eGrocery Falls Flat When Startups Try to Reinvent the Wheel

From Instacart’s increased valuation to Boxed’s bankruptcy filing, online grocery is seeing major changes.

While players that attempt to drive adoption of their own digital grocery stores are struggling to make the economics of the model work, Instacart is benefitting from its status as a third-party player, enabling the company to drive sales from existing retailers’ well-established customer bases.

The aggregator increased its internal valuation Sunday (April 2) by 18%, amounting to $2 billion. The news, following on recent reports of Instacart’s strong performance, marks a turnaround after a series of major cuts to the aggregator’s internal valuation throughout 2022.

Unlike other online grocers, which offer their own selection of products, Instacart’s approach to the eGrocery space centers on enabling consumers to more conveniently acquire items from merchants that they know and trust, a key consideration for many shoppers.

For the latest edition of the Consumer Inflation Sentiment report, “Consumer Inflation Sentiment: The False Appeal of Deal-Chasing Consumers,” PYMNTS surveyed more than 2,100 United States consumers in February to get a clearer sense of how inflation has been affecting their shopping habits and relationships with retailers. The results revealed that 44% of shoppers said loyalty and familiarity influenced their decision of where to make their most recent grocery purchase.

Moreover, online grocery customers are even more loyal to their merchants than their brick-and-mortar counterparts. The study found that 27% of shoppers who are highly brand loyal made their most recent grocery purchase online. In contrast, only 18% of those whose purchasing decisions are motivated by other factors such as deals and convenience said the same.

That may be where many other online grocery firms are falling short, with their attempts to drive adoption of their own product offerings coming up against consumers’ existing merchant loyalties.

For instance, also Sunday, bulk eCommerce grocer and retailer Boxed announced that it had filed for Chapter 11 bankruptcy protection. The collapse of Silicon Valley Bank, where the company “held the majority of its cash deposits and other liquid instruments,” per a Securities and Exchange Commission (SEC) filing last month, may have been the final nail in the coffin, but the retailer has been considering selling the company since the start of the year.

The company has had to compete against other, better-established consumer-facing wholesale retailers such as Costco and Sam’s Club. The cost for eGrocers of maintaining a competitive selection can be steep — often prohibitive. Take, for instance, the ultrafast grocery firms that proliferated throughout 2021, which were losing as much as $20 per order.

Indeed, just last month, quick-commerce grocer Food Rocket bowed out, with CEO and founder Vitaly Alexandrov citing “significant challenges” from the “current economic conditions.” Around the same time, it was revealed that major convenience retail delivery service Gopuff has cut about 2% of its workforce — the company’s third round of major layoffs in the last year.

Instacart has had its own struggles with profitability even without looking to run an entire in-house grocery store, keeping its focus instead on fulfillment capabilities and providing other tech upgrades to existing grocers’ offerings. If even a company that generates sales from 80,000 stores in North America (across more than more than 1,100 banners) struggles with the economics of the model, that does not leave smaller players in a great spot.