Instacart – Path to Sustainable Profitability for
Description: Instacart Path to Sustainable Profitability for All Angus Cheung Sunny Sun Eden Sorrell Raymond Franczuk Asper School of Business Presenting to: Fidji Simo of Instacart Niche to necessity Understanding the challenge Sustainable
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slide1. Instacart – Path to Sustainable Profitability for All Angus Cheung | Sunny Sun | Eden Sorrell | Raymond Franczuk Asper School of Business Presenting to: Fidji Simo of Instacart<br>
slide2. Niche to necessity<br>
slide3. Understanding the challenge Sustainable profitability Grocer Relationship Management Employee Satisfaction How can Instacart create sustainable profitability while improving their key stakeholders’ satisfaction? Challenges Problem Goals Leading the industry even after pandemic Healthy Grocer relationship Loyal and happy employees<br>
slide4. Enhance the value proposition for Instacart stakeholders by growing ad revenue and re-distributing value Our Recommendation $1b Ad Revenue 90% Grocer Satisfaction $7.3 billion profit over 5 years Empower Grocers/Retailers by Leveraging Market Data Improve InstaShopper Employee Benefits Grow Relationships with CPG Organizations 1 3 2<br>
slide5. Online grocery market is picking up steam 10% of grocery industry COVID-19 acceleration Projected to reach 20.5% by 2026 in US https://www-statista-com.uml.idm.oclc.org/statistics/531189/online-grocery-market-share-united-states/ $1.5 trillion CPG industry Robust, mature industry ripe for transitioning & disruption Instacart must prioritize sustainable profitability and leverage the growth opportunities in the market Potential downturn post-COVID 300% YoY<br>
slide6. What is drives & holds back the stakeholders for Instacart? Consumers CPG Brands Investors InstaShoppers Motivations Reservations Income | Flexibility Benefits | Fair Treatment Convenience | Flexibility Costs Consumer Data Costs Profit Costs Grocers | Retailers Convenience | Data Control | Profitability Instacart must address and balance the key stakeholders’ concerns and reservations in its pathway to profitability<br>
slide7. The future will rely heavily on access to consumer data Uniquely position with its current core competencies & access to data to leverage Instacart can become a leader in data that benefits ALL of its stakeholders 3rd-party cookies phase-out by 2023 Data-driven ad industry AI & ML prediction trends Grocers & CPG brands will have limited access to data<br>
slide8. Where the money goes in online grocery order INSTACART EXPRESS $99 annual / $9.99 per month SERVICE FEES (alcohol) 5%-10% PICKUP FEES $1.99 for non-express IN-APP ADVERTISING
$0.75-$1.25 CPC How can Instacart make the pie larger to benefit ALL stakeholders?<br>
slide9. Ad revenue presents an opportunity for Instacart & its partners $225 billion annual ad budget from CPG industry Projected $1 billion ad revenue in 2022 Undiluted revenue – new external source Higher margins than delivery service (80%) Instacart must leverage their existing data and advertisement position and redistribute value to all stakeholders New plentiful revenue stream that does not dilute profitability from our stakeholders<br>
slide10. Pathway to success for Instacart & its stakeholders Sustainable profitability Grocer Relationship Management Employee Satisfaction<br>
slide11. How can Instacart create sustainable profitability while improving their key stakeholders’ satisfaction?<br>
slide12. Alternatives Focus on Automation Global Expansion of Core Services Grow Ad Revenue & Redistribute Develop & implement automation throughout the entire Instacart value chain. Expand online grocery service to global markets to capture greater revenue and profits. Prioritize growing ad revenue and redistribute value to key stakeholders. E.g. Self-driving cars & automated shoppers E.g. Expand to Europe E.g. Better data & higher margins<br>
slide13. Alternatives evaluation<br>
slide14. Alternatives evaluation<br>
slide15. Enhance the value proposition for Instacart stakeholders by growing ad revenue and re-distributing value Recommendation Empower Grocers/Retailers by Leveraging Market Data Improve InstaShopper Employee Benefits Grow Relationships with CPG Organizations 1 3 2 2.5B in 5 years Estimated Cost (OR OTHER CRITERIA)<br>
slide16. Empower Grocers/Retailers by Leveraging Market Data WHAT WHY Grocers are a key partner in Insta Cart’s success and are essential to long term business sustainability. IMPACT Strengthen grocer relationships
Maintain Loyal customer bases even after pandemic Product and Volume Forecasts Improve Margin for Grocers Tailored Ads to Customers<br>
slide17. Product and Volume Forecasts For small, medium and large grocery stores
Location based (Postal code) shopping habits, market trends
Demographic data
Seasonal products The movement eliminating Cookie
(ex: Google, Apple…in 2023) The power of data Communication Announcement on the InstaCarts grocer’s portal
Team of five (each province) for initial communication How grocery stores can use the data Predict regional market trends (inventory, new products)
More agile to evaluate risks
Seasonal products
Local customer’s buying power<br>
slide18. Improve Margin for Grocers Additional ads revenue More attractive fees for grocers
On average 2% reduction
(Depending on time/volume)
(Opportunity for additional touchpoint and feedback) Healthier ecosystem between Instacart & grocery stores Enhanced relationships for more royal partnership Quarterly communication for feedback and improvement $1b ad revenue
2022<br>
slide19. Tailored Ads to Customers Better customer experiences Leverage data for recommendation products
Ex: Only buying organic products
Ex: Young professionals in the area cares about calories
Tailored coupons (value-driven)
Ex: Buying rice every two months (notification)
Customized explorer center
Ex: Stay home mom looking for inspirations Less thinking from consumers Develop the shopping habits with Instacart More attractive to consumers with tailored coupons Increased
Cart
Size Notification for feedbacks: Max twice/yr<br>
slide20. WHAT WHY Instacart is perfectly positioned to lead the charge in Grocery and CPG marketing and realize significant revenue potential. IMPACT Achieve the goal of $1B in ad revenue by 2022
Growth of ad revenue to ~$3B by 2025
Improve value proposition for all stakeholders Identify and Establish Key Partnerships CPG Advertisement Revenue Grow Relationships with CPG Organizations Sponsored Product Recommendations<br>
slide21. Adding CPG Organizations to Instacart’s Stakeholder Table Being acquired Identify Key Partnerships Highlight Value Proposition Target Leading CPG Suppliers
E.g. Pepsico, Unilever, P&G Direct interface with Leading eCommerce Customer Base
Leverage established relationships with monolithic global retailers
Access to Critical Mass of Retailers and Customers 1 + 1 = 3 Increased mutual benefits for both CPG & Instacart<br>
slide22. Instacart is positioned minimize user frustration from Ads Obtain Ad requirements directly from CPG Organizations Leverage User & Grocer Data to best position Ad Seamlessly integrate into shopping experience.
E.g. “Have you tried This?” CPG Product Sponsorship Increase Conversion Target Customers on Instacart Platform<br>
slide23. Instacart can expertly align CPG Products with Grocer/Retailers CPG Driven Grocer Product Recommendations Stakeholder Impacts Data Driven Product Alignment Improved Inventory Turn & Sales Increased Revenue & Partner Satisfaction CPG Partner Grocer/Retailer Instacart<br>
slide24. Improve InstaShopper Employee Benefits WHAT WHY Full-Service shoppers are key stakeholders in Instacart’s success. IMPACT Improved employee satisfaction
Improved retention and job performance
Positive for public relations and brand image Health & Dental Plan for Full-Service Shoppers<br>
slide25. Defining Benefits Full-Service Instacart Shoppers
20% of 500,000 employees
Estimated to grow by 5-10% annually Who is Eligible? 50% of Benefit Cost Subsidized
$800-1200 per family Cost realized by Instacart
Health & Dental Coverage Plan Details Marketed directly through Instacart Platforms Rollout Strategy Ensuring that workers receive an equitable piece of the pie<br>
slide26. What is drives & holds back the stakeholders for Instacart? Consumers CPG Brands Investors InstaShoppers Motivations Reservations Income | Flexibility Benefits | Fair Treatment Convenience | Flexibility Costs Consumer Data Costs Profit Costs Grocers | Retailers Convenience | Data Control | Profitability<br>
slide27. Bringing it all together… Empower Grocers by Leveraging Market Data Improve InstaShopper Employee Benefits Grow Relationships with CPG Organizations 1 3 2 Enhance the value proposition for Instacart stakeholders by growing ad revenue and re-distributing value Retain Key Partners Expand Stakeholders Leave no one Behind<br>
slide28. Timeline<br>
slide29. Fundamental Assumptions 2% Reduction in Revenue by returning value to Stores Average Ad Rev $1 per click Baseline Revenue 4.3B to end 2021 80% Average Margin on In-App ads App Development Cost
$5M per quarter in 2021 500,000 employees; 20% get covered; 50% cost share<br>
slide30. Projected Ad Revenue Main Revenue Driver:
Ad Revenue USD Millions Total 5Yr Revenue
$ 9.8 B<br>
slide31. Project Specific Costs Total Development Costs
4% of costs ($106 M) USD Millions Instashopper Benefits
Begins in 2023
17% of costs ($441 M) Main Cost Driver:
Cost of Ad Revenue
($1.9 B total) Total 5Yr Cost
$ 2.5 B<br>
slide32. Profit Summary Quantitative:
Maybe upfront losses, with hockey stick back end Qualitative:
Supply Chain Resilience
Improved Brand Perception USD Millions Total 5Yr Profit
$ 7.3 B<br>
slide33. Scenario Analysis USD Millions Best Case
Project Profit: $8.6 B Worst Case
Project Profit: $5.7 B<br>
slide34. KPIs<br>
slide35. Risks Management Probability Impact 1 2 Risks Mitigation Continued dissatisfaction from grocers due to profitability challenges Implement inventory management support for grocers to help reduce costs. Explore further commission decreases. 1 Prop 22 legislation being dismissed Develop potential increases in benefits plan for gig workers. 2 CPG brands dissatisfied with the increase cost burden Showcase the value that consumer data that allows CPG brands to make INFORMED decisions across their value chain 3 3<br>
slide36. Year 5+ Today 2026 •A bigger pie to share
•Fairly distributed value
•Satisfied stakeholders
•Sustainable profit model 2021 •Challenged to show future profitability
without impacting Grocers or Customers
•Concerned Stakeholders all around Looking to the future<br>
slide37. Conclusion How can Instacart create sustainable profitability while improving their key stakeholders’ satisfaction? Enhance the value proposition for Instacart stakeholders by growing ad revenue and re-distributing value Problem Solution Components Impacts $7.3 billion profit over 5 years $1b Ad Revenue 90% Grocer Satisfaction Empower Grocers/Retailers by Leveraging Market Data Improve InstaShopper Employee Benefits Grow Relationships with CPG Organizations 1 3 2<br>
slide38. Thank you! Questions?<br>
slide39. Appendix<br>
slide40. Appendix A<br>
slide41. Most popular online groceries website in US in June 2021 https://www-statista-com.uml.idm.oclc.org/statistics/1256028/most-visited-groceries-websites-in-the-united-states/<br>
slide42. Instacart business and revenue models SaaS Enterprise business Advertisement-based In-app targeted ads Commission-based 10% commission per order Fee for service Delivery & alcohol B2B2C Partnerships Partners w/CPG brands Transaction-based Per order revenue Subscription-based Consumer-oriented<br>
slide2. Niche to necessity<br>
slide3. Understanding the challenge Sustainable profitability Grocer Relationship Management Employee Satisfaction How can Instacart create sustainable profitability while improving their key stakeholders’ satisfaction? Challenges Problem Goals Leading the industry even after pandemic Healthy Grocer relationship Loyal and happy employees<br>
slide4. Enhance the value proposition for Instacart stakeholders by growing ad revenue and re-distributing value Our Recommendation $1b Ad Revenue 90% Grocer Satisfaction $7.3 billion profit over 5 years Empower Grocers/Retailers by Leveraging Market Data Improve InstaShopper Employee Benefits Grow Relationships with CPG Organizations 1 3 2<br>
slide5. Online grocery market is picking up steam 10% of grocery industry COVID-19 acceleration Projected to reach 20.5% by 2026 in US https://www-statista-com.uml.idm.oclc.org/statistics/531189/online-grocery-market-share-united-states/ $1.5 trillion CPG industry Robust, mature industry ripe for transitioning & disruption Instacart must prioritize sustainable profitability and leverage the growth opportunities in the market Potential downturn post-COVID 300% YoY<br>
slide6. What is drives & holds back the stakeholders for Instacart? Consumers CPG Brands Investors InstaShoppers Motivations Reservations Income | Flexibility Benefits | Fair Treatment Convenience | Flexibility Costs Consumer Data Costs Profit Costs Grocers | Retailers Convenience | Data Control | Profitability Instacart must address and balance the key stakeholders’ concerns and reservations in its pathway to profitability<br>
slide7. The future will rely heavily on access to consumer data Uniquely position with its current core competencies & access to data to leverage Instacart can become a leader in data that benefits ALL of its stakeholders 3rd-party cookies phase-out by 2023 Data-driven ad industry AI & ML prediction trends Grocers & CPG brands will have limited access to data<br>
slide8. Where the money goes in online grocery order INSTACART EXPRESS $99 annual / $9.99 per month SERVICE FEES (alcohol) 5%-10% PICKUP FEES $1.99 for non-express IN-APP ADVERTISING
$0.75-$1.25 CPC How can Instacart make the pie larger to benefit ALL stakeholders?<br>
slide9. Ad revenue presents an opportunity for Instacart & its partners $225 billion annual ad budget from CPG industry Projected $1 billion ad revenue in 2022 Undiluted revenue – new external source Higher margins than delivery service (80%) Instacart must leverage their existing data and advertisement position and redistribute value to all stakeholders New plentiful revenue stream that does not dilute profitability from our stakeholders<br>
slide10. Pathway to success for Instacart & its stakeholders Sustainable profitability Grocer Relationship Management Employee Satisfaction<br>
slide11. How can Instacart create sustainable profitability while improving their key stakeholders’ satisfaction?<br>
slide12. Alternatives Focus on Automation Global Expansion of Core Services Grow Ad Revenue & Redistribute Develop & implement automation throughout the entire Instacart value chain. Expand online grocery service to global markets to capture greater revenue and profits. Prioritize growing ad revenue and redistribute value to key stakeholders. E.g. Self-driving cars & automated shoppers E.g. Expand to Europe E.g. Better data & higher margins<br>
slide13. Alternatives evaluation<br>
slide14. Alternatives evaluation<br>
slide15. Enhance the value proposition for Instacart stakeholders by growing ad revenue and re-distributing value Recommendation Empower Grocers/Retailers by Leveraging Market Data Improve InstaShopper Employee Benefits Grow Relationships with CPG Organizations 1 3 2 2.5B in 5 years Estimated Cost (OR OTHER CRITERIA)<br>
slide16. Empower Grocers/Retailers by Leveraging Market Data WHAT WHY Grocers are a key partner in Insta Cart’s success and are essential to long term business sustainability. IMPACT Strengthen grocer relationships
Maintain Loyal customer bases even after pandemic Product and Volume Forecasts Improve Margin for Grocers Tailored Ads to Customers<br>
slide17. Product and Volume Forecasts For small, medium and large grocery stores
Location based (Postal code) shopping habits, market trends
Demographic data
Seasonal products The movement eliminating Cookie
(ex: Google, Apple…in 2023) The power of data Communication Announcement on the InstaCarts grocer’s portal
Team of five (each province) for initial communication How grocery stores can use the data Predict regional market trends (inventory, new products)
More agile to evaluate risks
Seasonal products
Local customer’s buying power<br>
slide18. Improve Margin for Grocers Additional ads revenue More attractive fees for grocers
On average 2% reduction
(Depending on time/volume)
(Opportunity for additional touchpoint and feedback) Healthier ecosystem between Instacart & grocery stores Enhanced relationships for more royal partnership Quarterly communication for feedback and improvement $1b ad revenue
2022<br>
slide19. Tailored Ads to Customers Better customer experiences Leverage data for recommendation products
Ex: Only buying organic products
Ex: Young professionals in the area cares about calories
Tailored coupons (value-driven)
Ex: Buying rice every two months (notification)
Customized explorer center
Ex: Stay home mom looking for inspirations Less thinking from consumers Develop the shopping habits with Instacart More attractive to consumers with tailored coupons Increased
Cart
Size Notification for feedbacks: Max twice/yr<br>
slide20. WHAT WHY Instacart is perfectly positioned to lead the charge in Grocery and CPG marketing and realize significant revenue potential. IMPACT Achieve the goal of $1B in ad revenue by 2022
Growth of ad revenue to ~$3B by 2025
Improve value proposition for all stakeholders Identify and Establish Key Partnerships CPG Advertisement Revenue Grow Relationships with CPG Organizations Sponsored Product Recommendations<br>
slide21. Adding CPG Organizations to Instacart’s Stakeholder Table Being acquired Identify Key Partnerships Highlight Value Proposition Target Leading CPG Suppliers
E.g. Pepsico, Unilever, P&G Direct interface with Leading eCommerce Customer Base
Leverage established relationships with monolithic global retailers
Access to Critical Mass of Retailers and Customers 1 + 1 = 3 Increased mutual benefits for both CPG & Instacart<br>
slide22. Instacart is positioned minimize user frustration from Ads Obtain Ad requirements directly from CPG Organizations Leverage User & Grocer Data to best position Ad Seamlessly integrate into shopping experience.
E.g. “Have you tried This?” CPG Product Sponsorship Increase Conversion Target Customers on Instacart Platform<br>
slide23. Instacart can expertly align CPG Products with Grocer/Retailers CPG Driven Grocer Product Recommendations Stakeholder Impacts Data Driven Product Alignment Improved Inventory Turn & Sales Increased Revenue & Partner Satisfaction CPG Partner Grocer/Retailer Instacart<br>
slide24. Improve InstaShopper Employee Benefits WHAT WHY Full-Service shoppers are key stakeholders in Instacart’s success. IMPACT Improved employee satisfaction
Improved retention and job performance
Positive for public relations and brand image Health & Dental Plan for Full-Service Shoppers<br>
slide25. Defining Benefits Full-Service Instacart Shoppers
20% of 500,000 employees
Estimated to grow by 5-10% annually Who is Eligible? 50% of Benefit Cost Subsidized
$800-1200 per family Cost realized by Instacart
Health & Dental Coverage Plan Details Marketed directly through Instacart Platforms Rollout Strategy Ensuring that workers receive an equitable piece of the pie<br>
slide26. What is drives & holds back the stakeholders for Instacart? Consumers CPG Brands Investors InstaShoppers Motivations Reservations Income | Flexibility Benefits | Fair Treatment Convenience | Flexibility Costs Consumer Data Costs Profit Costs Grocers | Retailers Convenience | Data Control | Profitability<br>
slide27. Bringing it all together… Empower Grocers by Leveraging Market Data Improve InstaShopper Employee Benefits Grow Relationships with CPG Organizations 1 3 2 Enhance the value proposition for Instacart stakeholders by growing ad revenue and re-distributing value Retain Key Partners Expand Stakeholders Leave no one Behind<br>
slide28. Timeline<br>
slide29. Fundamental Assumptions 2% Reduction in Revenue by returning value to Stores Average Ad Rev $1 per click Baseline Revenue 4.3B to end 2021 80% Average Margin on In-App ads App Development Cost
$5M per quarter in 2021 500,000 employees; 20% get covered; 50% cost share<br>
slide30. Projected Ad Revenue Main Revenue Driver:
Ad Revenue USD Millions Total 5Yr Revenue
$ 9.8 B<br>
slide31. Project Specific Costs Total Development Costs
4% of costs ($106 M) USD Millions Instashopper Benefits
Begins in 2023
17% of costs ($441 M) Main Cost Driver:
Cost of Ad Revenue
($1.9 B total) Total 5Yr Cost
$ 2.5 B<br>
slide32. Profit Summary Quantitative:
Maybe upfront losses, with hockey stick back end Qualitative:
Supply Chain Resilience
Improved Brand Perception USD Millions Total 5Yr Profit
$ 7.3 B<br>
slide33. Scenario Analysis USD Millions Best Case
Project Profit: $8.6 B Worst Case
Project Profit: $5.7 B<br>
slide34. KPIs<br>
slide35. Risks Management Probability Impact 1 2 Risks Mitigation Continued dissatisfaction from grocers due to profitability challenges Implement inventory management support for grocers to help reduce costs. Explore further commission decreases. 1 Prop 22 legislation being dismissed Develop potential increases in benefits plan for gig workers. 2 CPG brands dissatisfied with the increase cost burden Showcase the value that consumer data that allows CPG brands to make INFORMED decisions across their value chain 3 3<br>
slide36. Year 5+ Today 2026 •A bigger pie to share
•Fairly distributed value
•Satisfied stakeholders
•Sustainable profit model 2021 •Challenged to show future profitability
without impacting Grocers or Customers
•Concerned Stakeholders all around Looking to the future<br>
slide37. Conclusion How can Instacart create sustainable profitability while improving their key stakeholders’ satisfaction? Enhance the value proposition for Instacart stakeholders by growing ad revenue and re-distributing value Problem Solution Components Impacts $7.3 billion profit over 5 years $1b Ad Revenue 90% Grocer Satisfaction Empower Grocers/Retailers by Leveraging Market Data Improve InstaShopper Employee Benefits Grow Relationships with CPG Organizations 1 3 2<br>
slide38. Thank you! Questions?<br>
slide39. Appendix<br>
slide40. Appendix A<br>
slide41. Most popular online groceries website in US in June 2021 https://www-statista-com.uml.idm.oclc.org/statistics/1256028/most-visited-groceries-websites-in-the-united-states/<br>
slide42. Instacart business and revenue models SaaS Enterprise business Advertisement-based In-app targeted ads Commission-based 10% commission per order Fee for service Delivery & alcohol B2B2C Partnerships Partners w/CPG brands Transaction-based Per order revenue Subscription-based Consumer-oriented<br>