Instacart goes public from supermarket
The pricing of the IPO gave Instacart a market value of around $10 billion, well below the $39 billion valuation it assumed after a funding round in 2021.Instacart offers delivery and pickup at 85% of U.S. grocers or more than 80,000 stores, leveraging a network of 600,000 freelance shoppers. The company also offers in-store technology such as smart shopping carts and electronic shelf labels and sells online ads to grocery companies and retailers.It says there are 7.7 million active customers who spend about $317 per month on the platform.In a letter to investors earlier this month, Instacart CEO Fidji Simo said grocery delivery has huge potential. The US grocery market costs $1.1. Trillion industry, but only 12% of sales come online. She said she expects that value to at least double over time.“We have demonstrated our ability to help our retail partners drive strong growth and remain competitive in a complex and increasingly digital industry,” wrote Simo, a former Facebook executive who became CEO of Instacart in 2021.The food delivery market was booming at the start of the pandemic. Growth has stabilized, but the market is still about four times larger than in 2019, said David Bishop, partner and senior researcher at Brick Meets Click, a consulting firm specializing in online grocery shopping.This market is also becoming increasingly competitive. Instacart is facing increasing pressure from companies like Uber Eats and DoorDash, both of which began grocery delivery in 2020.As of August, Instacart controlled 70% of the U.S. third-party grocery delivery market, according to YipitData, a market research firm. DoorDash controls about 10%. This week, DoorDash added more U.S. grocers to its offering, including Cub, Lowe's Markets and Eataly.Instacart is also under pressure from grocers themselves, who sometimes bristle at the higher prices Instacart charges or the pricing rules it puts in place for grocers that use its software to run their own websites, he saidInstacart orders can cost consumers 15% to 20% more than shopping in stores because of delivery fees and product markups, Bishop said.Some grocers have dissolved partnerships with Instacart or built their own delivery capacity. H-E-B, a Texas chain, is encouraging customers to shop on its own website rather than Instacart's if they want cheaper delivery, Bishop said. Other major grocers like Walmart and Target also do their own delivery.Bishop said Instacart needs to keep its customers coming back because the company relies on them to sell ads."It's becoming increasingly difficult to see how Instacart can pull this off as its competitors expand into grocery and grocers look more closely at ways to improve the profitability of online sales," he said.Food price inflation over the past two years has also dampened demand for delivery in favor of cheaper curbside pickup. U.S. grocery pickup orders rose 3% to $10.5 billion in the April-June period of this year compared to the same period last year, Bishop said. Food delivery orders rose just 1% to $7.8 billion.Instacart's orders also slowed in the first half of this year after rising 18% between 2021 and 2022, the company said in its IPO filing.Still, Instacart's revenue rose 31% to $1.47 million in the first six months of this year, largely due to increases in advertising fees the company collects from retailers and grocery companies. The company reported net income of $242 million in the first six months of this year.Among the optimists about Instacart's prospects is PepsiCo, which has agreed to buy $175 million in convertible preferred stock in a private placement.The IPO is a long-awaited step for Instacart, which was founded in 2012. The company privately filed for an initial public offering in May 2022, but postponed those plans last fall as markets were in turmoil over recession fears. There were just 71 IPOs in the U.S. last year, the lowest number since 2009, according to Renaissance Capital.But a resurgent market is seeing more IPO activity this year. Last week, shares of British chipmaker Arm Holdings rose nearly 25% in their trading debut on the Nasdaq, the biggest IPO in nearly two years.