Last summer, Instacart had a rough reality check. After a year of explosive, pandemic-driven growth for its grocery delivery business, people were returning to grocery stores.
Gerald Timothee picks up and delivers groceries via the Instacart app outside a grocery store in Manhattan last week. The grocery delivery start-up changed its leadership, slashed its valuation and shifted its strategy after sales slowed. Sales slowed. New customers were harder to find. It could have been the kiss of death for a startup that expected to grow very fast.
Instacart faces tougher competition from its gig economy peers, as well as from new instant delivery startups like Gopuff and grocery chains’ own online services. Revenue was still growing last year, but not nearly as fast as it did in 2020. Sales growth also slowed sharply, to 15% last year from 330% in 2020, according to 1010data, a market research firm, while the average size of each order shrank, the company said.
Instacart, which was founded in 2012, has struggled to show that its business model works and that it is compatible with the historically thin profit margins of the grocery business. Mehta’s attempt to sell Instacart was a long shot. He approached Dara Khosrowshahi, CEO of Uber, about a partnership. That fell through because Uber recently had acquired a similar delivery startup called Cornershop. The companies also talked about the possibility of Uber acquiring Instacart, which would have valued Instacart between $35 billion and $42 billion. But that also fell through, said four people familiar with the conversations who were not authorized to discuss them.
Before Simo was named CEO in July, there was a brief discussion about making her and Mehta co-CEOs, three people with knowledge of the situation said. That idea was quickly abandoned, and Mehta became chair. Instacart’s next act hinges on Instacart Platform, a set of new software and advertising tools the company announced in March, with an aim of becoming more of a technology provider to grocery companies. With tools like “Carrot Ads” and “Carrot Insights,” Instacart said it would bring its own advertising capabilities and analytics to grocers’ websites. The company is also introducing fulfillment centers stocked by its grocery store partners to help it deliver products in 15 minutes.
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