Behind Instacart's recent struggles, which show why certain industries won't fit the on-demand model
Inside Instacart's fraught and misguided quest to become the Uber of groceries — The changes Instacart outlined were grim. — Fees for customers were increasing.
Context & Ripple Effects
Instacart's 2016 stumble is best read against its own revenue history: by early 2015 it had already quietly shifted from delivery fees and product markups to charging grocers, a sign the consumer-side economics never carried the business. This Quartz piece reports the next step in that unwind — customer fees rising again as the 'Uber of groceries' framing collides with grocery's thin margins.
The arc matters because the pattern repeats: after the pandemic surge faded, Instacart pivoted again, planning to sell software and ads to grocers rather than live on delivery economics alone.
First-order effects
- Customers face higher fees immediately, which pressures order frequency at exactly the moment the model depends on volume to cover per-delivery costs.
- Instacart's pitch to investors as an Uber-like logistics network takes direct damage, raising the bar for the kind of round it had been pursuing — the $400M raise at a $3B valuation showed how much capital the model consumed even in good news cycles.
Second-order effects
- Grocers paying Instacart fees gain leverage to renegotiate or build first-party delivery, since a struggling Instacart needs their catalogs more than they need any single delivery partner.
- Rival on-demand grocery players inherit the same fee-vs-volume trap, forcing the whole category toward surcharges, subscriptions, or marketplace fees rather than headline delivery prices.
Third-order effects
- If the pattern holds, on-demand marketplaces in low-margin, high-frequency categories converge on selling infrastructure — software, ads, data — to suppliers instead of competing on delivery price, which is precisely where Instacart's later strategy landed.
- Regulators and labor advocates get a clearer target as fee increases fund a gig workforce whose unit economics only close at scale, making worker classification and fee transparency recurring policy flashpoints for the sector.
The trend: On-demand delivery companies are learning that thin-margin categories force them to evolve from consumer-facing couriers into B2B software and advertising businesses.