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Instacart's Success Depends on Partnerships

Instacart's success depends largely on its relationship with retailers and whether they're happy enough to continue using the service, reports The Wall Street Journal, which explored what's in it for grocery retailers.

Instacart provides ecommerce services like grocery delivery for grocers that don't have the means or the scale to do it themselves. As a tech company, it can more easily hire and retain engineers than supermarkets. This, coupled with the fact that grocers operate on thin margins drive many businesses to leverage the platform's services.

Partnerships between supermarkets and Instacart include partial use, as with Costco, Kroger, and Albertsons, same-day services and full-suite use. For Sprouts, Publix, Top, and Price Chopper, Instacart powers their ecommerce capabilities.

The most obvious cost of doing business with the company  is the fee that Instacart charges its partners. Instacart has said that fees charged to its retail partners and customers together accounted for 14.9 percent of gross transaction value in 2022, though it hasn't disclosed what share comes from retailers. 

Grocers are also subject to the opportunity cost of foregoing advertising revenue by selling through Instacart. This includes trade spend, which can account for more than half of a supermarket's operating profits, according to the report.

Instacart offers a service that allows retailers to earn online ad revenue, called Carrot Ads, however, it means Instacart and the supermarket would share the revenue to some degree.

Instacart shared that the proposed merger between Kroger and Albertsons may affect its bottom line, noting that the consolidated stores may dial back its platform usage, or do away with the partnership entirely. Full Story (Subscription required)

Related: Albertsons Offers Rapid Pickup, Delivery; Walmart Offers Late-Night Delivery