COVID-19 has upended nearly all aspects “normal” life. With restaurants shuttered, students learning remotely and employees working at home, our lives are now online. A shining light amidst a bleak 10 months is the accelerating adoption of digital trends arising in all aspects of everyday life. Just a mere year ago, most of us were making the regular weekly trek to the grocery store, wading through crowded Sunday afternoon crowds. Given local lockdowns, social distancing requirements, health risks, and the all-important convenience factor, many of us are now ordering our groceries online for delivery right to our refrigerator. Thank goodness for Instacart.
Instacart, an online grocery delivery service, has changed the way we grocery shop. Once you login to the app or website, you select your desired grocery store, pick your desired items – including instructions for substitutes in the case of stock-outs – and a delivery time, reducing a dreaded 2-3 hour weekly grocery store run into a few quick clicks. According to Forbes, due to growth in e-commerce grocery sales driven by COVID-19, Instacart is valued at $18B, more than double what it was 10 months ago, and anticipates an IPO in the coming year1. Of grocery shoppers, a $1T market in the US, online shoppers increased from 3.4% in 2019 to 10.2% in 2020 with growth anticipated to continue even after COVID-19 restrictions are lessened1.
The pandemic has fueled Instacart’s success, as many look to limit their exposure to the virus, especially higher risk individuals. While you might anticipate that this trend is more popular among younger shoppers, The Business Insider Online Grocery Report cites that 49% of baby boomer respondents to the Coronavirus Consumer Survey report making online grocery purchases2.
This convenience factor is not to be underestimated. Instacart fulfills a “job to be done” when many are finding themselves juggling many jobs at home, especially working parents. The New York Times writes that “America’s mothers are in crisis” as they juggle being caregivers, teachers, housekeepers, chefs, and income earners with little to no breaks3. Instacart helps to take one job, grocery shopping, off the to-do list.
Instacart offers customers choice, availability, flexibility, and transparency:
Choice. Unlike big retailers like Walmart, Amazon, or Target, Instacart provides access to a variety of retailers. When I login to Instacart from Cambridge, MA, I can choose from over 30+ retailers. Compared to smaller competitors like Shipt (owned by Target), Instacart is available in more markets and has more retail variety – Shipt only has 10 choices for me in Cambridge, MA4.
Flexibility. For frequent shoppers, Instacart offers a membership program to reduce delivery fees, but does not require a membership to place an order unlike competitors such as Amazon or Shipt5. This makes Instacart more accessible and flexible to customers.
Availability. Instacart utilizers gig workers allowing them to scale up more quickly during demand surges or down during lulls. For customers, this means they can more easily get desirable delivery times. This also allows Instacart to offer delivery times within the hour, a significant benefit to some customers.
Transparency. Instacart gives customers transparency into their shopping experience from home. You can easily chat with your shopper to make replacements or changes to your order and price changes are displayed in real time so you can make selections as if you were in store.
Instacart captures value by charging service fees, delivery fees, membership fees, and retailer partnership fees and selling ads to retailers6. The service fee covers things like app development and management of the gig workforce to provide the customer transparency and availability. The delivery fee gives customers the flexibility they value. The membership fee creates an opportunity for recurring revenue, a metric that helps drive profitability and is attractive to venture backed capital. Partnership fees cover the cost of acquiring new retailers, providing customers with more choices. Finally, promotions give retailers and manufacturers an opportunity to boost cart sizes in a targeted way to customers, making it attractive for them to join the Instacart platform, with Instacart benefiting from the fee.
COVID-19 won’t be around forever – at least we hope not – so what will happen to Instacart as life returns to normal? Industry trends suggest online grocery growth to continue, but according to a Technavio Industry report, we should expect increased consolidation from M&A and strategic partnerships with big players who have big capital7. Instacart’s anticipated IPO will be interesting to see if the standalone delivery model can work or if a strategic partner is needed for continued scale and profitability.
1 Sorvino, C., 2021. Instacart Survived Covid Chaos — But Can It Keep Delivering After The Pandemic?. [online] Forbes. Available at: <https://www.forbes.com/sites/chloesorvino/2021/01/27/instacart-survived-covid-chaos—but-can-it-keep-delivering-after-the-pandemic/?sh=71ba5d7abfa1> [Accessed 10 February 2021].
2 Keyes, D., 2020. The Online Grocery Report. [online] Business Insider Intelligence, p.18. Available at: <https://www.businessinsider.com/online-grocery-report-2020> [Accessed 10 February 2021].
3 Grose, J., 2021. America’s Mothers Are in Crisis. [online] Nytimes.com. Available at: <https://www.nytimes.com/2021/02/04/parenting/working-moms-mental-health-coronavirus.html> [Accessed 10 February 2021].
4 Cox, D., 2021. Shipt vs. Instacart: Which Grocery Delivery Service Is Better? – Clark Howard. [online] Clark Howard. Available at: <https://clark.com/shopping-retail/shipt-vs-instacart/> [Accessed 10 February 2021].
5 Woo, K., 2021. Best grocery delivery services in 2021: Instacart vs Walmart Grocery vs Dumpling. [online] Tom’s Guide. Available at: <https://www.tomsguide.com/best-picks/best-grocery-delivery-services> [Accessed 10 February 2021].
6 Kishore, G., 2021. How to Build A Grocery App like Instacart | How Instacart Works – Business & Revenue Model. [online] Best Website Design Company Blog – Results-Driven Web Design. Available at: <https://www.fatbit.com/fab/build-grocery-delivery-app-like-instacart/> [Accessed 10 February 2021].
7 Technavio, 2021. Global Online Grocery Delivery Services Market 2020-2024. [online] Technavio, p.87. Available at: <https://insights-technavio-com.prd1.ezproxy-prod.hbs.edu/report/online-grocery-delivery-services-market-industry-analysis> [Accessed 10 February 2021].