The Predictable Rise of Instacart

Eight weeks later, the U.S. federal government declared a national emergency over the pandemic, and everyone was typing “Can you get coronavirus at the grocery store?” into Google. Suddenly, tens of millions of Americans wanted to buy groceries online and were waking up at 3 a.m. to find a grocery pickup (or delivery) slot on Instacart.com. In the eyes of consumers and grocers, the company’s grocery e-commerce service had morphed from niche to necessity. And with so much demand, Instacart was going to face operational challenges more severe than even Ganenthiran could have ever prophesized.

Since the COVID surge, nearly 750,000 “shoppers,” more than half of which were hired since the coronavirus outbreak, have been shopping on the Instacart platform. These are the mostly independent contractor workers who pick orders, stage them for pickup or deliver them to customer homes. On any given week, the company, which has about 2,000 full-time workers, has 100,000 shoppers picking orders on the platform.

“We brought on board those new shoppers while increasing our shopper satisfaction as measured by our Net Promoter Score,” says Ganenthiran, who believes that the days of a retailer not offering e-commerce pickup and delivery are definitely over. “Today, our shoppers are happier working on our platform than they’ve ever been in the past. The credit goes to our teams, who have been coming up with new programming to support shoppers and continuously being the voice of our shoppers during this time, while also adding 8,000 new store locations, 150-plus new retailers and expanding pickup to more than 1,500 new stores.”

Indeed, it’s not just the size of its shopper network that has exploded since the pandemic. Every part of the Instacart business has accelerated, from the number of its retailer customers to the size of its Instacart Care team to the breadth of its consumer packaged goods (CPG) partners (now more than 1,000 brands). The company’s shoppers and retailers make up two sides of what Instacart calls a “four-sided marketplace” business model that also includes consumers and CPGs. Instacart makes money from delivery fees, as well as from partnerships with CPG and retailer partners. It remains to be seen whether the model is profitable or sustainable beyond all of this pandemic demand for grocery e-commerce (Instacart doesn’t publicize specific sales figures); Ganenthiran says that it’s a unique model that’s difficult to manage but perfectly positioned to leverage what he sees as an unstoppable digital renaissance in grocery.

“The breadth of ways that we’re partnering with the grocery industry to do that has evolved where now Instacart Enterprise plays a more important part, where we’re building websites and apps and today power the full e-commerce experience for  more than 175 grocers,” Ganenthiran notes. “It’s not just about delivery anymore. We’re constantly trying to find new ways that we can add value as a chief ally to our partners and believe we can by building the technical e-commerce infrastructure for retailers big and small.”

Speaking of value, in June Instacart raised $225 million in a new round of financing, making it one of the most valuable private companies in the United States. (Ganenthiran says that Instacart will eventually be a public company — one day.) The round increased Instacart’s valuation to $13.7 billion, up from $8 billion when it last raised money, in 2018. The new cash infusion comes at a pivotal time for the company. In October, another $200 million funding round valued the company at a valuation of $17.7 billion.

According to San Mateo, California-based research firm Second Measure, which tracks credit-card spending, Instacart’s share of grocery pickup and delivery sales jumped to 55% in the third week of May, up from about 30% in February, pushing past Walmart. Perhaps that’s one reason Instacart announced in August that it has partnered with Bentonville, Arkansas-based Walmart to offer same-day delivery in four test markets in California and Oklahoma. In September, Instacart ramped up expansion efforts even further by teaming up with Dallas-based 7-Eleven, its first national convenience store retail partner, to expand same-day grocery delivery.

In addition to groceries and everyday goods, Instacart has expanded its offering over the past year to include alcohol and prescription delivery (Costco), beauty (Sephora) and now even general merchandise (Big Lots). The company plans to expand its Instacart Meals program, first launched with Lakeland, Florida-based Publix earlier this year, to more retailers in the coming months. 

Instacart is now accessible to more than 85% of households in the United States and more than 70% of households in Canada. The company has accelerated its launch cadence with retailers since the start of the year, and now partners with more than 400 national, regional and local retailers across North America to deliver from more than 30,000 stores across 5,500-plus cities in the United States — encompassing all 50 states — and Canada.

As part of its strategy to help grocers own the digital food future, Instacart is making some major changes to the way it operates. The company is deploying its resources in a number of new ways as it looks to lift up grocery e-commerce for its retailer partners. Among them is continuing to grow and support its growing shopper community with new workforce initiatives, investing in helping retailers achieve greater operational efficiencies with e-commerce, improving customer service, and further scaling its technical teams to help meet the increased customer demand for grocery delivery and pickup.

Supporting its hundreds of thousands of shoppers has been job one, although Instacart’s workforce is facing uncertainty in California over worker classification efforts. The company, along with Uber, Lyft and DoorDash, is backing a November ballot measure, Prop 22. The measure, if it passes, would exempt rideshare and delivery workers from the California labor law known as AB5, which went into effect this year and makes it harder for companies to classify workers as independent contractors.

Ganenthiran says that the company took its workforce protocols “all the way back down to the studs,” and has prioritized safety and training programs that help shoppers be ready to pick the perfect avocado. Shoppers now have an exclusive “super-app” to help them navigate grocery stores, find where the deli is, navigate to a customer’s home, and more. The company has also been working closely with retailers to optimize e-commerce fulfillment operations in-store.

“We’re deeply involved with grocers’ store-planning and real estate teams on the most efficient ways to set up the store to fulfill e-commerce orders,” Ganenthiran observes. “Where’s the best place to put a staging area? How do I think about pickup and the flow there? What do I ask the landlord about curbside pickup? Do I need dedicated parking spots for customers to come and pick up their orders? Do I need dedicated parking spots for the Instacart personal shoppers?”

“We realized the most efficient way and best way for customers to get order issues resolved was through chat,” Ganenthiran says. Instacart also launched a special toll-free number for older customers to use for placing orders.

“Today, our customer SLAs [service-level agreements] are better than they were pre-pandemic,” Ganenthiran notes.  “Our CSAT [customer satisfaction] score for folks who are contacting us is significantly higher. Our costs are back in line, and we’re now able to even extend new ways that our customer service team can help.”

Of course, the No. 1 customer service problem for Instacart during the pandemic has been out-of-stocks. According to Ganenthiran, Instacart engineers have spent a lot of time over the past few months building different machine-learning models and using artificial intelligence to better assess whether a certain product has run out.

“What is the next best product?” he ponders. “And then, based off a customer’s previous purchasing habits, giving our shoppers a better sense of what will be an acceptable replacement. There’s a lot of invisible technology that we’ve built to actually make the experience for the shopper as simple and as clean as possible so that they are able to deliver the best experience for the customer as well.”

Three things are certain in this period of uncertainty: grocery e-commerce is here to stay, the American consumer is fickle, and Instacart plans to help grocers win more customers in a permanently transformed grocery retail landscape.