The personal e-commerce software Instacart is launching service in St. Louis this week including a “white label” execution with Schnuck Markets, online storefronts for local retailers Straub’s and Shop n’ Save, as well as Whole Foods and Costco.
St. Louis will become the 34th U.S. metro area to offer Instacart service when it launches Thursday, according to the San Francisco-based company, which provides online ordering and fulfillment for about 135 different retailers nationwide.
Mark Doiron, chief merchant and supply chain officer for St. Louis-based Schnucks, said the company had been studying Internet shopping options for several years but proceeded with Instacart because it offered the fastest route to provide the online shopping service its customers had been asking for.
“We felt it was really important that we were first movers in St. Louis in this space,” Doiron told SN. “We went to different markets around the country to look at different options and every one of them, without exception, said ‘be first.’ The reason for that is, it’s a sticky customer. Once you get them in place and they start enjoying the service and the value it creates for them, it’s hard to be the second person in.”
Doiron added that Schnucks considered other options including building its own systems “but the path was longer and frankly, more expensive.”
Schnucks also views the launch as a defensive strategy, Doiron added. “We know we’ll get new customers from this, and we know some of our existing customers will convert,” in about equal numbers. However, he added that Schnucks is also focused on a longer-term threat from Amazon.com.
“We know Amazon is really taking market share in center store,” he said.
Schnucks is offering Instacart through a “white label” program that provides a “Schnucks Delivers” branded online storefront that tells customers it is “powered by Instacart.” Instacart users can also select to shop at Schnucks through the Instacart app’s “marketplace” of choices.
“They don’t sacrifice any incremental customers the marketplace can bring to them, yet they are fully in control of their brand experience,” Nilam Ganenthiran, SVP of business development at Instacart, told SN in an interview.
According to Ganenthiran, Instacart is rolling to St. Louis with momentum, saying its users tend to spend up to four times more per shopping trip than they do during store visits. Average Instacart customers are spending about $250 on two online trips per month, he said, while subscribers to Instacart’s annual service spend about $500 a month and make between four and five online trips per month.
Ganenthiran said stores offering Instacart typically do between 2% and 15% of their total sales through the app.
Instacart makes money through a combination of subscription and per-order fees, revenue sharing from retailers, promotions with product manufacturers and scale allowing it to serve a variety of retailers in a market at once. It is profitable in all markets in which it has operated for more than six months, Ganenthiran said.
“The knock on Instacart has always been that we can’t make money. But we’re making money in mature markets now,” he said. “We’ve got a model that works.”