Competition From Uber and DoorDash Looms Large Even as Instacart Maintains Its Leadership Position

Equity Analyst

Malik Ahmed Khan

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Instacart (Maplebear) is the market leader among intermediary platforms that aggregate consumer demand for groceries, which according to eMarketer will grow at 13% annually to around a $77 billion market by 2027. In our view, Instacart is building a network effect moat between retailers, consumers, shoppers, who gather and deliver grocery orders, and advertisers. However, we do not think the firm has reached the point where its network can easily fend off fierce competition from DoorDash and Uber, which also have strong network effect platforms and have gained market share. 

Nearly 8 million consumers in the US use the Instacart app to order products from grocery stores, of which the firm receives a cut which has averaged around 5%-6% the last three years. The consumers have access to over 5,500 brands made available by approximately 85% of grocery stores in the US. The size of the total grocery sales market in the US was $1.5 trillion in 2022. Of that market, the sales initiated and completed on intermediary platforms like Instacart, represented 3% or $41 billion in 2022. While we think additional growth opportunities—such as expansion into markets outside of the US and Canada—plus the listings of more products remain, the firm’s US market share has been declining while the likes of DoorDash and Uber have gained share. We think Instacart will remain the market leader but we expect its market share to decline to around 50% by 2027 from more than 70% in 2022. 

While we expect continuing Instacart revenue growth at a mid- to high-single-digit rate in 2024-27, operating leverage is likely limited due to continuing high consumer acquisition cost as the firm not only has to attract new consumers to its platform but must also spend to retain its current ones given the increasing traction by DoorDash and Uber, which we think will be weakening Instacart’s network effect.

Business Strategy & Outlook

While we believe that Instacart currently benefits from the network effect and data-based intangible assets competitive advantages, we are not confident that the firm can maintain those moats and generate excess return on invested capital for at least 10 years. We assign Instacart a no-moat rating.

Instacart currently has a three-sided network effect consisting of consumers, retailers, and shoppers, or couriers. As the platform provides more options for consumers, such as more retailers and brands, we think the number of orders will increase, which will attract more retailers and brands, which increases the number of orders, order sizes, and attracts more consumers. As more orders are placed, the potential income for Instacart shoppers increases, which attracts more shoppers to the platform, which improves the delivery time, further helping the platform’s flywheel turn. 

The platform also gathers data that helps Instacart enhance its services, including the effectiveness of ads on the app, all of which increase the probability that retailers and consumers will continue to use the app, in addition to attracting more advertising spending. The data includes consumer’s product and brand search habits, order times, sizes, and their frequency, delivery locations, and more. The firm utilizes this data to more quickly and efficiently complete orders, improve inventory management for retail partners, provide recommendations for consumers, and help brands to more effectively target consumers with their advertising campaigns. 

However, we are not confident about Instacart’s network effect and intangible asset moat sources given the headway that both DoorDash and Uber, which both have larger user bases, are making in the online grocery market especially as consumers face modest switching costs changing from one app to another. Plus, more grocery stores may begin to implement their own online ordering and delivery platforms. 

DoorDash could cross-sell grocery delivery service to its customers that currently order food from restaurants. In our view, DoorDash has extensive data that provides a picture of its users’ food preferences that can be used to provide grocery shopping suggestions. Regarding Uber, it has greater economies of scope which makes it easier and less costly to cross-sell the grocery delivery service to its mobility and restaurant delivery (or the delivery segment) customers. The firm has already demonstrated this with declining user and courier acquisition costs. 

In addition, DoorDash and Uber have access to more user data that can differentiate their advertising offerings for brands from Instacart. 

Further, both DoorDash and Uber have gained market share while Instacart’s market share has declined, although the firm remains the leader by a wide margin. According to Instacart, it has partnered with approximately 85% of grocery stores in the US. According to eMarketer total online grocery sales represented 11% of total grocery sales in 2022 and is expected to increase to 19% by 2027. In 2022, Instacart had 19% market share of online grocery orders (or 2% of total grocery sales) according to eMarketer, compared with Walmart’s 25%. 

Among the grocery demand aggregators, or intermediaries, while Instacart’s market share was 74% in 2022, it was down from 76% in 2021 and from 84% in 2020—displaying the weakening of its network effect and a higher probability that it will not be maintained as a moat source. Our assumption is further supported by DoorDash and Uber market share gains. DoorDash’s increased from merely 2% in 2020 to around 10% in 2022, while Uber’s market share increased from 1% to 6% during the same time. 

Instacart’s take rates are much lower than those of DoorDash and Uber’s delivery segment because the average grocery order size is much larger than typical restaurant order size, allowing Instacart to take a lesser cut of the total order value, or GTV. 

Indications of a current network effect include increasing order frequency by the firm’s customers. During the last six years (2017-22), Instacart customers on average ordered 2.1 times per month in their first year using the app. That figure has increased at a 13% average rate annually to 3.9 in the sixth year that a customer has been using Instacart. 

During the same period, the increase in orders has pushed spending per customer per month higher. The average GTV per month by a customer has increased 17% per year from $226 during the first year to $480 by the sixth year. 

Given the continuing increase in orders per consumer, we think that grocery ordering online is becoming a habit for more consumers. However, this gradual change of habit has not created a switching cost for consumers, nor do we expect it to do so in the future. 

Instacart intends to continue to more aggressively acquire customers in the short to medium term as it also plans to make additional products available on its platform. In our view, this is mainly due to threats from DoorDash and Uber and their market share gains. Sales and marketing spending as a percentage of revenue increased to 26% in 2022 from 10% in the pandemic year 2020. 

Regarding the retail partners, or grocery stores, part of the platform, the firm’s partnership with 85% of the market in the US supports our belief that its platform has created the beginnings of a network effect. While some of Instacart’s retail partners have also implemented its technology or the firm’s enterprise platform, which represents around 20% of its total revenue, there remains a very high uncertainty as to the level of any switching costs facing these partners. 

Instacart recently mentioned that it has 600,000 shoppers, which indicates that each shopper handles 1.2 orders per day. In our view, this figure displays an imbalance regarding the supply and demand sides of its platform. It appears that supply in terms of shoppers is exceeding demand from consumers, possibly indicating a weakness in demand as we think the current shopper count could handle more orders per day and increase efficiency. 

With more retail partners, products, and orders placed on the platform, Instacart has also attracted brand advertisers, the third side of the network effect. According to the firm, over 5,500 consumer packaged goods brands place advertisements on the app, up from 1,066 in 2019. While the 340% spike in advertising revenue in 2020 was driven by covid-19, growth has continued in that segment. 

The firm’s ad offering is accompanied by the intangible asset, data, that provides a clearer picture of the consumers that brands would like to target with their ads. The data provides insight into the products or brands that customers search for, and which other products are more likely to complement what they purchase. This type of data allows the platform and brands to more accurately estimate the potential ROIs of ads purchased which can improve or optimize the automated bidding algorithm used to purchase ads. However, with what we consider will be a weakening of the demand side, Instacart may not have access to enough data going forward as compared with DoorDash and Uber.

None

Economic Moat

Instacart (Maplebear Inc.)

Carolina Trust BancShares, Inc. is a bank holding company, which engages in the provision of financial services. Through the Carolina Trust Bank, it offers banking products and services such as savings accounts, personal and business loans, debit and credit cards, home equity line of credit, cash management, online banking, and mortgages. The company was founded on February 29, 2016 and is headquartered in Lincolnton, NC.

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Maplebear, Inc. engages in the design and development of an online application that offers grocery delivery and pick-up services. The firm offers Instacart which enables users to connect with personal shoppers in the area who pick up and deliver groceries from local stores. The company was founded by Apoorva Mehta, Brandon Leonardo, and Max Mullen in 2012 and is headquartered in San Francisco, CA.

SAN FRANCISCO , April 17, 2024 /PRNewswire/ -- Instacart (NASDAQ: CART) today announced it will report its first quarter 2024 financial results after market close on Wednesday, May 8, 2024. The company's first quarter 2024 Shareholder Letter will be available on Instacart's Investor Relations website at https://investors.instacart.com.

Instacart to Report First Quarter 2024 Financial Results on May 8, 2024

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SAN FRANCISCO, April 16, 2024 /PRNewswire/ -- Instacart (NASDAQ: CART), the leading grocery technology company in North America, today announced that Victoria Dolan, former CFO of Revlon, has joined the company's Board of Directors. Dolan is a seasoned financial expert and business leader with more than 30 years of experience in the consumer packaged goods (CPG) and retail industries.

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Grocery Technology Company Invites Third Parties to Join The New York Times, WeightWatchers and GE Appliances in New API Program SAN FRANCISCO , March 27, 2024 /PRNewswire/ -- Instacart (Nasdaq: CART), the leading grocery technology company in North America, today announced the launch of the Instacart Developer Platform (IDP), a new publicly available API program which uses Instacart's industry-leading online grocery platform to supercharge third-party digital experiences across food, health, wellness, and many other spaces. IDP will enable third parties to integrate the functionality of Instacart inside their websites and apps, and over time, will unlock: Same-day fulfillment of over a billion unique products in as fast as 30 minutes from 85,000 stores across more than 1,500 national, regional, and local retail banners Access to Instacart's rich item catalog, which includes attributes like ingredient and nutrition information, size, and more – the building blocks needed to create customizable meal plans, recipes, shopping lists, and other full-service lifestyle experiences Real-time understanding of what's on store shelves from each customer's favorite local retailer Powering the Next Generation of Full-Service Food, Wellness and Lifestyle Experiences Right now, there is an explosion of innovative developers and companies building compelling app and web-based experiences in food and other spaces – from meal planning and cooking inspiration to navigating dietary and health needs to interactive beauty apps.

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NEW YORK, NY / ACCESSWIRE / March 25, 2024 / If you suffered a loss on your Maplebear Inc. d/b/a Instacart (NASDAQ:CART) investment and want to learn about a potential recovery under the federal securities laws, follow the link below for more information: https://zlk.com/pslra-1/maplebear-inc-lawsuit-submission-form?prid=72654&wire=1 or contact Joseph E. Levi, Esq.

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NEW YORK, NY / ACCESSWIRE / March 25, 2024 / If you suffered a loss on your Maplebear Inc. d/b/a Instacart (NASDAQ:CART) investment and want to learn about a potential recovery under the federal securities laws, follow the link below for more information: https://zlk.com/pslra-1/maplebear-inc-lawsuit-submission-form?prid=72605&wire=1 or contact Joseph E. Levi, Esq.

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NEW YORK, NY / ACCESSWIRE / March 25, 2024 / If you suffered a loss on your Maplebear Inc. d/b/a Instacart (NASDAQ:CART) investment and want to learn about a potential recovery under the federal securities laws, follow the link below for more information: https://zlk.com/pslra-1/maplebear-inc-lawsuit-submission-form?prid=72558&wire=1 or contact Joseph E. Levi, Esq.

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NEW YORK, NY / ACCESSWIRE / March 25, 2024 / If you suffered a loss on your Maplebear Inc. d/b/a Instacart (NASDAQ:CART) investment and want to learn about a potential recovery under the federal securities laws, follow the link below for more information: https://zlk.com/pslra-1/maplebear-inc-lawsuit-submission-form?prid=72499&wire=1 or contact Joseph E. Levi, Esq.

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NEW YORK, NY / ACCESSWIRE / March 25, 2024 / If you suffered a loss on your Maplebear Inc. d/b/a Instacart (NASDAQ:CART) investment and want to learn about a potential recovery under the federal securities laws, follow the link below for more information: https://zlk.com/pslra-1/maplebear-inc-lawsuit-submission-form?prid=72514&wire=1 or contact Joseph E. Levi, Esq.

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NEW YORK, NY / ACCESSWIRE / March 24, 2024 / If you suffered a loss on your Maplebear Inc. d/b/a Instacart (NASDAQ:CART) investment and want to learn about a potential recovery under the federal securities laws, follow the link below for more information: https://zlk.com/pslra-1/maplebear-inc-lawsuit-submission-form?prid=72471&wire=1 or contact Joseph E. Levi, Esq.

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NEW YORK, NY / ACCESSWIRE / March 24, 2024 / If you suffered a loss on your Maplebear Inc. d/b/a Instacart (NASDAQ:CART) investment and want to learn about a potential recovery under the federal securities laws, follow the link below for more information: https://zlk.com/pslra-1/maplebear-inc-lawsuit-submission-form?prid=72459&wire=1 or contact Joseph E. Levi, Esq.

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NEW YORK, NY / ACCESSWIRE / March 24, 2024 / If you suffered a loss on your Maplebear Inc. d/b/a Instacart (NASDAQ:CART) investment and want to learn about a potential recovery under the federal securities laws, follow the link below for more information: https://zlk.com/pslra-1/maplebear-inc-lawsuit-submission-form?prid=72407&wire=1 or contact Joseph E. Levi, Esq.

Shareholders of Maplebear Inc. d/b/a Instacart Should Contact Levi & Korsinsky Before March 25, 2024 to Discuss Your Rights - CART

NEW YORK, NY / ACCESSWIRE / March 23, 2024 / If you suffered a loss on your Maplebear Inc. d/b/a Instacart (NASDAQ:CART) investment and want to learn about a potential recovery under the federal securities laws, follow the link below for more information: https://zlk.com/pslra-1/maplebear-inc-lawsuit-submission-form?prid=72373&wire=1 or contact Joseph E. Levi, Esq.

Maplebear Inc. d/b/a Instacart Sued for Securities Law Violations - Investors Should Contact Levi & Korsinsky for More Information - CART

LOS ANGELES, CA / ACCESSWIRE / March 23, 2024 / The Schall Law Firm, a national shareholder rights litigation firm, announces the filing of a class action lawsuit against Maplebear Inc. d/b/a Instacart ("Instacart" or "the Company") (NASDAQ:CART) for violations of the federal securities laws. Investors who purchased the Company's securities pursuant and/or traceable to the Company's September 19, 2023, initial public offering ("IPO") and/or between September 19, 2023 and October 1, 2023, inclusive (the "Class Period"), are encouraged to contact the firm before March 25, 2024.

FINAL DEADLINE MONDAY: The Schall Law Firm Encourages Investors in Maplebear Inc. d/b/a Instacart with Losses of $100,000 to Contact the Firm

NEW YORK , March 22, 2024 /PRNewswire/ -- The Gross Law Firm issues the following notice to shareholders of Maplebear Inc. d/b/a Instacart. Shareholders who purchased shares of CART during the class period listed are encouraged to contact the firm regarding possible lead plaintiff appointment.

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NEW YORK, NY / ACCESSWIRE / March 22, 2024 / If you suffered a loss on your Maplebear Inc. d/b/a Instacart (NASDAQ:CART) investment and want to learn about a potential recovery under the federal securities laws, follow the link below for more information: https://zlk.com/pslra-1/maplebear-inc-lawsuit-submission-form?prid=72234&wire=1 or contact Joseph E. Levi, Esq.

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NEW YORK, NY / ACCESSWIRE / March 21, 2024 / If you suffered a loss on your Maplebear Inc. d/b/a Instacart (NASDAQ:CART) investment and want to learn about a potential recovery under the federal securities laws, follow the link below for more information: https://zlk.com/pslra-1/maplebear-inc-lawsuit-submission-form?prid=72136&wire=1 or contact Joseph E. Levi, Esq.

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