Does the "Instacart" Model Work in B2B? 🥕
Are decacorn marketplaces like Instacart disrupting fundamentals of distribution?
Following news of Instacart’s intentions to go public, we wanted to dive into how Instacart is making money and what impacts its strong brand-to-retailer connections could mean for distribution. Not just in retail grocery, but also in convenience stores, as evidenced by the recent acquisition of Skupos by PDI Technologies.
Finally, we’ll also look at RenoRun – a B2B comp to Instacart in the building materials sector which is now defunct. And, who is actually making money on the Instacart IPO? How far back did you need to invest to be “in the money”?
GMV at a Plateau 🏜
Instacart doubled its market share from 2019 to 2020 - thanks to a global pandemic and shelter-in-place lockdowns. With newly disclosed information in Instacart’s S-1, we now have insight into the explosive growth the platform saw during this period.
In the revenue breakdown below, we can see where the onset of COVID-19 rapidly increased orders in Q1 of 2022 and transaction revenue jumped 162% from $45mm to $118mm. The following quarter saw an even larger 251% increase and by this time, advertisers had caught on, upping their spend 113% from $29mm to $62mm.
Since this sharp increase in the first half of 2020, Instacart’s marketplace transactions have steadily grown and have now reached a plateau. Ad revenue, on the other hand, doesn’t seem to have hit a ceiling. The bar chart below shows growth of order count and GMV (called GTV - Gross transaction value - by Instacart) over the past few years.
Basically, Instacart’s growth is flat - or, in line with the market’s standard growth rate, not gaining or losing any market share. With no growth in market share, Instacart needs to generate revenue growth from other means: advertising.
Monetizing Ads 📺💵
Instacart’s advertising revenue is on the rise, up 24% YoY. Given that Walmart, Target, Kroger & Albertsons, Ahold Delhaize, Dollar General and other retailers are all investing in their own “retail media networks” - one would hope to see Instacart’s strong ad revenue growth. These ad dollars generally take away from CPGs budgets spent on non-retail media like Google Search ads.
Tech solutions connecting brands and retailers has become a big business, as evidenced by PDI Technologies recent acquisition of Skupos, a technology solution that connects convenience stores and CPG brands.
The Part Not Said Out Loud 🔇
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