Instacart Takes a Bite Out of Advertising
Changes for the Grocery Delivery Industry
Instacart, the grocery delivery app which surged in popularity during the pandemic, is now searching for new growth opportunities. Instacart controlled about 20% of the grocery delivery market before COVID-19 hit in the US, but jumped to about 54% at one point last year amidst lockdowns. Its market share has fallen to 45% recently as competition in the grocery delivery industry heats up.
Increasing labor and transportation prices are also weighing on Insacart’s margins. The company sees advertising as an important new frontier as it works to maintain its momentum from the past year.
Last week, Instacart announced that Fidji Simo will replace founder Apoorva Mehta as CEO starting in August. Simo comes to Instacart from Facebook (FB) where she was in charge of launching ads on Facebook’s News Feed. She also led the effort to monetize mobile ads on Facebook.
Instacart’s decision to bring Simo aboard as CEO signals it has big ambitions for its advertising business. The company has also made recent high-profile hires from Amazon (AMZN) and Google (GOOGL)’s advertising divisions.
Gearing Up for an IPO
Instacart’s advertising business earned about $300 million last year. It aims to grow that number to $1 billion by next year. Investors will be watching closely to see if Instacart can meet this goal as it gears up for a highly anticipated IPO.
Food delivery companies have a notoriously hard time turning a profit. Additionally, some investors are worried that as consumers feel more comfortable going to restaurants and grocery stores in person, demand for food delivery will fall. Regulations surrounding gig-economy work are also a concern for the future of food delivery companies. Advertising tends to be high-margin and scalable, so Instacart sees investing in advertising as a helpful way to navigate a changing market.
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