Anticipation is growing over Instacart’s IPO. Almost daily, articles appear about Instacart and how there’s hope that the IPO will inspire other companies to go public. The Information writes some of the best articles about Instacart. For example, this is a link to their latest article.

What I find interesting is how positive the articles are about Instacart. Although Instacart’s core business has slowed (become stagnant is more accurate), that doesn’t seem to matter because Instacart’s advertising business is growing. In 2022, ad revenue totaled $740M. How significant is this? 30% of Instacart’s revenue came from selling advertising than delivering groceries.

The Information article reports that Apoorva Mehta ran into issues with Sequoia Capital and other investors because Mehta pushed back on taking Instacart public when they were valued at $39B. Mehta believed that Instacart’s valuation was too low and that it could go higher. The truth of the matter is this – Instacart was never worth $39B. Ever.

I wrote several articles about Instacart in 2021, and I said that it “wasn’t possible” that Instacart was worth $39B. I stated that Instacart was actually only worth around $10B. By “worth around $10B,” I meant that I had severe doubts as to what Instacart’s actual value was. After researching the company and speaking to insiders, I asked this question: “If you took everything Instacart owns, and if you honestly priced the technology and services provided by Instacart sans advertising, and if you add up the revenue generated by everything Instacart provides, how much would that be worth?” Anyone want to take a guess? Between $2B to $4B. I remain convinced that this is Instacart’s actual valuation. This is only my opinion and many people won’t agree with me. Would Instacart? In 2022, Instacart lowered their valuation to $10B. Instacart is valuing their company between $7.7B and $9.3B for the IPO.

Why was I right? Why was I the only person writing articles and going on the record stating that Instacart was a $10B company and not a $39B? Here’s why – I know the brutal truth about Instacart.

A Company That Can’t Grow

Before I continue, I want to make it clear that I think Apoorva Mehta, Founder of Instacart, deserves to be congratulated for what he accomplished with Instacart. However, it’s sheer insanity to believe that Mehta “voluntarily” stepped down as CEO and nonchalantly handed the company over to Fidji Simo, someone with no grocery, fulfillment, or logistics experience, as reported by The Information. Mehta didn’t hand anything over. Mehta was forced to step down.

When I look to the future, what I see for Instacart is this – pain. The brutal truth about Instacart is that none of their core businesses or products are growing. Quick – name the top products sold by Instacart? You can’t do it, can you? Of course not. Instacart does a great job of keeping the internal workings of the company secret.

I’m amused by Instacart’s secrecy because they’ve been putting out press releases on a weekly basis trying to convince everyone that they’re an innovation machine and to drum up as much interest in their IPO as possible. In some ways, Instacart reminds me of the character Darla from the movie, Finding Nemo, who keeps tapping on the fish tank to let the fish know she’s arrived.

I don’t want to give the impression that the team at Instacart isn’t working hard. They are. They’re truly among the hardest workers in any tech company operating today. Unfortunately, hard work isn’t enough. Instacart must have products and services that customers want.

Instacart’s Products

Listed below are the products and services that Instacart provides to their grocery and retail customers.

Instacart Marketplace – This is where Instacart associates (referred to as Shoppers) go into a retailer to fulfill an online order and then deliver the order. Instacart takes anywhere from 8% of the basket to upwards to 18% depending on the labor costs of the market. This is the bulk of Instacart’s earnings and the business isn’t growing. Here’s why:
  • It’s saturated. If a retailer is not on the Marketplace today, they made a decision a long time ago that it was not a good fit for their business.
  • Instacart bought the company Rosie to convince independent grocers to sign with Instacart. It’s failed. Miserably. Independent grocers have low basket values, and parochial viewpoints that are very hard to turn around; they also don’t have the time or the desire to deal with Instacart. Even if the business succeeded, it’s not a source of any significant  rooftops (customers). Instacart will be very lucky to gain 50 to 100 new rooftops yearly, which will have very little impact on Instacart’s revenue.
  • Labor. Instacart Marketplace isn’t growing because of the grocery industry’s biggest problem – a lack of labor. Even if Instacart was able to sign new customers, who will be fulfilling orders? Labor is listed as one of the top 2 most pressing issues for grocery retailers today; even grocers can’t hire and keep enough employees in their stores to do all of the work that has to be done. Do the math…..look at the amount of labor it would take for Instacart to grow the Marketplace business by only 10%. I don’t believe potential investors in Instacart know that Walmart and other grocery retailers are closing stores because they can’t maintain enough labor to keep them open.

Powered By Instacart – This is Instacart’s white label solution that allows shoppers to place orders directly with the retailer and bypass the Instacart site. Instacart had high hopes for Powered By Instacart but I’ve never believed in the product. Based on the data I’ve seen, adoption of the platform isn’t meeting expectations. Instacart is using Rosie to convince independent grocers to become an Instacart customer; Rosie is viewed by independents as being a harmless tool. However, I’m convinced that by the end of 2023, Instacart is going to say, “Good news!! We shut down Rosie and now all of you customers using Rosie will be served by Powered By Instacart.” Most independents will feel cheated, and I anticipate they’ll drop Instacart as they won’t want Instacart to have access to all of their data.

Instacart Pro – Formerly called Unata. This is not a product with much growth potential in my opinion.

Carrot Ads – I love the creativity of Instacart’s ads but grocery retailers will pull back hard on Instacart’s reins to put a stop to what Instacart is doing. It’s a fact in the grocery industry that retailers protect their relationship and the power they hold over CPG companies very closely. Retailers, especially the larger retailers, don’t want to see Instacart cutting deals with CPG companies. The bottom line is this – Instacart’s ad business struggle to grow once retailers turn up the heat. This Wall Street Journal article does a great job of explaining why Instacart may begin to struggle with their advertising business.

Eversight – Instacart acquired the business from Dave Moran. It’s an AI-powered price optimization software that does some pretty cool things. Is it a growth business for Instacart? In my opinion, no, because most retailers aren’t nimble enough to leverage the software.

Instacart Business – Designed to meet the needs of small to medium business customers. Customers can shop from 1,200 retailers for groceries and office supplies, and Instacart will fill and deliver the orders. According to internal data I’ve seen, Instacart Business isn’t meeting expectations.

Carrot Tags – A system of electronic store tags that displays the price of an item. A central user can change the prices to be displayed digitally. This is an old idea. I know of multiple companies that have tried and failed to generate any interest from retailers. Will this product generate growth for Instacart? In my opinion, no.

Caper Carts – I was one of the first analysts to write about Caper. The carts are cool. The carts are expensive to lease. The majority of retailers want nothing to do with them even Instacart’s own customers based on conversations I’ve had. Will Caper Carts become a driver of growth for Instacart? No. Not a chance. When I learned that Instacart had acquired Caper, I laughed out loud as I knew it was a silly acquisition with no value to Instacart or their customers.

Consumer Data – Instacart hired Matthew Ellis in September. Matthew is one of the leading experts in the world on the topic of shopper and retailer data. I anticipate that Instacart is going to sell their data to CPG companies and possibly other retailers.

I could have listed a few other of Instacart’s businesses but there is no need – they aren’t growing either.

This is an excellent article written by Gary Hawkins about Instacart. Gary raises some very interesting questions about the future of Instacart’s relationship with grocery retailers.

Note to Instacart – you’re welcome to provide recent data breaking out the sales and number of customers using each product that I listed. I also encourage you to provide sales and growth projections for each product based on current data.

Instacart is trying very hard to convince investors and the retail industry that they’re a well-oiled integrated machine with best in class proprietary software. In my opinion, this is false. Instacart is a hodgepodge of different systems mixed with internal Instacart software. Can Instacart make the argument their platform is proprietary? Yes. However, what Instacart can’t do is make the argument that their software is exclusive, and that nobody else can do what they do. There are several software companies that offer software capable of doing what Instacart provides.

Retailers can also turn to DoorDash, Shipt, Uber Eats, and other companies for their grocery fulfillment needs. Instacart is no longer a monopoly. The brutal truth is that the grocery fulfillment and delivery companies pretty much offer the same technology and services; each just does it a little differently. In my opinion, grocery fulfillment is a commodity business in a race to the bottom.

Let’s Not Kid Ourselves

I’m sure we all agree that Instacart launched an IPO so they can raise billions of dollars to scale the company globally and continue developing their industry leading software platform, correct? False. Let’s not kid ourselves. The purpose of the IPO is to allow Instacart executives, employees, and investors in Instacart, to sell shares and get paid. That’s it.

Instacart wants to raise $616M from the IPO. You can read additional information about the IPO here.

Remember what I said was in Instacart’s future? Pain. Instacart is going to be a revolving door of executives and associates leaving after the IPO. None of Instacart’s products, except for advertising, are going to grow. It didn’t have to be this way. Had Apoorva Mehta not been forced to step down, Instacart could have conducted a thorough search for a CEO experienced in groceries and Instacart’s core business to run and build the company.

Instead, Instacart named Fidji Simo CEO when Mehta stepped down. Fidji was a member of the board and without warning, named the CEO. This was done to distract the media from asking too many questions about why Mehta stepped down. It worked. (I was one of the few people who knew what had transpired between Mehta, DoorDash, and Uber that resulted in Mehta’s removal.)

Without a CEO experienced in groceries and fulfillment, Instacart has became a company whose businesses, including their core business, have stagnated. All except one – advertising – Fidji Simo’s comfort zone. That’s not a criticism against Fidji. Fidji deserves credit for saving Instacart and making the IPO possible. However, advertising isn’t enough. Someone has to find a way to grow Instacart’s core businesses. If Fidji can’t do it than the company needs to find someone who can. I expect Fidji to step down as soon as she is able to sell her stock. (This New York Times article provides great information about Fidji and why she focused on advertising.)

In The Blink Of An Eye

So now what? In my opinion, Instacart is closer to death than at any other time in their history. The work has been done. Like Peloton who experienced massive growth during COVID, Instacart also experienced massive growth. As sand flows from an hourglass, Instacart has watched their growth disappear. Everything that Instacart is going to be as a company has been completed. Without a major change in their business model, the Instacart we see today won’t look much different than the Instacart one year from now. I don’t mean that Instacart is dying tomorrow or even in a few months. But in a year or two or three…yes, Instacart can go out of business. Instacart can be another Peloton.

Don’t get me wrong, I know there were days when Apoorva Mehta thought the end had come for Instacart. However, hard work, determination, and the desire to succeed can do many things – like saving a company to live another day. Apoorva Mehta can’t fight anymore for Instacart and frankly, I doubt he wants to. Apoorva sees the same thing I do – Instacart can’t grow their core businesses and the ad revenue isn’t enough. In addition, there are massive changes taking place in the grocery industry that are working against Instacart. Cue the mood music.

In the blink of an eye, it can all end for Instacart. Sooner rather than later.

Am I surprised at what Instacart’s become? No. I’ve stated since 2017 that the only way Instacart survives is if they become a grocery retailer who partners with SpartanNash, C&S, etc., to fulfill online grocery orders direct to their own customers vs. fulfilling orders for other grocery retailers. It’s still not too late for this happen. Instacart has the contact information for millions of customers. Instacart can easily post a message on its website stating that all online grocery orders will be fulfilled by Instacart direct to customers. That’s it. Done. Most customers won’t even care that the groceries they received came from a wholesaler who has partnered with Instacart.

Want to legitimately turn Instacart into a $39B+ company? Have Instacart pivot to become the largest online grocery retailer in the USA and end their relationship with all of their grocery customers.

Should Instacart sell its core businesses and only focus on advertising? There are lots of advertising options available to brands. I don’t believe Instacart can become a major advertising company if they branch out beyond groceries. However, it’s certainly worth assessing the opportunity.

As for investors, all is not lost. There are two companies that have incredible potential for growth; legitimate potential for growth in the grocery and retail industry – 345 Global led by Mark Edwards, and Acorn Delivery led by Terence O’ Connell. I strongly advise you to explore both companies.

I sincerely wish everyone the best at Instacart, and good luck on the IPO.