retail news in context, analysis with attitude

CNBC reports that Instacart has raised $200 million in a new funding round that gives the company a current valuation of $17.7 billion.

The story says that Instacart was valued at $7.9 billion at the start of the year.

Some context from the CNBC story:

"The latest funding round comes as Instacart and food delivery apps expand beyond restaurants into grocery, convenience and retail. Over the last few months, DoorDash has formed partnerships with PetSmart, Macy’s and Walgreens, and launched its own “DashMart” virtual convenience stores. Uber is also expanding grocery delivery with Cornershop and is in the process of acquiring rival Postmates.

"Instacart is also expanding beyond its core with partnerships with new retailers this year including Walmart, 7-Eleven and Sephora."

The story says that "Instacart plans to use capital to expand its ad and enterprise businesses, and for product development."

KC's View:

I'll bet they do.

It is important to note that Instacart's valuation actually is greater than Albertsons', which is about $15 billion.  It is way bigger than UNFI's, at $3.7 billion.  Sure, it is less than Kroger's, which is $38 billion, and not even in the same ballpark as Walmart's ($432 billion) and Amazon's ($1.6 trillion).

But here's the point.  There are a lot of companies doing business with Instacart that simply do not understand - or care, which is even worse - that they are a) conducting commerce with an entity that is far larger than them and could eat them alive, b) now has control of all their relevant customer transaction data, and c) has established a strong enough brand that customers now think they are shopping with Instacart, even if the groceries are coming from Instacart's client retailer.

Please, somebody tell me.  How is this a freakin' good idea????????????????

(A small caveat.  This is a very good idea for Instacart.  Just not for anyone doing business with it.)

These retailers have traded convenience (Instacart gets them into the ecommerce business quickly and relatively easily, without a major investment of time and money) for their very souls.

Think for a moment about Airbnb, and how it became such a strong brand and disrupted the hotel business (back in the days when we all traveled) without ever owning a single piece of real estate.  Hotels ignored the challenge for way too long, and have been trying to figure out competitive responses to a model to which they should've paid far more attention.

Instacart doesn't own a store.  Yet.  But it could - and I would argue, will - open dark stores that will serve all those millions of customers that it has in its database.  It has the technology.  It has the infrastructure.  It has the money.  And it has the best of all possible scenarios - competitors who seem oblivious to the challenge.

To use my favorite movie metaphor - traditional retailers doing business with Instacart may soon find themselves in a pitched battle with a carnivorous shark, and they will be desperate for a bigger boat.  And it may be too late.  It may already be too late.