Instacart's sustainability questioned as it rapidly expands, restructures deals with retailers
Farhad Manjoo / New York Times : Tweets: @fmanjoo Tweets: Farhad Manjoo / @fmanjoo : Retailers say that for now, paying @Instacart for new customers has been worth it. Me @nytimes http://www.nytimes.com/... http://twitter.com/...
Context & Ripple Effects
In May 2015, Farhad Manjoo put a question mark over Instacart that would define the next decade of its coverage: can a grocery delivery middleman make money while growing fast enough to matter? The immediate answer from retailers was hedged — they said paying Instacart for new customers had been worth it 'for now,' with restructured deals shifting terms in Instacart's favor.
That hedge proved prescient. Within a year Quartz traced why certain industries resist the on-demand model altogether, yet Sequoia still led a $400M raise at a $3B valuation two years later. The pandemic briefly silenced the doubters with a claimed first monthly profit and three quarters of positive cash flow under CEO Apoorva Mehta — before supermarkets' complaints about the 10% commission revived the original question.
First-order effects
- Retailers signing the restructured deals are effectively buying customer acquisition from Instacart, accepting thinner margins today in exchange for reach they hope to own later.
Second-order effects
- The margin squeeze doesn't stay hidden: five years on, US supermarkets publicly said they weren't making money through Instacart's 10% per-order commission, forcing renegotiations and pushing grocers to weigh building their own delivery operations.
Third-order effects
- If the pattern holds — expansion, retailer pushback, then reinvention — the endpoint is Instacart's pivot to selling software and ads to grocers, where it monetizes its platform position instead of delivery margins, and the industry learns which retail categories simply don't fit on-demand economics.
The trend: On-demand grocery delivery is cycling through the same loop this 2015 story opened — subsidized growth, retailer margin revolt, then a pivot toward software and advertising revenue.