Retail analysts said that Instacart is looking to build a business outside of its core market to keep up its growth momentum. What’s more, the move also comes a few months after Instacart reportedly delayed its plans to go public. Instacart’s revenue rose by more than 40% year on year in the third quarter, and net income more than doubled, the Wall Street Journal reported in October.
The Canada expansion signals a larger ongoing shift in strategy for Instacart to become a “retail enablement platform first,” an Instacart spokesperson told Modern Retail. The company said it has spent a tremendous amount of time with its Canadian retail partners to build an improved suite of omnichannel solutions. “As a result, we’ve seen more Canadians come to our marketplace looking for a seamless and reliable same-day delivery option for everything they need to feed themselves and their families,” the company spokeperson added.
While Instacart has held off on a hasty international expansion strategy, it first launched operations in Canada in 2017 when it struck a deal with the country’s largest grower Loblaw. The deal gave Instacart access to start grocery delivery from Loblaw stores in Toronto and subsequently go nationwide.
“They’re looking at Canada as a way to bolster their growth — and also keeping an eye on eventually going public, and the steps they need to bolster the business to get there,” Tim Campbell, director of industry insights at e-commerce management platform CommerceIQ told Modern Retail. “So, I definitely think that plays into their reasoning,” Campbell added.
Slowing e-commerce growth may also have something to do with it. The online grocery market in the United States ended November with $7.7 billion in total sales, a 10% decrease from the previous year, according to data from Brick Meets Click and Mercatus.
“Instacart, like a lot of other e-commerce delivery platforms grew very rapidly during the pandemic, then slowing down more this year. So, to keep the growth going, and also keep the investment flowing, they need to find additional ways to grow perhaps beyond their core market,” Campbell said.
Instacart, which benefited from the pandemic-driven rise in online orders, has witnessed a sharp slowdown in growth in 2022, as retailers turned to multiple delivery companies from DoorDash to Uber to fill orders. Both Doordash and Uber were projected to have US sales growth of more than 40% in 2021, according to eMarketer. And, according to research firm 1010data, Instacart’s sales increased 330% between 2019 and 2020 before slowing to 15% growth last year.
According to Sean Turner, chief technology officer of grocery tech startup Swiftly, Instacart’s Canadian expansion isn’t surprising given how difficult it has become over the past year to grow an online grocery business.
Inflation continues to hammer consumer wallets hard, with nearly 70% of shoppers struggling to pay their grocery bills and over 90% of shoppers preferring to purchase in-store in order to get the most savings, according to data from a recent survey by Swiftly that Turner cited. “Online grocery delivery volumes are declining for several reasons, including expensive delivery fees, so the additional store growth will help Instacart sustain the business,” Turner wrote in an email.
Instacart has been increasingly diversifying its offerings and approach under CEO Fidji Simo, who joined the company in August 2021. This summer, the company announced the launch of its “Big & Bulky” fulfillment option in partnership with multiple retailers such as Big Lots, Container Store and Staples. It also entered prescription delivery with Costco in April 2020 and Sephora in September 2020. Revenue for Instacart during the three months ended in June grew 39% from the year-earlier quarter to $621 million, the Journal reported.
This year the company also expanded its advertising business to Canada, allowing CPG brands and media agencies to tap into Instacart Ads capabilities. “We look forward to serving even more retailers and brands next year with our e-commerce and advertising offerings, making it more convenient for Canadians to shop from their favorite stores and discover new products,” Instacart Chief Business Officer Chris Rogers said.
However, Turner cautioned that Instacart’s expansion won’t necessarily translate into an increase in online grocery transactions as inflation-wary consumers continue to struggle to pay their grocery bills.
Ultimately, Campbell noted, that the future for online grocery does look promising as more companies like Instacart look to expand to more countries.
“I think you’re going to see more crosspollination of US to Europe, Europe to US,” Campbell said.