shopping cart with groceries

Instacart Eyes Expansion Through Warehouses

Instacart Eyes Fulfillment Centers

Instacart is expanding into the warehouse industry, teaming up tech company Fabric to open fulfillment centers. The delivery startup plans to cater to supermarkets, relying on robots to grab items off shelves and workers to pack and deliver them. Instacart and Fabric have not said how many of these warehouses they plan to build over the next 12 months. In any event, these facilities will be able to house 10,000 to 50,000 products.

With its current business model, Instacart sends shoppers into stores to select the products and then delivers them to customers’ homes. By opening fulfillment centers it removes a time-consuming step. The warehouses will be fully automated and designed to speed up delivery times.

Warehouses Speed up Delivery Times

Instacart’s business skyrocketed during the pandemic as people stuck at home turned to ecommerce. Consumers are now returning to in-person food shopping as the economy reopens, hurting online sales of groceries. At the same time profitability continues to elude delivery companies, which have not figured out how to offset high labor and transportation costs. Instacart is also facing intense competition and pushback from supermarket operators, who are concerned it is eating away at their profits.

By building small warehouses, Instacart may be able to reduce its costs, carry inventory, and keep shoppers out of stores. It is a capital-intensive effort upfront, but one that may be profitable within a year. One reason why is that Instacart also wants to provide retailers with inventory management services at these fulfillment centers.

Instacart Diversifies for Growth

The move into fulfilment comes as rivals are also chasing the supermarket industry. Earlier this summer DoorDash (DASH) and Uber (UBER) teamed up with grocery chain Albertsons (ACI) to provide delivery and technology services to its stores. Meanwhile goPuff, which owns stock of groceries and delivers them directly to consumers, raised $1.15 billion in March.

Beyond building warehouses and providing inventory management services, Instacart is eyeing other ways to diversify and boost growth. It is expanding its advertising business and its partnerships with manufacturers to offer discounts on its platform. The company is eyeing international expansion and is readying an IPO. So far this year it has raised $700 million in funding and now sports a valuation of $39 billion.

As one of the leaders in the delivery market and with a value that is larger than the supermarkets it’s aiming to serve, it will be interesting to see if these warehouses are what it takes for Instacart to continue to grow.

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ABOUT Meg Richardson Meg Richardson is a writer specializing in markets, technology, and personal finance. She loves breaking down seemingly complex ideas and making them readable and interesting for everyone. She holds an MFA in writing from Columbia University. When she is not writing about finance, she enjoys running in Central Park and drawing cartoons.

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