SAN FRANCISCO -- In its quest to build a profitable business, online grocery delivery service Instacart Inc. is searching for new sources of revenue that won’t turn off shoppers.
Instacart is working with General Mills Inc., Nestlé SA, PepsiCo Inc., Unilever NV and other consumer packaged goods (CPG) makers to cover the cost of delivery or provide other discounts when customers buy their products.
In addition to the coupons, the companies pay Instacart to advertise on its website. Since introducing the program about six months ago, it now accounts for 15% of Instacart’s revenue, Apoorva Mehta, the company’s CEO, told Bloomberg.
Shoppers can find discounts when filling their carts with brands such as Degree, Doritos, DiGiorno, Häagen-Dazs, Quaker Oats and Stella Artois. Instacart ads promise free delivery if a shopper spends $10 on Red Bull, or consumers can get 75 cents off any Dove soap.
Mehta compares the ads to those offered on the side of Google search results. “It’s like AdWords for groceries,” he said.
The company, which was valued at $2 billion by investors last year, had previously made up some of its costs by selling products for more than what the grocery stores charged. Customers complained, and Instacart backtracked.
“People resist paying for delivery because in their minds, it’s something they previously paid $0 for when they picked up their own groceries,” said Nir Eyal, an author who studies how people form habits around technology and teaches at schools such as Stanford University. “Of course, that’s silly because time also has value, but people don’t see it that way.”
Early results from the advertising program are also encouraging. Nestlé ran two campaigns last year offering free delivery to Instacart customers who ordered $15 of DiGiorno frozen pizzas or Häagen-Dazs super-premium ice cream. Rui Barbas, a U.S. vice president at Nestlé, said he was “happy with the results.”
Instacart said the newer business arrangements are helping it bolster profit margins. Delivery fees paid by customers now make up less than half of the company’s total revenue, which grew fivefold in the past year.
To further reduce costs, Instacart increased delivery fees $2 per order and cut some staff in December.
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