When the COVID-19 pandemic hit the U.S., grocery delivery services were in high demand. However, in an already low-margin industry and changing consumer environment, Instacart depends on their self-service ad platform to make a profit.
The ads sell on a cost-per-click basis in a second-price auction allowing CPG marketers to purchase programmatic retail media. The ad offering enables brands to pay to have their products featured in search results, on the homepage, or in custom suggested lists on the checkout page. Instacart is appealing to advertisers because of its market share, household penetration, and share of shopping baskets that carry their product.
As the business grows, Instacart Advertising needs to determine if their product is more valuable for big CPG brands or small regional brands and third-party sellers. Of course, there are advantages and disadvantages to both. Instacart tested various advertising techniques with their big brand customer, the Campbell Soup Company, by offering free samples of Campbell’s to shoppers that previously purchased broth from another company. Nevertheless, it is hard for big name brands to stand out on a shelf yet alone on ecommerce. Smaller brands and specialty products like vegan, gluten-free, and keto are more successful in targeting online shoppers due to their niche market.
In addition, Instacart is competing against grocery and delivery services from Target, Walmart, Kroger, and other major retailers. But Instacart is unique in the sense that it can scan loyalty of shoppers to analyze consumer behavior and loyalty. The potential for ads on the platform is growing and will ultimately be the key to generating revenue in retail media.