Instacart Competition: Are Rivals Taking Market Share?

Instacart's Pandemic Growth and Subsequent Challenges

Instacart experienced a remarkably successful period during the pandemic. Demand for its services increased significantly, attracting substantial interest from venture capital firms.

Initial Funding Rounds and Valuation Increases

According to PitchBook data, Instacart was valued at approximately $7.9 billion during a late 2018 funding round. This was followed by a $325 million raise in July 2020, boosting the company’s valuation to $13.8 billion.

The surge in demand was directly linked to the pandemic, as many consumers stayed home and utilized Instacart for grocery orders.

Continued Investment and Peak Valuation

Instacart continued to secure funding in October 2020, adding another $200 million to its capital reserves and achieving a $17.7 billion valuation. Further investment came in March 2021, with a $265 million raise that brought the company’s valuation to around $39 billion.

Data from Crunchbase corroborates these figures, providing additional verification of Instacart’s funding history.

The Significance of High Valuations

Reaching a $1 billion valuation is a milestone for any startup. Even fewer companies surpass the $5 billion mark before an initial public offering (IPO). A valuation exceeding $10 billion is exceptionally rare.

A pre-money valuation nearing $40 billion places considerable pressure on a company to deliver the financial performance expected by public market investors.

Growth Plateau in 2021

Recent reports from The Information indicate that Instacart’s growth rate began to stabilize in 2021. This raises questions about the company’s future trajectory.

What factors are contributing to this shift in growth?

Instacart’s Performance and Growth Trajectory

According to a report by Berber Jin of The Information, Instacart experienced a significant revenue increase, tripling its earnings to $1.5 billion in 2020 compared to the previous year. However, the company’s growth has since decelerated to approximately 10% this year.

Despite this moderation, Q3 revenue growth demonstrated improvement, showing a roughly 20% increase year-over-year.

Following review of Clark’s analysis, further investigation into the performance of Instacart’s competitors was undertaken. This includes examining the strategies of Amazon, Walmart, DoorDash, and Uber, all of which represent potential challenges to Instacart’s primary business.

Competitive Landscape

Data gathered by Second Measure provides valuable insights into consumer spending patterns, although with certain limitations. While Second Measure excels when relevant data is available, it occasionally lacks the capacity to fully dissect the information required.

Nevertheless, the firm’s data allows for a comparison of spending on Instacart versus Walmart Grocery. Both services saw a surge in usage during the pandemic; however, Second Measure’s data suggests that Instacart’s transaction volume has largely remained stable since early 2020. This observation aligns with the reporting from The Information.

It’s important to note that Second Measure’s dataset does not encompass grocery delivery figures from Amazon, DoorDash, or Uber Eats, as these transactions are often indistinguishable from other purchases made through those platforms.

Therefore, direct information from the companies themselves is necessary. Examining the publicly available reports from Uber and DoorDash offers a clearer understanding of their respective performance.

During its latest earnings call, Uber highlighted its expansive delivery ambitions:

Uber is actively broadening its delivery services to include groceries, alcohol, and convenience items, with a global reach.

DoorDash shares a similar strategy, as evidenced by statements made during its recent earnings call:

Furthermore, DoorDash is acquiring Wolt for $8.1 billion, which will expand its geographic presence and enhance its capacity for grocery delivery, even if it represents only a segment of its overall business.

Considering Amazon’s ongoing efforts to achieve dominance in digital commerce across all its operating markets, the number of major corporations competing with Instacart appears substantial. This competitive pressure may contribute to Instacart’s current growth challenges.

It’s also reasonable to consider initial expectations. The exceptional revenue growth Instacart achieved during the pandemic was likely unsustainable in the long term.

From a broader perspective, Instacart’s continued growth, even at a reduced rate in 2021, indicates its ability to retain and even expand upon the gains made in 2020. This is a positive outcome. However, investors who rapidly increased the company’s valuation from $7.9 billion to $39 billion within a year and a half may be less satisfied with the current results.

Maintaining such rapid growth after a substantial valuation increase is a considerable expectation.

Instacart benefits from a focused business model, being primarily recognized for grocery delivery. Its competitors are diversifying into this market from other areas. This specialization could prove advantageous. Nevertheless, Instacart must accelerate its growth rate through strategies such as expanding its advertising platform.