What Instacart’s IPO Says About eCommerce Growth and Retail Grocery

In late September, Instacart launched its initial public offering. The internet eCommerce company offers online ordering fulfillment, plus an online marketplace for retailers. (We have many IGA stores as Instacart partners.)

Their IPO offers a lot of insights into the eCommerce market in the U.S., starting with its value. During COVID, when shoppers were forced out of restaurants and many were afraid to shop, the company’s valuation was rumored to be $39 billion. It launched at a value of about $10 billion USD.

Many industry experts predicted the end of physical shopping when the internet launched; they predicted it again during COVID. And certainly, when you look at strong retail brands that once ruled and now have faded (like Bed Bath & Beyond) all blaming eCommerce and Amazon for their demise, you can see how industry observers would think that brick-and-mortar retailers will fade away.

We didn’t see that in the U.S. Certainly, some shoppers came online during COVID, and many have stayed as online shoppers. And many new, younger shoppers are choosing eCommerce as their preferred way of shopping.

But the core grocery shopper in the U.S. stayed in store. And they continue to stay in store for many categories. Last year, about 11% of U.S. grocery sales were online. And unlike the 30% or more market share predicted just a few years ago, eCommerce grocery share is expected to grow more moderately: up to 13.6% in the next three years.

Now 13% of an $850 billion dollar industry is still big dollars. But it isn’t the market share growth so many experts thought. It is worth looking into why growth is slower than anyone thought.

Many of IGA’s international markets have had significantly greater eCommerce market share, especially in Asian markets like China, Malaysia, Singapore. And in many international countries, eCommerce share is growing at double the U.S. rates.

Why is the U.S. lagging in eCommerce? And what about U.S. grocery markets is blunting accelerated eCommerce growth?

First, the cost of labor. Fulfillment and delivery are a much greater percentage of cost of total service here than in many international markets. Second, technology adoption rates for basically everything are often higher internationally than in the U.S. The World Bank does a digital adoption rate index for countries. Many Americans might be surprised that, as a percentage of income, we as a country are often behind many countries worldwide.

But I have a different opinion. eCommerce has lagged here because, by and large, the experience is highly undifferentiated. You can put your hand over the retailers’ logo and have no idea who you are shopping. Shopping online commoditizes food in a way that none of us should celebrate.

When our assortment gets squished into little boxes and rectangles, shopping for groceries online is just a fulfillment mechanic. No wonder replenishment items like razor blades and pet food were some of the first categories to take off online.

All the things that make us special – our amazing fresh produce, our incredible meat departments, our cool items in the deli and our locally grown/raised/sourced items become one of thousands of choices, all curated and contained in rectangles on a website or phone.

For our retailers using Instacart, their collected traffic has helped bring new shoppers to IGA. But in another way, their growth hasn’t helped us. When shoppers come into a retailer through their marketplace, we are just one of many choices for shoppers to order food. That further diminishes our unique selling advantages, and further commoditizes the products we sell.

Which of course, is the exact opposite of what shoppers want. Food is an exciting, fun category. Consumers want to know more about food: how it was made, what ingredients it uses, where it was sourced, and of course how it will taste. Food products and categories rank amongst Google’s highest ranked searches.

Our U.S. grocery market is still in the early days of figuring out how to win online. The next phase will see retailers investing in content to differentiate their products. We will see user reviews, integrated nutrition and recipe content, and significantly better branding.

And of course, we will see data come alive to make shopping easier for consumers. Look for customized sorting based on a shopper’s previous shopping experience, including ad hoc categorization based on shopper interests (gluten-free, sugar-free, non-GMO, etc.). And look for AI-based recommendation engines that suggest add-ons determined from a shopper’s previous interests: built-in pop-up wine or beer pairings; recommended side dishes based on favorite recipes; and integrated solution matrices (take 20% of the calories out of my favorite meatloaf) for goals shoppers set as their own personal shopping mission.

The good news for brick-and-mortar retailers is the things that make us cool are still valued by consumers. The challenge is to figure out the digital equivalent for those advantages. What is the digital equivalent of our amazing customer service, our product insights and know how, our connection to local suppliers?

If we want online to be a key piece of our value proposition, we must infuse it with our brand DNA. Only then will we see the kinds of breakout growth that other industries have experienced online.

A version of this column ran in The Shelby Report.