After double-digit sales growth earlier in the pandemic, Instacart’s momentum is easing at a time when retailers are turning to their own e-commerce operations, according to new research from 1010data.

In June, Instacart saw its sales grow 4% year-over-year and 3.5% year-to-date, the retail data analytics firm found — a stark drop from Instacart’s sales success earlier in the pandemic, 1010data analysts noted. Instacart declined to comment on the report. 

At the start of the pandemic, grocers scrambled to partner with third-party e-commerce providers who could help them reach customers online, serving as a catalyst for Instacart’s growth. Now, with more retailers building out their logistics operations and rapid delivery firms, like Gopuff, zeroing in on convenience offerings, Instacart is facing more competition.  

While the company still looms large, the changing grocery e-commerce landscape signals Instacart will need to transform in order to regain the strong sales it’s seen before, the report noted. That next chapter appears to be underway as Instacart expands its menu of retailer tools and services, from fulfillment warehouses to tech-enabled shopping carts.

“Instacart’s had an amazing run and now that they've fallen back to Earth. But now that their numbers are becoming a normal growth story and others have closed the gap, they really need to figure out what the next chapter is,” Jonah Ellin, chief product officer at 1010data, said in an interview.

Comparing Instacart to its retail partners

The research firm looked at sales growth for three of Instacart’s retail partners — H-E-B, Costco and Sam’s Club, excluding sales through H-E-B’s Favor service. 

“Historically, Sam’s Club, H-E-B and Costco were very, very dependent on Instacart,” Ellin noted. Recently, though, they’ve become aggressive in rolling out their own e-commerce fulfillment capabilities, Frank Riva, vice president of marketing at 1010data, told Omni Talk.

All three retailers recorded higher year-over-year and year-to-date growth in online sales than Instacart, the report found. The share of Instacart sales remained relatively flat for Sam’s Club and H-E-B and declined 8.6% for Costco when compared to previous years, according to 1010data. 

“Now that customers are seeing options provided directly from retailers, they have a great affinity towards and a lot of loyalty towards” those retailer offerings Ellin said, noting that club-based memberships like Sam’s Club and Costco, especially, see a high degree of customer loyalty. 

Ellin said that retailers’ own e-commerce services often provide better value propositions to customers compared to Instacart’s model, which often siphons off margins on product sales in addition to charging tips and fees to customers. 

For the second quarter of 2022, the average basket size for Instacart ($33) was one-third to half that of the three retailers, according to 1010data. However, Instacart’s customers are purchasing more frequently, Ellin noted, adding 1010data’s research indicates people are building baskets but then waiting to place orders until they need an item on short notice or for a special occasion. 

“We think some of that has to do with the way in which they have installed their loyalty program and their subscription service,” Ellin said. “People are targeting a certain basket size that hits a price point. They're making their order and then they're reserving things that they can wait on for a later date to help them to hit that minimum order on the next basket. So it’s a little bit of gaming the system.”

The comparison of Instacart to the three retail partners also illuminates how online fulfillment channels are changing. Delivery drove Instacart’s recent sales growth while click-and-collect has seen negative sales growth, per the report. The three retailers recorded higher sales in both channels than Instacart did year-over-year, with delivery providing more robust sales growth rates, 1010data found. 

The research indicates pickup’s popularity has slowed as consumers return to in-store shopping, especially to pick “high-touch” fresh items like meat, produce and seafood, while delivery is continuing to gain traction due to its convenience and saving customers time, Ellin said. 

As consumers battle high food and gas prices, retailers have an advantage in enticing shoppers seeking delivery with e-commerce memberships that lower fees and online order minimums. For Instacart, on the other hand, some consumers view it as a luxury service, Riva said.

Can Instacart replicate its previous sales success?

Even with the rise of retailer-owned services and the ongoing issues caused by inflation and supply chain challenges, 1010data argues Instacart can still thrive. 

“I think they've got a lot of challenges coming. I do like the fact that they're very customer-centric,” Ellin said. 

Indications that Instacart is looking to make itself more relevant in this landscape include its work to change pricing strategies and promotions for their CPG and retail partners for customer savings, along with its foray into curated shopping carts and exclusive recipes from celebrities, retailers and influencers, 1010data noted. 

For Instacart to return to its previous sales boom earlier in the pandemic, 1010data said the company would need to “transform itself and its value proposition,” noting that it already seems to be working on that through its recent acquisitions of Rosie, Eversight, Caper AI and FoodStorm. 

Those acquisitions signal Instacart is making strategic moves to offer desired solutions for its retailer partners. “I think a lot of what they’re doing is right,” Riva said. 

“That long tail with retailers is going to be critical to them because the bulk of those long-tail retailers are not going to be in a position to do it. … The level of sophistication that Instacart can put into an e-commerce front-end and the ancillary offerings that could go with that is going to make sense,” Riva said.

Instacart’s personalization efforts, particularly, “feel like a very smart play” because customers who come to the Instacart marketplace aren’t necessarily looking to shop from a specific retailer, Ellin said. 

Instacart has a treasure trove of user data that it can leverage. For example, Instacart can help steer customers toward high-value items and products they know will be relevant to them based on their shopping history, Ellin noted. 

“They still have that understanding of the customer and understanding the customer across multiple merchants that most of the retailers that are out there lack,” Ellin said. “They know how that customer shops with them, but they don't know where's the rest of their share of wallet going and what inspired them to make purchases today one site versus another.”