Inside Instacart’s Billion-Dollar Growth Flywheel with CCO Ryan Hamburger

0:00This episode was brought to you by KWI. First, I think it's really recognizing that the future of grocery isn't about your physical experience or your digital experience. It's really connecting those two together, right? The gap between digital native and more legacy e-com experiences, if you will, is closing fast. And so retailers really need to lean in now and make sure they're building both a brick and mortar and a digital experience that is not just best in class as a standalone, but that they truly are intertwined.

0:34Instacart just crossed a billion dollars in quarterly revenue. So what's actually driving that kind of growth and what does it mean for the rest of us in retail? Welcome to Retail Remix. I'm Kate Robertson, Editor-in-Chief of Retail Touchpoints. And today I'm joined by Ryan Hamburger, Chief Commercial Officer at Instacart, for a conversation about how the company is reshaping the way America shops for groceries. We get into the real forces behind Instacart's growth and where Ryan sees the biggest upside next. Marketplace, advertising, enterprise technology, or AI. Then we get into the fun part, consumer behavior.

1:11Who's the true Instacart power user? What turns an occasional shop into a loyal weekly habit? And what should you understand right now about where digital grocery is heading next? If you plan, buy, or build for a retail business, this one's packed with takeaways. Let's get into it.

1:31Ryan, thanks so much for joining us on Retail Remix. Yeah, thank you for having me. Instacart just crossed$1 billion in quarterly revenue. What are the biggest drivers behind that growth right now? Yeah, no, honestly, so Q1 was really a milestone quarter for us. I think, as you know, first time we crossed$10 billion in what we call GTV, or gross transaction value, as well as crossing a billion in revenue in the same quarter. And I think as we unpacked it, what I'm most excited about is really what's driving that is not a singular thing, but really, I would say a number of variables that are continuing to compound together.

2:08The first one that I would hit on is really around the customer behavior. So we've always had larger baskets on our platform, but we now have an average order value of$113. You know, what that tells us and what I think that tells most folks is people are trusting Instacart with their full weekly shop, right? Not just those top-up or convenience-style orders that they do. And for us, that just, I think, demonstrates a deep relationship that we've been able to build with the customer. I think we're also in a real phase of enterprise growth or what we're calling a growth surge. As you might be aware, we've offered enterprise technology for six, seven years at this point, but we've really doubled down on our storefront pro platform over the last few.

2:53And this is really enabling us to take all of the great technology that we've built on the marketplace side of our business and power retailers' first-party properties. And the beauty of that is not only are we putting our great tech in the hands of our retail partners, but they're seeing a sales benefit as a result. Just transitioning to our platform, typically retailers see a 10 percentage point lift in sales just right out of the gates without doing anything else. And I think the last but not least that I'd hit on is our advertising business. our ads revenue was up 16%, which is the fastest pace for us in over two years.

3:25We now have north of 9 ,000 brands working with us on our platform. And we're in a position where we can actually use first party grocery data to now power campaigns on platforms like Meta, TikTok, Pinterest. And so for us, continuing to demonstrate that we've built a real viable retail media business, not just a side product. So while there's more to unpack there, yes, that's kind of how I think about why this flywheel is working so well. Yeah, I definitely want to dig into a lot of what you mentioned in more detail. But maybe first off, where do you see the most upside over the next few years?

4:01You've talked about marketplace, enterprise technology, advertising, AI-powered shopping. What are you most excited about? Yeah, I mean, maybe I'll start with a bit of a punt on the end, so then I'll get to the detail. You know, the reality is I view all of those as compounding off of each other, right? And I think that's what makes our business very complex, but also super interesting. Stepping back for a minute, a stronger marketplace business that we built, that provides and creates better data. Better data makes our AI smarter. Smarter AI makes the advertising campaigns more effective or our enterprise capability stronger.

4:34And so it really is that flywheel. But again, going back to picking one and thinking about where the most, call it white space is, it really has to focus on the enterprise side of our business. Again, at the risk of maybe stating the obvious, grocery was really one of the last retail categories to come online and really fully digitize itself. And so what we've seen over the years and what we're still seeing today is while retailers understand the need to have a strong digital ecosystem, they've historically underinvested in this infrastructure. And so now what they're trying to do is compete with some retailers who have been building it for years, but also playing catch up.

5:13And that's hard to do, right? especially at the pace at which innovation continues to move nowadays. And so that's really the opportunity we're most focused on and excited about with our retailers is, again, how can we help them not just catch up, but stay ahead of that innovation curve as it relates to their digital ecosystems? You mentioned Storefront Pro. What are retailers getting from Storefront Pro that's making such a big difference for them? Yeah. So, you know, I think when I talk to retailers, right, they're getting hit from sort of all sides, right? They need to modernize their not just digital infrastructure, but even their in-store infrastructure.

5:47They need to build loyalty programs that are engaging. They need to unlock revenue streams all without sacrificing the razor thin margins that they operate in or operate on, I should say. And so for us, it's sitting in the room with them. They're asking the question, do we go about this ourself? Right. Do we try and build these platforms? Do we try to play keep up or do we find a partner who's already solved these issues and work with them? In our stance, again, obviously we're a bit biased, but our stance is building from scratch not only takes years, but it takes tens if not hundreds of millions of dollars of investment from the retailer to not only build it, but then they have to have a team that allows them to keep pace.

6:24And the reality is we've made those investments, right? We have over 380 grocers on our platform today using our enterprise technology. And we have a complete omni-channel tech ecosystem that our retailers can tap into almost immediately, right? We're talking at most a few months from start to launch with our retailers. And that allows them to continue to build relationships directly with their customers, leverage their data, their brand in the way that they want while using the best technology out there. And so again, I love going back to the data because I believe we've built the best in class tech, but proof is in the pudding, right?

6:58And so when we see retailers consistently see the double digit sales lift or just a five percentage point lift and 90 day user retention simply by launching on our platform versus what they had prior. To me, that's just such a great testament to what we've been able to build and launch with our retail partners. You talked a little bit about advertising and how quickly that's been growing for Instacart as well. How have you been scaling that business without compromising the customer experience getting annoying? Yeah, it's a question I get a lot because I think the natural inclination is to think these are in tension with each other.

7:36Because the reality is, to the spirit of your question, if you don't do it right, they're in direct conflict. But when you do it well, they're actually fully aligned. And so again, our view and how we've gone about building this product and experience is the better the shopping experience, the more customers will trust our platform, and thus the more valuable it becomes for our brand partners. And so that incentive to really nail the experience runs throughout the whole system. And I think what makes us probably a bit different than other ads ecosystems is we sit at a place of real purchase intent, right?

8:09We know what the customer has historically bought, not just like what they're browsing or what they might be looking at at that exact moment. And so for us, we're able to work with our brands to really make sure we're reaching somebody who buys in that category, who maybe just needs to try a different product or try a different brand. And that works, right? Because the litmus test for me from the consumer lens is if the customer sees the ad and thinks, oh my gosh, that's actually a useful nudge. Well, one, we've done our job. But two, that makes the ROI on the brand side much better, right? Because they have only limited dollars to put in it.

8:42And they need to see the ROI on their investment in retail media in a way that drives the right business outcome. So for us, it's something we stay laser focused on. But we believe getting it right actually allows those to almost better each other, if you will. And tell me more about the AI shopping experience on Instacart. How is AI starting to impact that customer journey? Yeah, I guess I'd probably be disappointed if we spend time together. It didn't touch on AI, but there's a lot going on here, as I know you're well aware. I'll put it through two lenses. First on the consumer side, you know, a lot we're doing, but the focus of the team right now is what we're calling our AI shopping assistance.

9:19So this is live for the majority of our customers across our platform. and is kind of what you think of it as, right? It's a cart assistant where when you're on Instacart within a retailer, it's meant to help you find what you're looking for in a more efficient and effective way. But using just plain English, right? So a simple prompt like, help me find easy gluten-free dinners to cook this week for a family of four, right? That common age-old question of what's for dinner tonight. Let's use a cart assistant AI-powered tool to help consumers go from idea to cart to checkout in a matter of seconds or minutes, as opposed to having to go build that entire basket, figure out what you're cooking, find the ingredient list.

10:00No, AI can help there. And then on the retailer side, again, a number of tools across analytics and other components that we're working on with retailers. But the one that I would highlight that I'm probably most excited about right now is what we call StoreView. And really what this is, is finding ways to build AI into the operational side of the retailer workflow. And so StoreView uses computer vision to really give store managers, not just the district manager or corporate team, but store managers real-time shelf visibility multiple times a day without actually having to walk their eyes. You know, again, at the risk of stating the obvious, out-of-stocks are probably the single biggest driver of customer frustration in grocery, right?

10:39Whether you're doing it online or in-store, if you can't find what you're looking for, you're not a happy consumer. And so by bringing data to bear, so store managers can know what is, and probably more importantly, what is not on their shelf, they can adjust their in-store processes to make sure they have high on-shelf rates, consumers can find what they want, and that obviously just translates into higher sales for the retailer at the end of the day. And so as I, again, step back for a moment, I did the consumer lens, I did the retailer lens. Our mission on taking AI and building tools to bring to bear for retailers is AI is great.

11:16You know, quote unquote, lives in the clouds. It's all about the data that underpins it. But for us, it's how do we create the connection between that AI digital view and the in-store experience? Because for us, it's that connected ability to understand the core and why it's behaving how it is that will really result in the business outcomes for our retailers that help them win longer term. you may not have heard of kwi and there's a reason for that for over 40 years kwi's pos has helped brands and specialty retailers grow from their earliest days into names you know like pandora peter miller and allison olivia but now the best kept secret in retail is getting out find out what the secret is at kwi.com rtp

12:08So you mentioned that people shopping for groceries, you know, get really upset when they can't find a certain product on a shelf or online. Are there certain things about the grocery shopper or the grocery consumer that's different from other types of e-commerce that you've noticed? Yeah, I mean, I think, you know, at its core, grocery is such a habitual form of shopping, right? I can't speak for you, but I personally grew up going to the grocery store with my mom every Saturday. And that is a habit that is hard to change. And so for us, you know, stepping back and recognizing that people buy the same call it 50 to 100 items on some rolling cycle, right?

12:48We go through summers, then back in school holidays, but there's a collection of items that generally hit your shopping experience. and that means that the data signals, once we have enough history, not just on the individual, but the call it 1.6 billion orders that we've done in our history, those create really powerful data signals to know what people buy, when they buy it, what they might think is a suitable replacement, right? Because again, no one's perfect. There are stores that don't have everything they expect to have that day. And so making sure we're balancing personalization, but also a high quality experience that when things don't go perfect, we can actually use that data to create an even better experience or outcome than the customer might have been able to do on their own.

13:31And so that need, that routine powers a lot of the habit side of it, but we layer on the technology to hopefully make it an even better experience for the consumer. And then I think the other piece that jumps out at me as far as what's different from maybe buying AirPods or a new tool is for whatever reason, I can understand it, not everyone's the same, but emotional stakes are just higher than people maybe realize when it comes to food, right? Food is personal and a bad substitution can really break trust in a way that is genuinely hard to repair. And it could be a bad substitution because you got the wrong protein or I've had a busy week and my goal was to cook dinner for the family tonight and you didn't get three of the items.

14:14So now I'm stuck ordering in or doing something different anyways. And so really staying laser focused on getting those basics right and perfecting the basics before you layer anything else on top is just so critical. And again, I just like to use some real examples like, you know, we do this thing called second store check, right? If you say this steak is the core of my dinner tonight, and we can't find it at the first store, we're going to send the shopper to another store to find it for you. Or we launched what we call preference picker earlier. Some people like ripe bananas, some people like green bananas, like being able to designate that and the experience so that we can find as close or as good of a product, and if not better than you would have picked yourself, that is really our bar that we're striving for.

14:57Yeah, shopping for groceries for me certainly is a habit. A lot of what you were saying resonated. And like, I work remotely. I'm home more than I probably would like to be. And so for me, going to the store is sort of a nice chore, a nice errand to run. I like picking my own produce and whatever else. Handing that trust over to someone else is like seems kind of risky. How are you converting consumers from that sort of convenience oriented shop? Like, oops, I forgot something. So I'll use Instacart into becoming more of a routine for them and adopting that as a habit. Yeah, it's a great framing because how people shop, when people shop, why people shop varies for the exact reasons I think you just said.

15:45There are really, you know, not to oversimplify, but I think there's four kind of use cases that we think about as we go through the customer journey of bringing them on and helping them hopefully live a better or less stressed life. You know, there's the full weekly shop that we've hit on. There's that bulk stock up, right? So maybe it's once a month buying all this stuff for kids' lunches. There's that convenience top up could be because you forgot something or you decided to cook dinner, what have you. And then there's special occasions, right? Kids' birthdays, you're having people over for a holiday.

16:12But each of those use cases, you need to excel at slightly different things, whether it's speed, assortment, accuracy, communication with the consumer. And so for us, as we think about how we build that trust, regardless of use case, it gets back to how do we make sure we are showing the customer we're kind of doing as best of a job as we can for them. And what I mean by that is getting that first order, that very first order right is so critical, right? And the second and third, that's what creates the habit. So over communicating with customers who are newer to our platform via shopper chat and other mechanisms, as an example, making sure we are sending our higher rated shoppers for that first order, making sure we're giving shoppers incentives to go do that second store check that I mentioned, where they have to go drive to a second store to get the item.

17:01All of that is in service of delivering a five-star order, as we call it. And if we do that and we do that regularly, the trust is there and then the habit forms. And again, that's why I circle back to the average order value of$113. We would not have the order values we have if customers didn't inherently build that trust with us over time because they would just be using us more as that convenience style fill-up as opposed to all four use cases. So hopefully that kind of gets at your question a bit, but that's how I think about it for what it's worth. I'm curious, too, about demographics. I know just, again, in my own life, the Instacart users I know tend to skew a little younger.

17:39And I don't know if that's because they started buying groceries during the pandemic and maybe that was sort of a normal thing. Or I'm just curious if you can share anything about who are the true Instacart power users. So I'll come back to the power users, just demographics, maybe shockingly enough, if you look at the demographics around age, household income, all of the core demographics you would look at when building cohorts of customers, our average consumer actually looks like the average demographics across US and Canada. We kind of follow a similar distribution curve. And so what that tells us is we've built a service that really resonates and works for the majority.

18:17This isn't just a premium service. That being said, power users sit in a different bucket, right? And for us, it's not just the person who orders the most groceries, but the power user is that person keeping the household running. They're balancing work, family, everyday responsibilities, kids' soccer practices. And they're relying on Instacart because they, again, going back to that trust component, we've been able to build trust with them that we are going to be able to get as good, if not better, groceries for them, save them time and make their life just hopefully a little bit easier. And so again, it could be the weekly shop because you have a kid's soccer game on Saturday.

18:53It could be the forgotten dinner ingredients. It could be a prescription that you just didn't have time to go grab. We are really meant to serve our consumers in a way that when they need us, we're there to help them. And it looks a little bit different for everybody, but that's kind of how I would articulate the power user for what it's worth. And what separates occasional users from high-frequency, loyal customers? I think you hit it on the head on the last question. It's trust, right? It's making sure we can demonstrate to the consumer that they don't have to worry about us picking as good a produce because that's what we train our shoppers to do is just one example.

19:28When we stare at the data, the biggest predictor of loyalty is really whether or not the customer believes we're going to get their order right. So whether that, again, is substitutions, demonstrating accurate inventory on our experience, right? Because we have to have signals from our retailers telling us what's in the store, making sure it's delivered on time, right, as expected, getting those right. And you build trust immediately. You get one wrong and it's really hard to recover from, as I noted. And so for us, it's continuing to obsess about every step of the experience so that we're not just learning what you buy and when you buy it, but what substitutions you'll accept.

20:04is one simple example. I know our system has the best data on aggregate substitutions, but you, Kate, might have a very nuanced need for a substitution. And so we're gonna store that personal preference so that in the future, if that substitution happens again, we already know what you're gonna want in lieu of it, right? And so it's tailoring that balance of using all of the great data we have to create the best experience, but personalizing it in a way where it makes it feel like it's your grocery service, your order, we know you and we're going to get you the best order possible. Nice. Okay.

20:37We are going to end on a super open-ended question here. What should retailers understand right now about where digital grocery is heading next? Well, that's a good one. You should ask me this monthly and we'll see how the answers evolve. But you know, maybe I would probably highlight two or three things quickly. You know, first, I think it's really recognizing that the future of grocery isn't about your physical experience or your digital experience, it's really connecting those two together, right? The gap between digital native and more legacy e-com experiences, if you will, is closing fast.

21:10And so retailers really need to lean in now and make sure they're building both a brick and mortar and a digital experience that is not just best in class as a standalone, but that they truly are intertwined. I think the second is AI, right? We touched on this earlier, but really AI, we view that as moving from what we call feature to foundation, right? And so the winning retailers in our view are going to build AI into their core systems, not just have it as a bolt on or an afterthought. And again, when I say core systems, I don't just mean the digital ecosystem. I mean, those in-store components as well that we hit on.

21:44And then finally, I'll tie it back to don't underestimate the physical store. Stores still do the vast majority of grocery sales and will continue to do the vast majority of grocery sales. And so finding ways to use real-time data, AI tooling, optimizing that experience so that you're making the consumer's life better, but also finding ways to just operate your stores more efficiently and effectively will help the bottom line as well. So those would be probably the three things I would call out for what it's worth. Thanks so much, Ryan, for joining us today. It was a great conversation. Yeah. Thank you so much for having me.

22:21thanks for joining us for another episode of retail remix be sure to subscribe so you don't miss a future episode you can find us on spotify apple podcasts youtube or your favorite podcast app until next time keep mixing it up