Three online grocery trends arising from Instacart’s new strategy

The American on-demand online grocery platform Instacart has seen many changes during its rather short history. Since it’s founding in 2012 the company has had to change course several times either due to losing a big client (Whole Foods acquired by Amazon) or because of rapid surge in demand (Covid).

During the pandemic Instacart became a crucial part of the grocery infrastructure enabling many grocers to start selling online for the first time during the spring of 2020. Today Instacart serves more than 750 retailers and it has become one of the biggest (if not the biggest) online grocery retailers in the US.

As the pandemic's influence on online grocery retailing starts to fade, the growth figures have stabilised throughout the Western world. This has influenced also Instacart. On 23rd of March, the company unveiled a new suite of solutions, Instacart Platform, to help grocers sell online.

The platform reflects the changes that the pandemic era US online grocery success story has faced during 2022. Online grocers everywhere are facing these same changes. What are the five changes that are shaping online grocery retailing?

Trend #1: Online grocery competition heating up

Only a couple of days after the introduction of Instacart Platform, the company reported that it has reduced its valuation by 40%. Instacart had grown it's valuation rapidly during the pandemic. Since the Amazon-Whole foods acquisition Instacart had grown it's valuation by ten fold to nearly $40 billion. Currently the company is worth $24 billion.

The success of Instacart as well as the pandemic induced growth of demand for online grocery has given birth to a slew of competitors for Instacart. Firstly, the big companies like Walmart, Ahold and Kroger (notably less Amazon) have stepped up their game in the online channel.

Secondly, some of the small and medium sized local grocers, that Instacart relies rather heavily, have started to build their own online channels.

The big question for Instacart is how long medium sized grocers want to rely on Instacart to handle online orders and the customer relationship?

Thirdly, Instacart has seen new competitors from the on-demand companies (such as DoorDash and Uber) that have expanded from restaurant deliveries to deliver also groceries. Besides them a slew of instant delivery companies have taken the speed of online groceries to a new level.

The 30 minute delivery promise was once the competitive advantage for Instacart. Today it is barely regarded as fast.

In this market of increased competition and decreasing growth Instacart has been looking for different kinds of deals to improve its competitiveness. It has been rumoured to have had discussions with both DoorDash and Uber about possible deals/mergers.

The increase in competition is not only Instacart and US related trend. In Europe the markets are seeing lots of new kinds of companies selling groceries online. Most clearly this rise in competition can be seen in Germany where Picnic, Rohlik and Oda are challenging the established bricks and mortar grocers as well as Amazon Fresh.

Trend #2: Fulfilment efficiency as a lever towards profitability

Micro fulfilment enters (MFC) are a hot trend in online grocery (Image source: Fabric)

Another interesting and topical part of the Instacart Platform is the fulfillment service. Besides having shoppers in the retailers' stores picking the products, Instacart has started building fuflilment capabilities outside the stores. This seems to be happening on two fronts.

Like many other grocery retailers, Instacart has started exploring the use of Micro Fulfilment Centers (MFC) in improving the picking efficiency. The company announced that they are partnering with the Israeli technology company Fabric in building Micro Fulfilment Centers. However, it is unclear whether Instacart has built any fuflilment solutions with MFC technology.

The current fulfilment solution (Carrot Warehouses) is geared towards the instant delivery market. Instacart has partnered with Publix to develop Nano Fulfilment Centers (NFC) to offer customers with 15 minute deliveries. Apparently the NFC will be attached to an existing Publix store. One could imagine that the NFC is similar to the dark stores built by the instant delivery companies like Getir or Gorillas.

With the Carrot Warehouses Instacart can better fend off the rise of the instant delivery competitors.

As the online grocery has grown in demand and in delivery volumes, the picking efficiency with the store picking models employed by most online grocery services, have become financially unsustainable.

Trend #3: Ads are a big deal for Instacart also

© Instacart

Third aspect of the Instacart platform is probably the hottest topic in online grocery currently: the self service Ad platform.

As Amazon has amassed tens of billions in annual revenue (profits also?), coutnless online grocery startups have raced to build their own version of Ad platforms. This is a very smart move from the retailers as they can easily increase the profitability of the overall online service.

Amazon Retail’s profitability is heavily reliant on Ads

Self service Ad platform is good for the brands also. The brands can much more flexibly promote to their products and experiment with different ways of reaching the customers.

We will most probably see many more European retailers also building self service capabilities in their online businesses.

The commercial potential of the Ocado platform was one major reason why ICA selected Ocado as their partner for building the online business.

From social media to basket

Another interesting development that Instacart has been working on relates to the use of shoppable recipes within social media. In March Instacart launched 'Shoppable Recipes' in Tiktok and some recipe sites. This is an interesting development into more social shopping for groceries. Besides recipes shoppable content on social media could become important for the impulse (candy, snacks...) product categories.

Shopify of groceries?

All in all Instacart is building a suite of products that enables the grocery retailer either to sell groceries on the Instacart platform or through a white label service where the customer buys directly from the retailer.

© Instacart

This is highlighted by the development of Insights tool and the In-store hardware. With the Insight tool the retailer can get a more comprehensive understanding of the performance in the online channel. In the hardware part Instacart offers retailers Smart Cart and Smart Cashier solutions.

Thus, Instacart is equipping small and medium sized grocers with tools to succeed in the online world.

That sounds a lot like the strategy through which Shopify has built itself into one of the fastest growing retail companies. Equipping small retailers with the tools to sell online.

The big question for Instacart is how the small and medium sized retailers are willing to pay for getting the online orders? There is a fine line, which Instacart is treading between retailers not remaining interested for online and interested growing alongside the heated competition.