Instacart needs a healthy advertising company to make the economics of grocery delivery work.
Grocery is really a low-margin industry – that’s when people go to the store and do the shopping themselves. Using Instacart adds up to the cost of shoppers and home delivery.
But, unlike when new customers use the app, Instacart doesn’t need to hire more staff when advertisers use its new self-service platform, which means every extra ad dollar helps ease the pressure on grocery delivery to make a profit (which it doesn’t) .
Instacart has demonstrated its dedication to growing its advertising business through several high-profile employees. The company stole Amazon Advertising chief Seth Dallaire as a CRO in 2019 and named Carolyn Iverson, a former Facebook ad industry leader, as president last year.
Both Everson and Dallaire left Instacart in 2021 — Everson due to an alleged misunderstanding about the scope of their role and Dallaire was poached (again) by Walmart, now a CRO — but Instacart responded in turn.
In December, Instacart appointed Stephen Howard Sarin, former vice president of strategy and transformation at Walmart Connect (Walmart’s advertising company), to lead the retail media group.
It’s easy to summarize your current Instacart ad offering. Brands can pay to feature a featured product in search results, on the homepage, or in personalized lists of suggested products on a post-checkout page.
Ads are sold on a CPC basis in a second price auction. Mayward said Instacart started with the first price auction in 2019, but switched to the second price because that’s how CPG marketers buy automated retail media elsewhere.
While its advertising tools are pretty basic at the moment, Instacart has some great highlighters.
For one thing, Instacart sees sales across multiple grocery stores, allowing it to provide advertisers with a wide range of metrics, such as market share, household penetration and the share of shopping carts carrying their products, said Himanshu Jain, Vice President of Product Management at CommerceIQ, Instacart Ads partner. .
With these analytics, Instacart has established itself as the default for CPG brands to invest in grocery and e-commerce delivery, because it’s easier than recruiting retailer platforms one by one, Jain said.
Although startups rarely compete with the likes of Amazon and Walmart in sharing the mind of marketers, Instacart has at least removed that hurdle.
Opportunity or illusion?
But Instacart’s advertising capabilities still need to keep up with the odds.
Although, to be fair, Amazon, now a giant, started slow and simple with only sponsored product search results.
Mayward said Instacart is “laser focused” on the core CPG brands. Instacart added CVS in 2020 and Walgreens last year, which has helped attract non-food advertisers like L’Oréal, he said. But, at this point, Instacart isn’t actively pushing non-endemic brands, the way a children’s clothing company might use Amazon DSP to target people who buy baby food.
All major retail media players such as Amazon, Walmart, Target, and Kroger have audience networks that target customers across the web or on social media. Instacart cannot add non-native advertisers because it only sells owned and managed media.
“It’s a great area to discuss, but there are no plans to get involved,” Mayward said.
Instacart also does not have video modules. Mayward said video will be a priority for testing this year as a way for brands to present themselves using richer media.
In 2020, Amazon began testing sponsored videos in some search results, often for well-known brands trying to differentiate themselves from cheaper imitations.
On the affiliate program front, well, Instacart doesn’t have one. Recipe publishers or influencers who can increase CPG sales have no way to monetize traffic to Instacart.
Instacart can also partner with other major platforms to monetize their data. For example, Kroger signed a deal with Roku in 2020 to outsource CTV campaigns based on store sales.
Although there are a lot of things Instacart doesn’t have yet, they have actually managed to create meaningful advertising work together. A source told the Wall Street Journal last year that the company generated $300 million in advertising revenue in 2020, and aims to reach $1 billion in 2022.
big vs small
One of the most important questions for Instacart Advertising is whether it will be a more valuable product for large CPG brands, newer e-commerce companies, smaller regional brands, or third-party sellers.
As always, there are huge advantages to being, well… huge.
Campbell Soup was a direct customer for the brand that joined Instacart Advertising in 2020. As a brand with hundreds of millions of dollars in retail media commitments, it gets its first breakthrough into new Instacart advertising products, such as a test drive of free samples during Holidays.
Meanwhile, when Noops, a vegan pudding company, began hitting a national distribution footprint last year, it made sense to start advertising on Instacart, CEO and founder Gregory Struck told AdExchanger.
“A lot of times, it just isn’t enough to be on the podium,” Struck said. Noops should be careful to shift ROI on their advertising investment when they try to compete with Kraft-Heinz’s JELL-O brand, a 400-pound gorilla in the candy category with plenty to spend.
But there are pros and cons to every brand.
Mayward said that competing brands or niche products like vegan, gluten-free, and keto have very strong use cases because they can buy into targeted keywords.
He said Challenger brands are also benefiting because customers who browse grocery options in e-commerce “are faced with a new choice” and are willing to try new products. A smaller brand can raise itself on Instacart more easily than it can buy or earn shelf space in stores.
Driscoll’s, for example, the leading brand in the berry world, is a direct advertiser on Instacart, but it must develop new ways to stand out in e-commerce, and on Instacart in particular, Vice President of Brand and Product Marketing Francis Dillard told AdExchanger last year. .
Driscoll’s has invested tens or hundreds of millions in breeding the most luxurious blueberries and reddish strawberries that pop up in store aisles. This ROI does not transfer to JPEG for Driscoll berries next to JPEG for some other berries.
Another consideration for advertisers is the fact that the most compelling Instacart analytics, such as accurate data on category market share or household penetration, are discarded based on the percentage of total sales devoted to advertising, Jane Commerce told IQ.
In other words, small brands are not excluded from the best data by the bottom line of advertising – it’s about the percentage of their sales that are reinvested in advertising.
Aside from attracting Fortune 500 brands and the long tail of regional companies and SMEs, Instacart also has to navigate difficult relationships with its retail collaboration.
Walmart and Target are both investing in their own e-commerce grocery and delivery services. Both are still partners with Instacart, but at some point those sales may be making in-house rather than sacrificing pieces to an intermediary supplier, just as they did with Walmart and Target’s ad platform businesses, said Forrester chief analyst Sucharita Kodali.
The next tier of grocery chains, like Kroger and Albertsons, have grocery delivery and ad platforms that also rival Instacart.
“If Instacart becomes too greedy or cannibal, grocery chains can remove the menu and the pendulum can swing back to their grocery locations or apps,” she said.
It’s a tough question for Instacart, because creating products that are valuable to advertisers will always create tension with retailers.
When Campbell tested a free sample of Instacart’s ad product in November and December, it didn’t provide samples only to people who regularly buy soup or broth or who haven’t bought soup recently. Instacart targeted shoppers who had previously purchased another company’s broth, and offered them Campbell’s freebie before adding their regular product to their cart.
Some competing retailers and brands might see this happen with loyal customers and say, “Hey, Instacart, what are frozen foods?”
But Instacart can offer a major selling point for major brands as a window across the grocery category.
“The biggest distinction for Instacart compared to Kroger or even Amazon is that we can look across retailers and possibly use it to see how loyal people are to a particular retailer,” said Trace Rutland, director of the digital center for the Ocean Spray brand.
For example, are people who buy Ocean Spray in Kroger stores and via the Kroger e-commerce platform vulnerable to other brand developments on Instacart, or vice versa?
Ocean Spray wants data transparency from Instacart – and is willing to pay for it.
Although grocery chains will likely feel differently about Instacart potentially directing shoppers to different stores when multiple grocers carry the same product — or if Instacart begins targeting the buying habits of loyal customers.