As competition to digitize the grocery industry increases, Instacart is positioning itself as an ally in the Amazon age.
The company, which works with 300 retail partners counting 15,000 locations, pulls inventory from local stores into an e-commerce site and offers one-hour delivery, same-day delivery and curbside pickup to customers. In other words, it’s doing en masse what individual grocery chains aren’t equipped to do on their own. And as Amazon steps onto their turf with Whole Foods and Prime Now, turning to a third-party partner like Instacart is becoming a table-stakes strategy.
“Quite simply, our grocers want to win, and they want to win in a world where you have competitors like Amazon coming. They look to Instacart to be able to arm them with the latest technology, so they can focus on what they’re good at,” said Nilam Ganenthiran, Instacart’s chief business officer. “We’re partnering with them to take advantage of the strength they have: Stores near where customers live that carry what they want to buy, with deep relationships and a level of trust and personal nature that you can’t get from a large warehouse operation. The way we see it, we’re at the beginning of a big monumental shift in grocery.”
Instacart’s value proposition is pegged on doing what grocery stores can’t do on their own. It’s a fragmented industry made up of smaller, regional chains, so Instacart has stepped in to handle logistics around online orders, deliveries and pick-ups. But it’s a crowded space that continues to evolve. In addition to Amazon, Walmart partnered with restaurant delivery service DoorDash in April to tote grocery orders to customers’ homes. And other online delivery services like PeaPod, which is owned by grocery giant Ahold Delhaize, are vying to win at the same game.
Judging by the year Instacart has had, the company is preparing for battle. It increased the number of grocery partners by 50 percent, to 300. It raised nearly $1 billion this year — most recently an $871 million Series F round — bringing its total funding to $1.9 billion and its valuation to $7.8 billion. In September, it hired its first chief technology officer, Mark Schaaf, who plans to double the size of the company’s engineering team by the end of 2019. (Instacart didn’t share how many engineers it currently employs.) Earlier this month, it launched a new service in addition to online delivery: in-store and curbside pickup.
The goal is to reach 80 percent of American households by next year.
“Amazon acquired Whole Foods, and suddenly everyone needs a plan to survive the Amazon onslaught. That triggered a quick scaling of Instacart adoption,” said Jason Goldberg, the svp of content and commerce at SapientRazorfish. “Amazon ended Whole Foods’ relationship with Instacart when it bought it, but what it underestimated is how many other grocers would quickly hire it to have a digital business, as a defense measure against Amazon.”
And unlike Amazon, Instacart doesn’t hoard customer data and keep it close to the chest. Since Instacart is only as good as the grocery stores it works with, Ganenthiran said the company’s biggest priority is to understand customer data on both macro and micro-levels, and feed that insight back to its partners. By analyzing customer behavior, around what they’re searching for compared to what’s available and what’s not, order repetition and patterns, and inventory trends by geographic area, Instacart has a cross-competitor look at the industry that no one retailer could get on its own, said Ganenthiran. This information helps them make better inventory decisions as well as product recommendations for customers. If an Instacart personal shopper is in a store and finds that an item is out of stock, for instance, customer data pulled from all 300 of Instacart’s partners can be used to predict what item is best suited to take its place for that particular customer.
“Customers have particular tastes, and they will reward the retailer that responds to that. That will be the expectation going forward in grocery — you have to understand the customer down to the micro-level. That is extremely hard to do, but we are building the technology and the team to do it,” said Ganenthiran. “The other expectation is going to be seamless interactions, whether it’s delivery or a trip to a store, the grocer will be expected to know the last 10 trips. We want to arm our retailers with information and use the data from in-store environments to inform the online experience, and vice versa.”
“Instacart’s approach has been to create a grocery coalition by recognizing the weaknesses of existing business models, and then fix them rather than exploit them,” said Pallab Chatterjee, the CEO of Symphony RetailAI, a provider of AI-enabled solutions for retailers. “When you think about where grocery is going — seamless ordering, pick up and delivery options — Instacart is on track to win that fight.”
In the shorter term, though, data plays a different role: Informing Instacart’s marketing strategy, so it can gain new users, a main priority for next year.
“First and foremost, and this is table stakes, but more people need to be aware that a service like this exists,” said Ganenthiran. “It’ll seem odd, but most customers don’t know that they can go online and have their groceries delivered from their local store that same day. To spread awareness, we use what we know about our current customers to target likely adopters, and it will build from there.”
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