Is it time for retailers to reconsider Instacart?
Instacart’s ability to enable grocers to quickly implement or scale up delivery operations has been critical to meeting unprecedented demand throughout the pandemic, but some grocers are finding a weakness in the relationship — they’re not making any money.
While Instacart partnerships can increase revenues, the commission that Instacart charges — often amounting to more than 10 percent of every transaction — has been cutting into grocers’ margins to the extent that some don’t feel that they are making any profit on Instacart customers, according to The Wall Street Journal.
Other complaints include Instacart exercising too much control over customer interactions and its new advertising push that competes against grocers’ own co–op advertising programs.
Instacart has benefitted from a huge windfall during the pandemic, adding and expanding arrangements to a total of over 500 companies at present. The company has seen orders increase 500 percent at times and, in April 2020, had its first profitable quarter since its 2012 inception.
Some retailers have taken extra steps to protect profits in their Instacart partnerships. H-E-B, for instance, raised prices on items sold through Instacart when it first partnered with the firm in 2015, and Kroger incentivizes the use of its in-house delivery services over Instacart with digital coupons and fuel savings offers for loyalty members.
While some retailers have found Shipt and other third-party services to be better deals, Instacart has demonstrated market dominance as more retailers — even those offering competitive services — have continued to jump on board.
In May, Instacart’s share of online grocery had risen to 55 percent, outdoing Walmart’s efforts in the e-grocery space. By August, Walmart had announced it was piloting Instacart delivery from four U.S. locations. (The retailer was already working with Instacart in Canada.)
Even non-grocery retailers have entered into delivery relationships with Instacart during the pandemic. New partnerships this year include 7-Eleven, Best Buy, The Vitamin Shoppe, Sephora, Dick’s Sporting Goods and Five Below. Instacart also jumped into prescription delivery in a partnership with Costco.
- Instacart Looked Like a Savior. Now Stores Aren’t So Sure. – The Wall Street Journal
- Instacart Announces New Funding from Valiant Peregrine Fund and D1 Capital Partners – Instacart
- Has the pandemic proven Instacart’s business model? – RetailWire
- Is the Walmart/Instacart pilot a sign of big delivery news to come? – RetailWire
- Instacart Announces Partnership with DICK’S Sporting Goods for Same-day Delivery – Dick’s Sporting Goods
- Tween and teen brand now offering even more ways for customers to receive hot stuff. cool prices. this Holiday season, including curbside pickup from select stores. – Five Below
DISCUSSION QUESTIONS: What factors do you think will influence retailers’ decisions to use Instacart vs. using other third-party delivery services or building in-house delivery? What do you think makes Instacart a good or bad choice for a given retailer?