Instacart’s Place in Your Omnichannel Retail Strategy - Episode 177
FIRSTMOVR ECOMMERCE GROWTH SUMMIT WITH STEFAN JORDEV
DESCRIPTION
We have a guest host for this week’s episode of the Ecommerce Braintrust podcast! Bobsled Director of Marketplace Strategy & Insights Stefan Jordev is jumping on the mic to share his contributions on the JBPx eCommerce Growth Summit organized by firstmovr with a presentation called Instacart’s Place in Your Omnichannel Retail Strategy. Enjoy!
With over a decade of experience in performance marketing, Stefan played a key role in building Bobsled’s industry-leading advertising capabilities on Amazon, Walmart, and Instacart. Stefan is a contributor to BeautyMatter and is frequently quoted as an advertising subject matter expert in publications like Business Insider, Glossy and Modern Retail.
“If there is one thing that I hope attendees take from this presentation it’s this: By a customer’s 10th order, 25% of all conversions are from the -Your Items- aisle, and I think this is huge.”
KEY TAKEAWAYS
Instacarts business model would be defined as: an unusual hybrid of last-mile fulfillment and front-end app holds no inventory.
The main distinction between Instacart and the other online grocery platforms is Instacart’s relationship with Inventory and Order Fulfillment. With Instacart, this is completely operated by the retailer.
Instacart’s business model: no additional inventory or order management is required, freeing up huge amounts of working capital that its competitors spend on inventory and warehousing. Instacart can divert its capital expenditure toward maturing its systems — its advertising platform in particular.
The retailers control the availability, and many retailers are lagging behind with their own ordering systems and visibility into inventory positions.
Launching a new product or brand can be difficult. New products will only be available on Instacart once a retailer has it in stock. This is where it’s important to have a close relationship with retailers and to educate them on your expectations for the product and the accompanying marketing plan.
Some products won’t be available in certain regions if local retailers aren’t stocking that product. This means that the product won’t show in organic search results and the brand won’t be able to run Featured Product ads for that product in those regions.
If a retailer’s ability to monitor its inventory at the store level is poor, it creates bad outcomes for the customer and for the brand. The brand might be running advertising on a product that is actually out of stock in that zip code, the customer is frustrated when the product isn’t available, and the shopper might suggest a competing product that is available in-store.
Instacart is a Four-sided marketplace rather than 2-sided marketplaces we are used to seeing:
Instacart has four important stakeholders that interact with each other: the end customer, in-store shoppers, Product advertisers (generally branded manufacturers) & retailers.
This is different from most marketplaces which are 2-sided. The implication for brands is that there is another stakeholder - retailers - that impact a brand’s success on Instacart.
How Instacart compares to other online marketplaces:
Retailers are a key stakeholder - they are responsible for: inventory availability, pricing, and product content. This puts brands in an unusual position.
Instacart’s partnership with many retailers is an advantage; it provides Instacart with a vast product assortment.
Instacart struggles to find a home with brands - issues arise because of where sales show up (retailer partners) and where budget is coming from (which department)
Instacart advertising offers a huge first-mover advantage
The main distinction between Instacart and the main other online grocery platforms is Instacart’s relationship with Inventory and Order Fulfillment.
Reasons for retailers to love Instacart:
Instacart provides the required technology that retailers are lagging behind on. Instacart’s own primary costs are the time it takes to shop for groceries and to drive. Instacart has already improved on this, focusing on backend efficiency, so retailers can skip the learning curve
Avoid the profit sucking the last mile
Report CommonSense Robotics: Grocers lose $5-15 on every manually picked order
Study Bain & Company: grocer margins can improve by 10% when a third party (Instacart) picks up the products
Order density is a problem for retailers that Instacart doesn’t have. aggregating across several retailers, Instacart can achieve route density far more easily than a single retailer.
Instacart is where customers are already transacting
A Nielsen survey in 2018 found that of customers who shop online, 31% prefer curbside pickup, while 69% prefer home delivery
Reasons for retailers to be wary of Instacart:
Losing the customer connection: personal info, product info, household info sits with Instacart
How to service both: in-store shoppers who need to find items and exit the store quickly, the end customer shopping for themselves
Margin erosion: Instacart charges between 5-8% as a fee to retailers for every ‘basket’ or order placed on the app
Instacart is also putting vendor allowances & retailer ad spend in jeopardy as brands shift their $$ online
In the short term, there will be intense competition amongst retailers to differentiate on Instacart. This is likely to include pricing and selection:
Pricing: Retailers will either take a hit to their own margins by being competitive with pricing on Instacart, or they will request funding from brands to make up the shortfall. As a brand, be prepared for these discussions and consider what leverage you have in the situation. Are you spending on advertising for these SKUs? Show these promotional dollars (which ultimately benefit the retailer) in your negotiations. Could you give a retailer an exclusive on a subset of SKUs, allowing your retail customer to avoid downward pressure?
Enhancing selection: Retailers might also look to expand the “long tail” of their assortment, delving into more niche products and also testing variations of top-sellers. This is a great opportunity for smaller brands to attract national distribution.
Retailers may also look to other mechanisms like private label brands as a way to differentiate and make up the lost margin. This is already happening in full force across the grocery industry. Some players like Aldi and Lidl depend almost entirely on revenue from private label brands. Kroger’s private label penetration is about 28%, while in the UK, Tesco offers more than 40% of all products under various private brands. The implication for brands is more competition from retailers themselves.
Instacarts’ algorithm has two main pillars: Fulfillment, and Search & Personalization. Major complexity - it checks availability across partners (Two models are at play: Item Availability Model and Replacement Recommendation Model)
90% of Instacart’s customers are repeat customers.
20-25% of Instacart shopping activity comes from repurchasing
By a customer’s 10th order, 25% of all conversions are from the “Your Items” aisle. For this reason, brands who invest in content, advertising, and retailer dialog that prompts availability, will win.
Typical organizational structures:
Ecommerce or Marketing owns the full relationship
Advantages: ecom is knowledgeable about optimizing performance marketing; can transfer data from other platforms; Instacart is not technically a customer so it naturally sits with marketing
Disadvantages: eCommerce team is overly reliant on ROI; eCommerce team doesn’t have the relationship with retailers, less negotiating power; eCommerce team will have feedback about the effectiveness of campaigns.
Sales owns the full relationship
Advantages: Sales team fully aware of supply chain issues, has a relationship with retailers, is aware of inventory levels, has knowledge of trade promotions
Disadvantages: sales team may focus on best selling products, neglecting new products; sales doesn’t have performance marketing experience; might push towards trade promotions instead of PPC;
Subset scenario - Shopper Marketing owns the relationship. Some shopper marketing teams are more equipped to handle this than others.
A potential solution for the issues addressed in the previous slides can be found in a Hybrid Model. In this model, the eCommerce team owns the performance marketing KPIs, the sales team owns product-related KPIs, and the marketing team owns the branding aspect of advertising with Instacart. They all report to a CMO.
MENTIONED IN THIS EPISODE
Connect with Kiri Masters
Connect with Stefan Jordev
Learn more about Bobsled Marketing
Sign up for updates about the upcoming book Instacart for CMOs
Pre-order the Kindle version now on Amazon
Learn more about the JBPx eCommerce Growth Summit organized by firstmovr