Uber, Instacart Challenge DoorDash with New Delivery Deal

Key Takeaway

• Instacart and Uber Technologies Inc. partner to offer restaurant deliveries via the Instacart app, challenging DoorDash's 67% market share.
• The partnership aims to leverage Instacart's large customer base and enhance its $9.99 monthly membership value with access to Uber Eats' restaurants.
• This strategic move reflects a broader industry trend of diversifying services and intensifying competition in the food and grocery delivery markets.

Strategic Partnership Announced

Instacart and Uber Technologies Inc. have unveiled a partnership to integrate restaurant delivery services through the Instacart app, leveraging Uber Eats' platform. This collaboration is set to challenge DoorDash Inc.'s dominance in the US food delivery market. Instacart users will soon have access to hundreds of thousands of restaurants via an Uber Eats interface within the Instacart app, with Uber’s couriers handling deliveries. Grocery delivery, however, will continue to be managed by Instacart's existing infrastructure.

Uber CEO Dara Khosrowshahi and Instacart CEO Fidji Simo highlighted the competitive nature of the marketplace and the mutual growth opportunities this partnership offers both companies. Simo initiated the partnership discussion, aiming to enhance value for Instacart’s subscribers. Although specific financial terms were not disclosed, it was mentioned that Uber would compensate Instacart with an affiliate fee for each order directed to Uber Eats through the Instacart platform.

Market Dynamics and Competitive Landscape

This partnership emerges as a strategic move to capture a larger share of the US food delivery market, where DoorDash holds a significant lead with a 67% market share. The collaboration aims to leverage Instacart’s substantial customer base of suburban families and enhance the value proposition of Instacart’s $9.99-a-month membership, which promises free delivery on orders over $35.

The food delivery sector is witnessing a shift as companies like Uber, Instacart, and DoorDash explore new growth avenues beyond their core services. This includes expansion into grocery deliveries and sponsored advertising slots, amidst a backdrop where pandemic-induced demand has plateaued and venture capital funding has become more restrained.

Evolving Competitive Strategies

The partnership reflects the evolving strategies of delivery apps in a post-pandemic market environment characterized by intensified competition and a push towards profitability. Instacart and Uber are diversifying their services to include non-restaurant deliveries, while also contending with competitors like Amazon Inc. and Walmart Inc. in the grocery delivery space.

Instacart’s early exclusive agreements with grocery chains had positioned it as a leader in online grocery deliveries. However, as these agreements have lapsed, competitors have made inroads into this market segment. Despite this, Instacart maintains a lead in large grocery purchases and boasts over 5 million paid subscribers.

Uber’s collaboration with Instacart is seen as an opportunity to tap into the suburban market, complementing its urban-centric rideshare service. This partnership strategy allows Uber to expand its food delivery services without pursuing an outright acquisition of Instacart, aligning with Uber CEO Khosrowshahi’s cost-containment and growth strategy.

Management Quotes

• Dara Khosrowshahi, CEO of Uber:

  "You could say that we’re a threat to DoorDash both independently and teaming up as well. This is a highly, highly competitive marketplace. The beauty of this partnership is that both Instacart and Uber can continue to grow their business." "Certainly, Instacart is a very strong competitor as it relates to grocery. But for us it was an opportunity to expand essentially the Uber Eats business especially into the suburban markets where Instacart is particularly strong."

• Fidji Simo, CEO of Instacart:

  "Simo said she first approached Khosrowshahi about the idea." "[Uber will pay Instacart an affiliate fee for every order that her company passes on to it.]" "[Instacart’s Simo said her company is committed to operating independently.]"

• Nick Giovanni, CFO of Instacart:

  "And Uber, which began as a rideshare service serving affluent urban customers, sees Instacart’s family-centric, suburban demographic as a market it can tap into without making an actual acquisition."