Experts worry about Instacart’s overreliance on advertising and retail partners, just before it goes public | Business Insider Japan

Brian Gildenberg, founder of commerce consultancy Confluence Commerce, agrees that Instacart’s biggest competitors are the grocery stores themselves.

“Over time, we’ll see a shift to a model where shoppers are incentivized, where employees pick their groceries at the store and shoppers pick them up. This is a home-delivery model for grocery stores. “It’s much cheaper than that,” he said.

Instacart has raised the same concerns as a risk factor. The company believes that overall growth is about “attracting new customers, retailers, brands, and shoppers through ways such as effective pricing of products, while retaining existing customers, retailers, brands, and shoppers.” “It depends on your ability to maintain and expand relationships with customers.”

Advertising business driving growth

Additionally, the advertising business currently driving Instacart’s growth is still relatively new. Instacart’s advertising business grew 24% in the first six months of 2023, reaching $406 million.

Andrew Lipsman, principal analyst for retail and e-commerce at Insider Intelligence, said Instacart faces similar risks as Facebook, which is about to go public. Just before Facebook went public, General Motors’ chief marketing officer said that because Facebook ads don’t work,remove all adssaid. Of course, Facebook bounced back from that criticism and established a monopoly position in the advertising business.

“I see a similar risk for Instacart. What would happen if a major retailer announced that it was terminating its partnership with Instacart? It would be very pessimistic news and it would create a negative narrative for Instacart. “It will generate more,” he said.

Facebook’s ad revenue ultimately rebounded because the company had a large number of small and large advertisers, making it “resilient even if we lost one of our large advertisers.”

Instacart graduallySelf-service access and related featuresmakes it easier for brands to offer new deals, promotions, and incentives in their Instacart ad campaigns.In November 2022, the companyshoppable adsand expanded to various formats including shoppable displays, shoppable videos, and brand pages.

Possible Albertsons-Kroger Merger

Another area of ​​concern is that, excluding its advertising business, Instacart’s total transaction value growth has been slower than its revenue growth since 2020. The total transaction value was $24.9 billion (approximately 3.61 trillion yen) at the end of 2021, an increase of 20% from the same period last year. By the end of 2022, the growth rate had decreased to 15.7%, reaching $28.8 billion (approximately 4.18 trillion yen).

A merger between Albertsons and Kroger could also hurt Instacart, Gildenberg said. That’s because Albertsons is a huge part of Instacart’s current business. “Also, Kroger’s attitude toward Instacart is very different from Albertsons. Kroger has the infrastructure to do some of the business that Instacart does, and it’s better to rely on a third party to handle this problem.” They also tend to try to solve problems internally.”

Instacart also said that mergers between major retail partners, such as the planned merger between Albertsons and Kroger, could “impact contract negotiations with such retail partners, reduce utilization of our products, or ultimately “Relationships with existing retailers may be terminated,” the filing said.

Meanwhile, Kroger is also looking to grow its retail media business.Kroger Precision Marketing, the retail media division, said digital shopper engagement increased in the first quarter.reported a 13% increase.

“Profits are very low relative to revenue.”

Sanders has expressed concern that Instacart’s grocery delivery business may not be doing it right and that it relies too much on advertising to make the business profitable. “Profits are very low relative to revenue. And a lot of that is probably not from groceries. A lot of it is advertising and other things. The core grocery delivery business is not profitable. Probably not,” he said.

Ultimately, Instacart’s problem is that it doesn’t control its future in the way that Walmart or Kroger does, Sanders said. He is “highly reliant on support from a small number of retailers, which is by no means guaranteed forever.”