Instacart is launching a new service aimed at SMBs, including possibly smaller niche and specialty grocers as well as office supply firms, in a bid to increase revenue lost to major grocers that have taken back fulfillment, as it looks to boost a sagging valuation ahead of an expected IPO.
It’s also a defensive move against competitors DoorDash and Uber Eats, which have been moving into grocery as well as other types of local delivery. At the same time, Instacart has been unwinding in-store picking by its drivers, handing that back to the retailers.
Some see the offering as competitive with Amazon Prime and Walmart+, although that feels like a bit of a stretch.
According to The Information, which broke the story, the offering would be branded as Instacart Business, and include a curated selection of items such as office supplies, cleaning products and snacks that Instacart would deliver to end customers. There is no set date for rollout.
Again according to The Information, Instacart’s market valuation dropped again in late December to $10 billion, after a dip in October; it represented a 75% haircut from a high of $39 billion in its heyday two years ago.
After flying high during the pandemic lockdowns, when it was perfectly positioned to rake in tons of business from grocers lacking the infrastructure and chops for fulfillment and home delivery, Instacart has seen many retailers exit its marketplace. The ability to own the customer relationship and shopper data has been a key reason for grocers deciding to insource or find another partner.
Mark Fairhurst, vice president of marketing for e-grocery provider Mercatus, said SMB was a smart play for Instacart to make up volume in other areas as its grocery business declines.
“Fulfillment generally but delivery in particular is a volume game,” Fairhurst said. “They have to maintain volume to make the economics work, especially in the gig labor space. As DoorDash and Uber Eats move more aggressively into grocery, offering deals to woo retailers away from Instacart, they’re using other aspects of their business to offset that investment. Instacart doesn’t have that luxury, going into SMB.”
Fairhurst also said the move addresses two other issues for Instacart: offering its gig drivers more opportunities to earn in order to keep them onboard, and attracting enough eyeballs to maintain ad network revenue. There has been no lack of issues with its gig workers in California. Over the past few months it has reached multi-million-dollar settlements with the cities of San Francisco and San Diego over its treatment of workers.
“If you have fewer customers shopping your marketplace or retailers aren’t using them, CPM rates fall and large CPGs like Newell Rubbermaid, Kraft Heinz, P&G and Unilever want to go where the eyeballs are,” he said.
Jonah Ellin, chief product officer at 1010data, said Instacart had to extend into SMB, given its loss of grocery business as big retailers insourced and other players found different options. Ellin also suggested Instacart could go after smaller, niche and specialty grocers and food companies with the SMB service.
“Those are businesses where a moat still exists, where there’s differentiation, maybe it’s gourmet or ethic food,” he said. “Instacart could be part of the value proposition for them, saving customers time with ecommerce.”
Fairhurst said the Instacart move was interesting in light of news that small Midwest grocery chain Heinen’s is moving out of the Instacart fold, opting instead to use its own upgraded delivery app. The relationship goes back to 2017. Sensing an opportunity, more solutions like Grocerist are emerging designed to help smaller grocers exit Instacart and take back control of their destiny.
“It’s not surprising,” he said of Heinen’s decision. “I think you’re going to see other grocery retailers pull back from essentially outsourcing their entire ecommerce experience to Instacart. But maybe not delisting entirely from the (Instacart) marketplace, like Heinen’s did. It’s indicative of their belief in the strategy of the brand to sustain whatever Instacart had done to hold onto those shoppers.”
As Instacart did when Whole Foods left the fold, referring shoppers to similar grocers, Fairhurst said it’s already happening with Heinen’s. In fact, Instacart is assuring Midwest shoppers it has relationships with Fresh Thyme, a direct competitor of Heinen’s, as well as Aldi and Meijer.
As for Instacart’s other attempts to broaden into other categories, Ellin didn’t think its big-and-bulky delivery service, launched in August, will be a particular winner.
“Shopping is shopping and delivery is delivery, so if there’s a store (Instacart) has an opportunity,” he said. “They can get into the challenge of handling general merchandise, but Instacart isn’t going to be delivering a lot of sofas anytime soon.”