The recent flotations of Arm (semiconductor, USA), Klaviyo (digital marketing, USA) and Instacart (food delivery, USA) are stirring hopes for a revival of the dormant IPO market for a year and a half now. All the three IPOs priced in the upper range and made splendid debuts with performance between 25% up to 43% at their opening. In this month’s Fund Insight, we do a deep dive on Instacart, an IPO that was rumored to happen after COVID. However, it was postponed and like many other startups, Instacart saw its valuation decrease severely from 39bn $ to 9.9bn $.
While the company is pretty well-known in the US, it is below the radar in the rest of the world. Instacart, also known as the Uber for groceries, operates just the same as its ride hailing peer. Clients buy their groceries on Instacart’s website or app then an independent delivery person will pick the food in the chosen store among a list of more than 1,400 partners including Kroger, Dollar Tree or Costco. These retail banners represent more than 85% of the US grocery market and 80,000+ stores. Grocery is the largest retail category and stands at 1.1 trillion $ in the United States only. But, according to Incisiv, only 12% of the sales are made online at the time of writing this Fund Insight. McKinsey estimates that the online penetration could double or more over time. Currently, Instacart is the leading player of the market with a client base of 7.7M users that buy each month and have spent close to 1.5 bn $ during the first half of 2023.
But Instacart is not just an online grocer, it is also offering all the services retailers need to operate both offline and online together with an enhancement of the consumer experience. This range of products includes Instacart Marketplace where users can shop from retailers or through their app, Instacart Enterprise Platform which helps retailers to power their websites, apps and retail operations. Another interesting feature is in-store technologies such as smart carts, mobile checkouts or electronic shelf tags to increase the efficiency and experience of brick-and-mortar retailers. Finally, Instacart is making a big push of its advertising business as thousands of brands are using Instacart’s ads to better reach customers, personalize their offers and target new clients.
Now coming back to the valuation of Instacart that plunged from almost 40 bn$ to 10 bn$. The group slashed its valuation to $12bn as part of an internal accounting exercise earlier this year. One person close to the Instacart IPO said the drastic cut in its valuation since 2021 was despite the group reporting its first profits this year. Earnings improved from a net loss in the first half of 2022 to positive net income in the first half of 2023, according to recent filings. Last month, it emerged that Getir, a Turkey-based grocery delivery start-up, was also cutting its valuation from 11.8 bn $ early last year to 2.5 bn $ as it raises new capital.
IN CONCLUSION
In conclusion, Instacart is a pretty significant IPO for our Future of Food investment universe, even though it is a pure North America player not present in Europe. Instacart is one of the global innovation leaders in food delivery but also in digital services such as online marketing. We will keep an eye on the company to monitor new trends. Also, the market reaction to this specific IPO could be a turning point for a more positive mood around FoodTech investments. The Food and Beverages giant Pepsico has already signaled its interest by announcing a 175m$ investment in Instacart.
