Instacart finally unveiling some numbers
The American online grocery gig-economy company Instacart has filed its S1 form as it prepares for its long-awaited IPO. The listing will also be interesting from the overall online grocery market perspective. According to the company, with 1 400+ retail banners and 80 000+ stores, Instacart services cover 85% of the US grocery market. As Instacart is focused on online grocery, the company offers an interesting glimpse into the overall online grocery market in the country.
The S1 filing of Instacart offers a breadth of interesting data about the company and the online grocery retailing in general.
The first notion is how much Instacart benefited from the pandemic. Important is how well the company has managed after the pandemic. The company saw its GTV (Gross Transaction Value) grow by 300% in 2020. However, the GTV has continued to grow. Last year, the GTV was 40% higher than during 2020.
Image source: Instacart S1 filing
This continued growth is probably due to the fact that a) Instacart has been able to increase the number of retail partners for the company, and b) the company seems to have a loyal customer base. This loyalty is illustrated in the image of the GTV values of the different customer cohorts that the company has acquired over the years.
Image source: Instacart S1 filing
It is worth noting that the total GTV of all cohorts has increased except for the 2020 cohort. This means that the customers acquired during the mentioned year have spent more as a group during the following years. This is a sign of improved loyalty. The pandemic 2020 was an outlier year, with many customers forced to buy groceries online. Thus 2020 cohort should not be compared to other years.
The loyalty is highlighted with the Instacart+ loyalty program. As with almost all loyalty programs, the most loyal customers tend to generate the majority of the revenue for the company. With the 5,1 million members of Instacart+, they provide the company $8,5 billion in revenues, which is 57% of the total GTV.
The Instacart customer base is also illustrated in the S1 report. As with online grocery, the Instacart customer is generally more affluent and urban than the average American grocery buyer. This makes Instacart a good partner for lower-end grocers like Aldi. Or, of course, any other grocer that wants to serve the more affluent urban customer.
Image source: Instacart S1 filing
The other notable finding from the Instacart financials is that the company is one of the few online grocers for gig economy companies that can boast profitability. For the last five quarters, Instacart has reported positive Operating margins. Out of the last 11 quarters, eight have been positive.
One important element in the improved profitability is the Advertising business. After the success of Amazon Ads, all online retailers have been rushing to capitalize on the Advertising potential.
For the last Twelve Months, Ad revenues represented 28% of all Instacart revenues. To compare that to the vaunted Amazon Ad business, it generates 7,9% of all Amazon revenues and 14% of all Amazon service revenues.
Interestingly, Instacart has seen Transaction revenues grow more than Advertising revenues. According to the company, the Transaction revenues increased more rapidly due to increased batching of orders, leading to the increased efficiency of the picking and delivery operations. It seems that Instacart has been taking most of the benefits from improvement instead of sharing that with the Shoppers. The company also stated that it had reduced the incentives paid for the Shoppers, leading to further growth in the Transaction revenues.
Interesting position on top of a growing wave
Instacart is in an interesting position as the company serves a large portion of the still rather nascent online grocery market in the US. The company can help its 1 400 retail partners start selling online at a relatively low threshold.
The online grocery market will continue to grow over the next decades. Instacart is well-positioned to capitalize on that big wave of retail change.
This is probably one reason why the FMCG giant Pepsi has decided to invest $175 million in the company. This provides a great window into the changing grocery retail landscape.
However, two major questions have arisen with regard to the Instacart business. The first question relates to the big potential seen in the company’s versatile and broad-reaching customer base. Eventually, as the online channel grows, many grocers will want to build their own online grocery business to control the overall online business.
In the Instacart ecosystem, switching between the grocers is too easy for the customer. However, this question will probably materialize not for Instacart in the short term but in the medium term.
The second big question regarding the Instacart business is the future of the gig-economy business model. The model has seen its share of criticism. As a result of that public discussion, the model has been challenged in some states. The heavy lobbying of the gig economy companies has muted the criticism, but the question remains an unanswered topic for the companies.
That and other aspects of the Instacart S1 will be covered in the next post…