What's going on?
North American grocery delivery service Instacart raised $600 million from investors on Wednesday, valuing the six-year-old startup at a whopping $7.6 billion.
What does this mean?
The news provides a care package for existing investors, who’ve seen the value of Instacart increase more than $3 billion in only eight short months. That’s testament to the speed at which the company has been signing up traditional grocery retailers, nervous about Amazon’s designs on the industry following its purchase of Whole Foods, to their online grocery marketplace.
Instacart is basically an online personal shopper for groceries from local retail partners. And despite losing its own contract with Whole Foods after the acquisition, it now offers food from over 15,000 grocery stores across the US and Canada to more than 70% of US households. Instacart plans to use this latest wad of cash to break into new markets, ramp up advertising and hire more software engineers.
Why should I care?
For markets: Shape up and ship out.
Grocery retail is changing fast. Walmart expects slower growth in its US stores next year, in food and elsewhere, and is currently spending buckets of cash on ecommerce in an attempt to improve performance. But as Kroger has learnt to its cost, this can cause havoc in the short term. With its one-stop-shop interface and large network of diverse stores, Instacart aims to make life easier for both companies and consumers.
The bigger picture: Online grocers might struggle to make dough.
A whole host of companies are trying to get in on the online food retailing rush. Even though grocery is big business (after all, everyone needs to eat), there’s not a lot of money in it: most traditional players make pretty low margins. Food startups – and their investors – are banking on making it big, and fast. Keeping things profitable for the real-world food retailers while spending loads on marketing is an expensive combination – witness Blue Apron and HelloFresh.