent brand Hex Performance — which launched as a DTC brand in 2016 but has since expanded to retailers like Target — also recently started testing Instacart advertising. 

Hex’s head of marketing, Christine Luongo, said that Instacart “makes it easy for brands to get started, and we have lots of resources and a rep we check in with often,” said Luongo.

The best part of promoting products on a platform like Instacart is the ability to measure ROI and the cost-per-click model, Luongo said. “This is one of the few marketing channels where we don’t have to assume it’s working, it either works or it doesn’t,” Luongo said. “You have the ability to go in everyday to see what we’re spending and what keywords are effective and what’s not working,” she added. “The platform also shows us how many other folks are bidding on the same keywords,” she said.

The company is currently trying out Instacart display ads and sponsored products. “But we’re still trying to figure out how effective they are,” Luongo said. To support retail partners that sell on Instacart, Hex has separate campaigns running for them. That means creating Costco-specific ads, Target-specific ads and so on. 

As it continues to expand its wholesale business, Hex is trying to use Instacart to bridge the gap between its brick-and-mortar and online delivery. “Right now, we have solid ROAS for Instacart, with conversion varying by retailer,” she said. On average, Hex’s current Instacart conversion is about 1.8%, which it says is on par with its other digital sales. 

Figuring out the right keywords
When it comes to keyword and behavior display targeting, brands said the algorithm remains something of a black box.

Poppi, for example, is using its learnings from other digital channels to boost Instacart sales.

Ellsworth noted that most keywords within beverages are being targeted by both startups and big companies. “We look at usage occasions that Poppi pairs well with as a place where we have a right to play,” she said. “Deli and lunch related keywords have worked well,” she said. And being a gut health mixer with alcohol has been another opportunity the company has tested around holidays, which is when traffic really spikes in those aisles. 

Exact flavor matching to Poppi’s Raspberry Rose — especially among shoppers picking up raspberries in the produce aisle — “has also been ‘fruitful,’” Ellsworth said. Lastly, at checkout, Instacart now offers an “Impulse Lane” that’s meant to boost add-ons. “We look at this as the mini fridge right before checkout,” Ellsworth said.

The tactic seems to be working so far.

“Our Instacart velocities are over 2x compared to the greater beverage category and competitive set,” said Ellsworth. The company also monitors a Velocity Per Outlet (VPO) using Instacart data, which reports each of its doors’ availability and unit sales. Over the last 12 months, as Poppi grew retail partners, its VPO has more than doubled, said Ellsworth.

Figuring out the best keyword bids is a big theme among CPGs. 

“Surprisingly, the keywords we find to be successful are pretty niche,” said Hex’s Luongo. For instance, instead of trying to outbid big detergent brands — which can get expensive quickly — Hex has been bidding on phrases like “shoe spray.” This, Luongo said, helps funnel customers to Hex’s sports laundry-geared products. Another instance was the decision to bid on keywords like “best way to clean workout clothes.” 

However, Luongo noted that Instacart has been adding new ad tools, in an effort to help smaller brands compete with big grocery and CPG players. “As you bid, Instacart shows you how competitive the keywords are, and how much you need to bid for maximum return,” she said. For example, much like password strengths, a lower dollar amount will reflect a “yellow” badge, while stronger keywords show up as green.

Challenges remain
Self-serve advertising may be convenient, but it’s also a time and resource-consuming bet.

Beverage brand Calypso began testing Instacart in the past few months, to coincide with its national expansion into retailers like Kroger and Walmart. 

Matt Andersen, chief innovation and brand officer at Calypso, said Instacart’s self-serve platform is a draw because “you don’t need an agency, and we love that.” 

But the first thing Calypso’s team had to do was get its digital images up to date. “We spent a lot of time uploading new assets in the last couple of months,” Anderson said. “When it comes to SKU displays, clean digital representation is important.” 

After these changes, Anderson said his team has moved onto optimizing search terms and banner ads. So far, banner ads haven’t been effective. “My hunch is that most customers go to Instacart for a specific brand or category,” he said, and so they aren’t getting swayed by sponsored brands at the top of their page. “But we’re trusting the algorithm to do our keyword and SEO bidding for now,” he said. 

So far, Calypso has allocated “a small percentage” of its ad budget to Instacart — although that may change as the company continues to A/B test ads. Currently, the brand’s Instacart ROAS is at nearly 3%, “but we’d love to get it over 5%,” Anderson said. Over the past few months, the company saw that 64% of purchases came from first time Calypso shoppers. The company also advertises on other retailers’ networks, such as Amazon and Target.

Still, gaming the algorithm and grocery delivery’s seasonal nature is a continuous effort. The issues are similar to those that companies run into on Amazon, as they try to climb the top of customers’ search results.

“If you’re not on the front page or on top, you can get lost among the other brands,” Calypso’s Anderson said. One of the variables Calypso is trying to gauge is effective keywords. “For example, is it better to own ‘lemonade’ or ‘juice’?” Anderson said.

According to Anderson, at the moment Instacart’s platform doesn’t offer granular customer data, or allow brands to geo-target specific zip codes. So while Instacart is giving retailers and brands another way to reach new customers, it’s too early to be considered a digital ad heavyweight. 

“As we get up and running, we want to spend more – but the algorithms to pick us up are not there yet!” Luongo said.

What I’m reading

  • NASA-branded apparel is taking over fashion. CNN Business looked into why it’s happening now, and the brand behind the current spike in popularity: Coach.
  • E-commerce companies are burning cash at an alarming rate. According to a new report from Stifel, big companies like Wayfair and Carvana may need to get a cash infusion soon unless they are able to significantly change their financials.
  • The latest brand to launch in Walmart is The Honest Company. A variety of the company’s products — including its diapers, wipes and personal care products — are now available both on Walmart’s website and in its stores.

What we’ve covered

  • It’s expensive to sponsor an NFL game, so some DTC brands like Brunt are advertising with sports like car racing and bull riding. According to the companies, it’s a way to reach new niche audiences.
  • Member Exclusive: A number of DTC CPG brands like Your Super and Poppi decided to test out some Prime Day sales. According to them, participating in the sales event helped them gain exposure and acquire new customers.
  • DTC cookware brand HexClad is leaning on its celebrity partnerships to grow sales. According to the company, celebrity chef Gordon Ramsay has specifically helped grow its sales.
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