Instacart raises $200M in funding, encroaching on Amazon
- Instacart recently received $200 million in Series E financing led by Coatue Management and including Glade Brook Capital Partners, the company said this week in an online post. The funding values the company at about $4.2 billion.
- This valuation is up from the $3.4 billion reported last year when the company raised $400 million, according to Reuters. Among Instacart’s previous investors were Sequoia Capital, Andreessen Horowitz and Whole Foods Market.
- Instacart has partnered with supermarkets in nearly 200 markets across the U.S., with seven of the top eight North American grocers signed on as clients. The company's Express subscriber service, which offers unlimited free delivery for an annual fee, grew its customer base by 300% last year.
Instacart has grown its market penetration in leaps and bounds recently by positioning itself as the un-Amazon. For grocers nervous over the leading e-tailer's acquisition of Whole Foods and what that might mean for online grocery shopping, the e-commerce provider offers a way for them to quickly scale up their ordering and delivery services.
Over the past year, as CEO Apoorva Mehta points out in a Medium post, Instacart has expanded to 160 new markets and is now available to more than 70 million U.S. households. This gives the company a significant lead in store delivery over competitor Shipt, which was recently bought by Target, as well as Amazon, which provides its Prime Now service through retailers in numerous cities, and now offers delivery from Whole Foods stores in four markets.
Instacart will face stiff competition from Shipt as it expands across Target's store network this year. But as with Amazon, it may very likely serve as an alternative for retailers that don't want to line the coffers of a close competitor. Chains like Meijer and H-E-B currently rely on Shipt, and could switch their allegiances to Instacart in the coming months.
Amazon, on the other hand, remains a significant challenger. By leveraging its Prime loyalty program to offer delivery from Whole Foods stores, the e-tailer taps into a massive and growing member base — estimated at more than 90 million. In terms of cost and value, the comparison between Instacart and Amazon Prime is stark. Why would Prime members pay nearly $150 for an Instacart Express membership when they can get a similar service from Whole Foods without having to pay a cent more?
Amazon is also growing its grocery delivery services beyond Whole Foods stores. The company accounts for around 18% of all online grocery spending, according to One Click Retail, and is expanding its assortment of private label products through its own brands as well as Whole Foods' 365 Everyday Value brand. Since acquiring the retailer in August, Amazon has sold more than $10 million worth of 365 products on its site.
Instacart has a large base of Express customers locked in, and may look to grow that base through promotional pricing in the months ahead. In markets where Whole Foods doesn't operate, it has a significant advantage as the main service provider. However, in competitive metropolitan markets, Instacart will likely see Whole Foods and Amazon cut into its business. To stay competitive, Instacart will need to increase the value of its service — something the company is actively working on, Mehta writes in the company post.
"In the next few years, we will be working hard to innovate for our customers by offering them more convenience and better selection at competitive prices," he noted.
Instacart also needs to look to the future of e-commerce, including expanding click-and-collect and taking a hard look at the store fulfillment model. Filling online and in-store demand from supermarket locations works right now, while demand is still low, but as e-commerce grows, it will put a strain on supply and the store experience.