Dive Brief:
- Axios said Instacart is in talks with Sequoia Capital to raise another $400 million in funding that would bring the grocery delivery service’s value to $3 billion, or 50% more than what it was estimated to be worth at its last funding round in January 2015, according to Fortune.
- During its last round of funding, the company said it was profitable in some of its markets, but was still losing money in all of them once you factored in marketing, R&D, and even salaries.
- Recently, Instacart announced plans to replace tips with a new service fee, but complaints by employees halted those plans.
Dive Insight:
Despite Instacart CEO Apoorva Mehta telling Bloomberg the company had no plans to raise more capital last year, this new funding round may signal a change in direction for the food delivery business as it looks to expand.
Big players such as Google, Wal-Mart and Amazon continue to raise their game when it comes to online grocery and deliveries. Amazon just started a click-and-collect service. If Instacart is going to continue being a major player and fend off deep-pocketed rivals, it needs to continue innovating and offering new value for its customers. While the idea of replacing tips with service fees was an idea that failed, out-of-the-box thinking like this is what’s needed. The startup has a reputation for making changes to its business model, including some that affect its workforce and different delivery and pickup approaches.
In 2016, Instacart sold approximately $36 million in equity to Whole Foods as part of an expanded partnership between the two companies. Analysts predict that similar deals could be on the horizon.
Unata’s 2017 Grocery eCommerce Forecast revealed that 31% of U.S. shoppers are expected to order groceries online in 2017, an increase from the 19% of shoppers who did so last year. More and more brick-and-mortar stores are entering the delivery space, experimenting with click-and-collect, curbside pickup and home delivery options.