Instacart’s CEO Is ‘Worried’ About Inflation of Food Prices
Instacart’s CEO Is ‘Worried’ About Inflation of Food Prices
(Bloomberg) -- Rising inflation is taking a bigger bite out of Americans’ food bill. For customers of grocery-delivery giant Instacart Inc., the cost of convenience is poised to get even more expensive.
Beef bourguignon is a Thursday-night dinner favorite for Chief Executive Officer Fidji Simo, who was born in France. But these days, the home-cooked meal doesn’t come cheap, especially when many of its ingredients -- from the beef and bacon to olive oil and flour -- have seen double-digit price increases compared with last year. Inflation has helped push the share of U.S. household disposable income spent on food in 2021 to the highest level in more than two decades.
Simo, who runs the largest online grocery delivery platform in the U.S., is “worried.”
“We have seen inflation definitely hit on Instacart,” Simo told Emily Chang in a “Bloomberg Studio 1.0” interview airing Wednesday night. “The model on Instacart is that the grocer sets the price. And so, we reflect that price back to the customer.”
Beyond the price of food, ordering through Instacart carries other costs, including a delivery fee that starts at $3.99 and can go higher to have your order ferried to the doorstep faster. It also charges a service fee that “helps support the Instacart platform and covers a broad range of operating costs including shopper operations, insurance, background checks, and customer support.” Unlike tips, 100% of which go directly to couriers, service and delivery fees go to Instacart.
Total customer fees, excluding discounts, were 24% higher in January than a year earlier. Most of the increase comes from service fees, which were 45% higher than last year and 61% more than in 2019, according to market research firm YipitData. Because service fees are a percentage of an order, this charge would be expected to increase as food prices rise, Instacart said in a statement.
In turn, Simo said customers are adapting by adjusting their order baskets and focusing on essential items. Persistent inflation could further erode Instacart’s order values, which were already on the decline last year and 21% lower in January compared with 2021, YipitData show.
Instacart has a tab that highlights discounted food and has also been partnering with consumer packaged goods companies to offer deals to drive down prices, Simo said. Instacart also expanded an online payments program for the Supplemental Nutrition Assistance Program in December.
The war in Ukraine, which helped push gas prices to a record high in the U.S., is further straining global food systems, threatening to raise costs even more.
“We are in a period of complete instability, and so anything that kind of disrupts these supply chains can have a direct impact on both prices and availability,” Simo said.
Other Silicon Valley gig giants that also rely on independent contractors, including Uber Technologies Inc., Lyft Inc. and DoorDash Inc., have announced various measures to help ease the burden on drivers’ soaring fuel costs. Uber and Lyft are passing that cost on to consumers. Instacart hasn’t yet followed suit.
The war in Ukraine isn’t the only uncertainty Simo is grappling with. The former Facebook executive has been pivoting the company to focus more on being an e-commerce technology supplier for supermarkets. The new venture is uncharted territory for the startup, which is best known for it’s consumer-facing app for grocery deliveries.
The focus on enterprise offerings comes at a time when supermarkets are reevaluating their dependence on Instacart after the pandemic forced them onto its marketplace to capture the surge in customers migrating to online grocery shopping amid Covid-19 lockdowns.
Simo hopes to win grocers over by pitching Instacart as the “antidote” to Amazon.com Inc., “so that they feel like they always have a partner that has their back and is developing everything they need to go compete with a big guy,” she said.
Simo also has to convince investors, who have poured almost $3 billion into the startup since its founding. A person familiar with Instacart’s thinking says the company isn’t in a rush to go public at the moment, as it deals with new management and changes to its business. The soonest it could go public is late this year, the person said.
Simo declined to comment on specific IPO timing. “At some point, of course, but I really want to make sure that the company that we do take public is a company that’s reflective of this new, bolder vision,” she said.
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