Instacart eyes high-margin revenue growth via Uber Eats

Instacart placed an order for a profitable plateful of restaurant-delivery revenues when it unveiled its partnership with Uber Eats in May.

The agreement gives Instacart the opportunity to capture a share of the revenues that restaurant delivery generates, at what appears to be very little cost to Instacart itself.

“In general, the arrangement creates a new source of revenue, with high margins, for Instacart while it exposes Uber Eats in theory to a larger customer pool,” David Bishop, partner at Brick Meets Click, told Supermarket News.

The agreement calls for the addition of a “Restaurants” tab on the Instacart app, where users will be able to order from Uber Eats’ local restaurant partners and have those orders delivered by Uber Eats drivers. The interface allows Instacart users to remain in the Instacart app throughout the process, including tracking the status of their order in real time.

Instacart will receive revenues for each transaction it refers to Uber Eats, according to reports.

Bishop said building awareness of the new restaurant delivery service on Instacart will be key to the success of the partnership.

Instacart said it is promoting the new restaurant delivery service within its app, on its organic social channels, and through customer email campaigns. It plans to launch additional marketing once restaurant delivery is available nationwide, the company said.

The partnership also adds value to the Instacart app and to Instacart+ membership, as members of the delivery service’s loyalty program can receive free restaurant delivery on orders over $35, just as they do for grocery deliveries from Instacart.

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The partnership also adds value to the Instacart app and to Instacart+ membership, as members of the delivery service’s loyalty program can receive free restaurant delivery on orders over $35, just as they do for grocery deliveries from Instacart.

Uber Eats gains access to Instacart users

For Uber Eats, the value of the partnership comes from the ability to reach new customers who are already accustomed to ordering food via their phones.

“Uber Eats is potentially getting access to a rich pool of potential new users, which assumes there’s a big enough gap in dual use between the two apps for this to make strategic sense,” Bishop said.

In a recent conference call with analysts, Fidji Simo, chair and CEO of Instacart, said the partnership will bring incremental customers to Uber Eats, in particular families and suburban consumers.

“We are going to be aggressively wanting to convert these customers into restaurant customers,” said Simo. “We know that our customers already go to other apps to order from restaurants. That’s why we decided to prioritize entering this category.”

Having the option to shop for restaurant delivery from the Instacart app will make users more engaged with Instacart, she said.

Simo also said the partnership helps Instacart+ compete with Amazon Prime as a membership program for grocery delivery.

“We really have the best value within Instacart+ being $99 a year, now twice as valuable with the addition of restaurants and not requiring an extra subscription,” she said.

It also makes financial sense for Instacart, Simo said.

“This is adding enormous selection overnight at positive unit economics, which is really hard to pull off when you enter a completely new category,” she said.

Jon Feldman, a former Uber executive who is now an angel investor, said the partnership allows Instacart the ability to provide an all-in-one food delivery app without having to create a whole new technology platform.

“The perfect delivery app would have best-in-class product design, merchant assortment and ops for both grocery delivery and restaurant delivery,” he said in a LinkedIn post. “However, both need very different solutions at all levels, and no one player has nailed both. This gives [Instacart] the best of both worlds in one app for its members.”

Restaurant delivery apps such as Uber Eats and DoorDash earn revenues from charging restaurants a fee for each order, for example. In addition, Uber Eats drivers serve as couriers of meals that are assembled by the restaurant, while in many cases Instacart drivers are assembling the grocery orders themselves and often require extensive back-and-forth communications with customers to fulfill orders.

For Uber, Feldman said the access to potential new customers could help it gain an edge in its market-share battle with rival DoorDash. Uber Eats could even siphon some customers away from DoorDash, since it is likely that many Instacart customers are DoorDash users who now might be tempted to place their restaurant orders on Uber Eats via Instacart instead.

DoorDash captured about 67% of the restaurant delivery market in March, according to Bloomberg Second Measure’s transaction data analytics, while Uber Eats captured about 23%, a figure that Bloomberg said does not include Uber Eats purchases made using Uber Cash or purchases made by corporate customers.

Uber Eats remains a grocery-delivery rival

Bishop said it remains to be seen how Uber Eats will approach its own efforts to incorporate grocery delivery into its roster of services going forward. For now, the companies have indicated that this is a one-way relationship, with Uber Eats offering restaurant delivery to Instacart’s customers, but not vice versa.

“While this partnership may signal that Instacart is less likely now to enter the restaurant vertical directly, it does raise the question about how this arrangement affects Uber’s entry into grocery delivery,” Bishop said.

Uber Eats began offering grocery delivery in July 2020, when demand for grocery ecommerce was peaking amid the pandemic. It has continued to promote the service in competition with other delivery services, including not only Instacart and Shipt, but also DoorDash, which recently said its grocery-delivery business has doubled in the past year.

The Instacart and Uber Eats partnership could also lead more food retailers to consider working with existing restaurant delivery networks, said Bishop.

“More grocers could consider partnering with delivery providers, like DoorDash, to make it easier to order prepared foods from the store, whether that’s via the third-party marketplace or on the grocer’s site, which is then delivered by that third-party’s network of drivers,” he said.

Source: supermarketnews.com

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