Instacart to build network of micro-fulfillment centers to fend off Amazon and rapid grocery

Company embarks on ‘new trajectory’ with grocery retailers as it seeks to fend off fierce competition

Delivery service Instacart has said it will build micro-fulfilment warehouses as it attempts to fend off the dual threat of newer rapid delivery apps and Amazon’s growing presence in groceries.

Fidji Simo, chief executive, said the new effort cements its broader pivot from its core delivery business — which primarily hires gig workers to pick up groceries from existing brick-and-mortar stores — into becoming a platform offered to retailers, incorporating advertising technology, warehouse logistics and data analytics.

Speaking to the Financial Times, Simo said the move was a “new trajectory” for the company as it attempt to build “something that is fundamentally different” from how investors had viewed the company.

The first rapid-delivery deal utilising the new warehouses is with Florida-based grocery chain Publix, which will come online in the “coming months” and initially be available to customers in Miami and Atlanta, Instacart said.

The warehouses will be part of a bundle of services — including advertising, data insights and in-store tech such as “smart” trolleys — known as Instacart Platform.

Instacart said a number of other retailers, such as Aldi, would use the services, though it would not specify if it had any other takers looking to partner on 15-minute delivery sites specifically.

“We are seeing an industry really in the middle of a massive digital transformation, and grocers have a million different challenges that they’re facing,” Simo said. “So within our platform, we want to give them access to a modular yet connected suite of technology so that they can best compete with Amazon.”

The company’s shift comes in the midst of a rapidly changing ecommerce landscape, where upstarts such as Gopuff have eaten into Instacart’s customer base with the promise of faster and more consistent delivery.

“It’s almost certainly a reaction to the power of the ‘instant needs’ business model,” said Jett Fein, a partner at venture capital firm Headline, an early investor in Gopuff. “It will take any competitor, even a well-funded competitor, like Instacart, a long time to get this right.”

Brittain Ladd, a grocery industry consultant, said: “It would be an embarrassment if all Instacart did was grocery delivery. Instacart is old enough now that they need to take it to the next level.”

Gopuff, which operates in more than 1,000 cities in the US and Europe, mostly fulfils orders from warehouses, as well as some brick-and-mortar outlets, such as the alcohol retailer BevMo, which it acquired in November 2020. Other competitors, such as Getir and Gorillas, use the same “vertically integrated” model of owning inventory, warehouses and logistics.

Meanwhile, Amazon has been rapidly expanding its chain of Amazon Fresh stores, a hybrid walk-in location for typical shoppers and delivery hub for online orders, along with grocery distribution centres.

Instacart said its warehouses with Publix would be a mixture of standalone facilities attached to existing brick-and-mortar stores. The companies would not disclose the real estate’s ownership structure, although any stock held in the locations will belong to Publix.

There have been signs that retailers were hesitant to deepen their relationships with Instacart. Last July, the company announced a multiyear deal to create robotic warehouses in conjunction with Fabric, an automation specialist, with a view to launching pilot concepts by the end of 2021. None are yet operational.

Instacart has raised more than $2.7bn in venture capital funding, according to data from PitchBook. Its most recent round in March 2021 valued the company at $39bn. That had been expected to be one of the last rounds prior to the company going public, which was initially expected in 2021 but has been delayed.

A number of large investors have since lowered the paper valuations of their stakes in the company by about 18 per cent, as first reported by The Information. Instacart would not comment on whether it had reduced its own internal valuation.

Simo declined to provide a timeline for when the company expects to IPO. “We will take the company public at some point once everybody’s very clear on this vision,” she said.