What new vertical should Instacart get into?

12 min readFeb 27, 2021

For Instacart, expanding into a new vertical can be a viable path to increasing revenues and meeting top-line growth objectives. To answer whether or not Instacart should enter a new vertical, I would start with answering a series of questions that focus on why, what, when and how.

Why are we exploring vertical market expansion?
What will Instacart offer?
When does it make sense?
How will Instacart go about making the move?
Conclusion

Why are we exploring vertical market expansion?

Before we answer this question, let’s have a look at how Instacart has proved to be a strong competitor for grocery delivery services over the past year.

Instacart — From Grocery App to Essential Service

The global pandemic has made Instacart an essential service with essential workers, putting their lives on the line to get people their groceries.

A few weeks after WHO announced COVID-19 a global pandemic, demand for Instacart increased by more than 500%.

The next few months accelerated the growth of Instacart, which in 2019 was losing $25 million every month. It recorded its first monthly profit in April 2020, netting $10 million, and CEO Apoorva Mehta said the company had passed its 2022 goals.

Instacart, whose future seemed bleak 3 years back when Amazon acquired Whole Foods, partnered with one of Amazon’s biggest rivals: Walmart in August 2020. The new partnership brought thousands of items — from groceries, alcohol and pantry staples to home decor and improvement, personal care, electronics and more — at everyday low prices from Walmart stores to customers’ doors in as fast as an hour. This increased Instacart’s customer base manifolds.

Amid surging demand for grocery delivery due to the coronavirus pandemic, Instacart raised $225 million in a financing round led by DST Global and General Catalyst in June 2020; and another $200 million in a new funding round led by existing investors Valiant Capital and D1 Capital Partners in October 2020. The rounds increased the start-up’s valuation to $17.7 billion.

Instacart key stats (2020)

Instacart recorded its first profit in April 2020, netting $10 million (The Information)
It reached its 2022 goals in the fifth week of lockdown (Business of Apps)
It was on track to process more than $35 billion in grocery sales in 2020 (Bloomberg)
Due to the increased demand, Instacart’s value ballooned from $7.6 to $17.7B billion (TechCrunch)
Instacart is available to 85% of U.S. households and 70% of Canadian households (Cision PR Newswire)
Instacart offers delivery and pickup services across more than 5,500 cities in North America (Cision PR Newswire)
The company partners with more than 500 local, regional and national retailers (Cision PR Newswire)
In 2020, it expanded its support staff from 1,200 to 18,000 (Bloomberg)
It added more than 300,000 workers in 2020 and estimated to have over 750,000 by the end of year (TechCrunch)
A study found Instacart generates $620 million in incremental state revenue (Supermarket News)
The same study said Instacart has added 23,000 jobs and improves local job growth by four percent

As we can see, Instacart has already established themselves, their teams, their products, their business model, their operations and their vision within the grocery delivery domain. Expanding into a new vertical will help Instacart:

Increase market share and drive new revenues
Gain an edge over competitors

What will Instacart offer?

Instacart’s mission is

To create a world where everyone has access to the food they love and more time to enjoy it together.

With this mission, Instacart provides an on-demand grocery delivery service, collaborating with supermarkets and crowdsourcing personal shoppers to bring customers grocery from their favorite stores in as little as one hour. The company is able to deliver value to its three primary constituents — Users, Stores, and Shoppers — because of its strongly aligned business and operating models.

This is what Instacart’s current business model looks like:

Instacart’s business model can clearly support any type of brick-and-mortar retailers. Based on Instacart’s mission and the current business model, we can explore the opportunity to enter a new vertical — The Meal Kits Market.

When does it make sense?

To assess timing, I did an in-depth Market Analysis, Customer Analysis and Competitive Analysis and Risk Analysis.

Let’s start with a background of meal kits and a look at the meal-kit industry.

1. Market Analysis

Meal Kits — Background

For many busy North-Americans, the thought of organizing a meal at the end of the day can be a daunting one. In the past few years, however, that mindset has been challenged by the rise of the meal kit, a nutritious dinner option that is planned out, pre-portioned, and delivered fresh.

These are complete game- changers that ultimately expanded their recipe repertoires and drastically cut down the amount of time spent sweating over the stovetop.

The Meal kit Market — Past, Present and Future

Meal Kits have exploded in popularity since the first one hit the market in Sweden in 2007 — there are now more than 150 meal kit companies operating in the U.S. alone.

The year 2012 is when meal kit subscription services Blue Apron and Hello Fresh entered the U.S. market and the industry truly started to evolve. Home Chef joined a year later and, by 2015, meal kit food delivery services had generated over $1 billion in sales.

By 2016 we started to see explosive growth with over 150 meal kit delivery services joining the industry. Meal-kit sales had a market value of around $2 billion in 2016, and were projected to grow to more than $6 billion in 2021, according to a 2018 report by consultancy Pentallect LLC. However, pre-pandemic, the consumer appetite for meal kits was starting to sour.

In 2018, Blue Apron and Hello Fresh, early meal-kit services, started seeing sales from regular customers crater and both sustained mass cancellations.

At the beginning of 2020, meal kits were not growing at the supermarket level as industry experts had anticipated. Some retailers even began to pull rolled out meal kit programs, because they were not performing as well as hoped. But as 2020 ushered in change, the potential of meal kit programs lit up with a spark.

The global pandemic, which shuttered restaurants and drove people indoors, had an unexpected bright spot: More people started cooking at home and brushing up on their chef skills. And with that, at-home meal delivery services found a new set of consumers.

A new report, issued in June 2020, by Grand View Research, a U.S.-based market research firm, forecasted that the meal kit sector will grow to $19.9 billion by 2027, fostered in part by “increased awareness regarding hygienic food” and “increased traction in 2020 owing to the spread of Covid-19.” “Direct to consumer delivery of food products has been playing a crucial role in preventing frequent visits to grocery stores,” the report states.

According to data released by Nielsen, an American information, data and market measurement firm, by Jan 2021 the meal kit category grew by 18.7%, bringing in nearly $132 million more dollars in 2020 than the industry saw in 2019.

Meal Kit Industry key stats (2020)

The meal-kit industry is worth an estimated $5 billion (Packaged Facts)
By 2022, the fresh-food meal-kit delivery market value is estimated to be 11.6 billion (Statista)
84% of Americans who purchase online-meal kits are on a subscription model (Nielson)
17% of American consumers have signed up for a meal-kit service at least once (Packaged Facts)
33% of Americans that have tried a meal-kit subscription serviced tried a free trial (Packaged Facts)
90% of Americans that have tried a meal-kit subscription serviced have referred someone else to a meal-kit service (Packaged Facts)
81% of Americans believe that home-delivered meal kits are more healthy than eating at a restaurant (USAToday)

2. Customer Analysis

Who’s buying meal kits?

Meal kit demographics showcase they are most popular among Millennials and Gen X’ers, with 63.7% of buyers falling into one of these age groups. These shoppers also tend to have high incomes — 59.2% make over $80k per year — and high levels of education — 57.3% have a bachelor’s degree or higher. Nearly two-thirds (65.3%) of this group work full-time or are self employed, and about 12.2% have young children under the age of five.

What’s Driving Adoption?

When it comes to meal kit users, convenience is the key purchase motivator. 67 per cent of current users feel their life is hectic and rushed compared to 42 per cent of non-users. Meal kit users are twice as likely to cite convenience as an important purchase factor. Furthermore, households with children have been earlier adopter of meal kits, with 20 per cent having tried them at least once. The industry also seems to be capitalizing on spontaneity, as 58 per cent of users decide to purchase a meal kits the same day.

Why do people buy Meal kits?

The top two reasons for meal kit purchases were “saves me time meal planning” (43.4%) and “saves me time shopping” (36.0%), followed by the number three option “to try new cuisines” (32.7%).

What factors draw people towards meal kits?

Numerator Psychographics data tells us that when it comes to dining in, meal kit buyers are 1.2x more likely to seek quick-and-easy meal solutions, 1.4x more likely to partake in meal planning, and 1.7x more likely to admit they need a little help in the kitchen. When they cook, they like preparing different types of food and consider themselves creative cooks; for these groups, the variety and new recipes provided by meal kits may be the main draw.

3. Competitive Analysis

A closer look at top meal kit companies operating in the U.S. reveals that Marley Spoon was a clear victor, with sustained year-over-year growth over 150 percent every month since April — more than any other competitor.

Industry leader HelloFresh Group, whose subsidiaries include HelloFresh, Green Chef, EveryPlate, and Chef’s Plate, showed lockdown gains of 129 percent in July. Home Chef, the company’s closest competitors by national market share, also demonstrated strong growth trends in recent months. The company observed a 147 percent increase year-over-year in July, up from 90 percent growth in June.

HelloFresh continues to be the market leader gobbling up the market share given the fact that 81 percent of the meal kit customers shop exclusively at HelloFresh.

A look at the number of downloads and monthly visits on crunchbase also shows that HelloFresh remains to be the leader when it comes to meal kits.

4. Risks Analysis

Evaluation of a business opportunity is incomplete without considering the risks/challenges associated with it. Here’s what I think are the most important challenges associated with entering the Meal Kit Industry.

Profitability: Profitability is always a concern when it comes to the logistics of packaging and delivering highly perishable products. There’s not much wiggle room in cutting costs. Perishable items have to be delivered safely and efficiently, which drives up costs.
Creativity: Unless you specify otherwise, you have to deliver something new with each subscription box, which means new recipes and ingredient options. Creativity is a commodity, especially with food. Subscription boxes also mean maintaining customer loyalty on a regular basis.
Target Market and serving sizes: Know serving sizes as well, especially when delivering perishable products. Smaller servings mean fewer ingredients and less perishable ingredients, so you need to be economical in determining a cost per unit as well as storage. If your target audience is people who live alone, you want to sell smaller portions. For families, prepare three to four serving sizes at minimum and offer discounts on bulk if you can manage it.
Customer Retention: One potential risk of going into meal delivery involves customer retention. While customer acquisition is high, having them stay after that first bite is quite another story. Why would a customer switch from your product? It would be if they can no longer afford it, or if the meal no longer delivers value. It could be that the glamour of buying a meal kit has worn off. Suddenly the product no longer seems new or experimental.

Based on the above research, we can say that this the right time for Instacart to enter into the meal kit vertical because:

Instacart and Meal Kits have become very popular among consumers.
HelloFresh remains the leader in Meal Kit market; however, it does not offer a grocery/pantry section to consumers. Instacart on the other hand, offers grocery section along with many other items.
For Meal Kit customers, convenience and time-saving are the top reasons for buying meal kits and Instacart’s current business model supports that.
Instacart raised a good amount of funding recently which can be used for product development.

How will Instacart go about making the move?

“Instacart meal kits” would be a subscription-based service–where the customer would be able to choose a restaurant/professional chef to order the meal kit from.

Our goal is to expand Instacart’s market share and drive new revenues.

If we look at it from a customer’s point of view, currently Instacart provides the option to buy grocery, pantry staples, alcohol and much more; but you still have to spend time on meal planning, prepping and cooking.

With HelloFresh on the other hand, you spend much less time on meal planning and prepping by delivering meal kits; but you still have to visit the grocery store for everything else.

By partnering with restaurants/professional chefs that offer meal kits, Instacart will gain an edge over other competitors by giving customers the option to buy meal kits, grocery, pantry staples, alcohol and much more, all from the same app.

This is how the business model would look like with incorporation of meal kits.

Conclusion

We saw how the potential of the meal kit market and the popularity of Instacart lit up with a spark with the onset of the Global Pandemic.

The best strategy for long-term survival for meal kits is to establish a partnership with brick-and-mortar retailers. With an increasing customer base, Instacart can take advantage of its existing business model and partner with restaurants and professional chefs offering meal kits.

By doing so, Instacart can provide customers with the best of both worlds — buy meal kits and grocery/pantry staples at the same time, all from one app.

The opportunity to enter the meal kit vertical:

1. Aligns with Instacart’s mission: Meal kits provide customers a way to enjoy food they love while saving time that they can enjoy with their family.

2. Leverages Instacart’s part experience and does not require a new competency: Instacart’s business model can clearly support any type of brick-and-mortar retailers. That said, Instacart can take advantage of its existing business model and partner with restaurants/professional chefs offering meal kits; thereby adding value proposition, new customer segments and revenue streams.

3. Builds off of Instacart’s core strength: Instacart’s core strength is leveraging the shared economy, Instacart has no warehouses, vehicles, or heavy equipment. This has allowed the company to focus its capital expenditures on developing its processes, technology, and human capital.

4. Provides an edge over competitors: Having the option to buy meal kits can provide customers with the best of both worlds — buy meal kits and grocery/pantry staples at the same time, all from one app.

I hope you enjoyed reading the article. Any feedback is much appreciated. Thank you.