Instacart analysis - Assignment PDF

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Problem Statement Analysis of Country Market UK market characteristics To expand through globalization, the selected country market for Instacart is the United Kingdom. In comparison to Europe, the UK accounts for 10.1% of the European food & grocery retail market (MarketLine, 2021a). With an industry valuation of 14.3 billion, the online grocery delivery accounts for 11.5% of grocery sales in the UK, i.e., one in five households order groceries online (Businesswire, 2020). British are the most frequent online grocery shoppers, and the average size of UK's online grocery basket is the highest in the world with an average spending of £64 per shop (Lumina Intelligence, 2020). A survey showed that 43% of London consumers shop online; with a city population of 4.4 million people, 0.5% of the world's population (Lumina Intelligence, 2020), UK's online grocery market is entirely large. The UK’s online grocery industry has grown in the last five years due to increased access to the internet (IBISWorld, 2020), as well as improvements made to user experience interfaces, discounts and promotions, cyber security, mobile apps, etc. With social distancing measures due to the global pandemic, the industry in the UK experienced a 30% growth in 2020, acquired over 500,000 new customers in Q2 2020 and over 7.8 million additional orders, and achieved 43% spending increase compared to 2019 (Businesswire, 2020). Customer Segmentation Looking at customer segments, online grocery shopping is primarily targeted at businessto-consumer (B2C). Appendix 1 is a graphic visualization of the share of individuals who purchased food or beverages from stores online in Great Britain in 2019, by age and gender. In 2019, a higher percentage of women than men use online grocery services, with age groups 4554, 35-44, and 25-34 having the highest percentage of usage at 21%, 19% and 18% respectively. 1|P ag e

In 2020, 37% of 65 and above users increased the amount of online shopping (Ecommerce News Europe, 2020). This is because with COVID-19, the older generation that was previously averse to online grocery shopping, was not forced to change their shopping behavior due to improved health and safety with contactless delivery. There is a high chance of online grocery shopping behavior in a household with children as 51% of shoppers have children in comparison to the national average of 30% (Lumina Intelligence, 2020). This could be explained as parents are often busy and so utilize online/mobile applications for better efficiency in time saving. In addition to families, customers can also be broken down into segments including gourmet foods, health foods, larger variety of products (one-stop-shop consumers), product category (snacks, instant, fresh produce, etc.). Competitive Analysis In terms of competition, the online grocery industry has 2325 businesses (IBISWorld, 2020). The market is concentrated with Tesco, Asda, Ocado and Sainsbury holding 30.7%, 17.6%, 15.3% and 14.4% market share respectively, and all other competitors holding less than 5% market share (Businesswire, 2020). Tesco is a global company which offers groceries as well as other retail products such as cloths, home furnishings, etc. It has a high return on equity of 7% and operating margin of 3.9% at the end of 2020 (MarketLine, 2021b). Tesco uses multi-channel selling, operating over 7000 stores in Europe and Asia (MarketLine, 2021b). They have seen decline in revenue in central Europe and Asia. Asda is a subsidiary of Walmart dealing with grocery and general merchandise (MarketLine, 2021c). This means that Asda has strong support from Walmart's resources and has access to exclusive brands. However, Asda's reputation is at risk as they are currently undergoing the equal value lawsuit regarding unfair treatment of female employees (MarketLine, 2021c). Ocado is an online grocery retailer that operates in 11 countries and has formed partnership with the 9 market leading grocery retailers (MarketLine, 2021d). They have strong 2|P ag e

technological platforms, customer loyalty with 680,000 active customers, and revenue growth of 32.7% in 2020 (MarketLine, 2021d). However, they have high debt of almost 1000 million in 2020 that impacts profitability (MarketLine, 2021d). Sainsbury's Supermarkets is a subsidiary of J Sainsbury that operates only in the UK through supermarkets and online. They had a revenue of over 31,000 million in 2020, but low margins and low brand loyalty (MarketLine 2020). Trends and Opportunities While competition in fierce, the rapid expansion and increased customer expenditure of the UK market create opportunity for Instacart. By acquiring the new customers before they have developed brand loyalty for competition, i.e., it is a vital time for Instacart to expand into the UK before the market is saturated. This is particularly true as there are relatively low costs of entry and exit in the online grocery market due to low investment costs. Additionally, strong growth is forecasted till 2024 and as COVID-19 disrupted the online grocery market and resulted in some existing retailers not accepting new customers in the short -term (Ecommerce News Europe, 2020), thus, Instacart must move to fill the gap. There has been high growth of health and wellness, with more consumers choosing companies that have corporate social responsibility initiatives and ethical practices, or that offer organic options (MarketLine, 2021a). This implies that some areas in the online grocery market is growing faster than others and targeting these niches can result in bring about higher profitability. Other trends in customer preference are increased value shown for safety, more purchasing toward the end of the work week, and 11% increased customer loyalty to trusted and convenient outlets (particularly premium stores) (Wright, 2020). By taking into consideration trends, Instacart can increase changes of success in the market, e.g., loyalty programs, identifying best day to offer discounts, etc. Legal and Cultural Differences

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Instacart operates in Canada and the United States, which in terms of law are not drastically different form the UK as these countries, and any other colonized countries, use the fundamental principles of British law and the English common law still applies despite independence. The UK was chosen due to similarities in law and language. English, that will make entering the market easier as there will be no need for translations, and the change of incorrect translation that could negatively impact the brand’s image, e.g., KFC’s slogan “Finger-lickin’ good” translated to “eat your fingers off” in China. Language barriers not only increase costs, but also complexity of operation in the new country market. USA, Canada, and UK are similar in terms of culture. Looking at Hofstede's six cultural indicators (graphical representation seen in Appendix 2): Power distance for all three countries are low as they have the belief that inequalities amongst people should be minimized; individualism is high with persons putting the interest of themselves and direct families first to achieve happiness through personal fulfilment; masculinity is medium and is success oriented, driven and have ambition; uncertainty avoidance is slightly lower than Canada and USA and the UK is comfortable working in ambiguity; long term oriented is higher than Canada and USA; and indulgence is very similar to the other countries showing that customers are indulgent and tend to give into their desires and impulses (Hofstede Insights, 2021).

Situational Analysis Internal Analysis As quarantine restrictions became commonplace at the onset of the COVID-19 pandemic, Instacart found itself growing rapidly and quickly becoming an essential service to many people. In April 2020, the company turned its first monthly profit of $10 million, added 300,000 new shoppers, over 350,000 new employees, and ended the year with $35 billion in grocery sales (Curry, 2021). Instacart offers a couple of significant advantages to its users as well as the communities that it operates in. In the last year, the company has doubled its number retail 4|P ag e

partners and now lists over 500 million products on its platform (Curry, 2021). Additionally, a study in the US shows that Instacart has generated as much as $620 million in incremental state revenue in its operational areas (Curry, 2021). One of the key strengths for Instacart’s growth lies within its business model. The company seeks partnerships with all sorts of retailers, ranging from smaller local and regional chains to large national retail powerhouses, which has resulted in a 57% share of the online grocery market in the United States (Dumont, 2020). Given that there are many similarities between consumers in the North American market and the UK market, the sources of Instacart’s advantages in grocery deliverable should be applicable for entry into that market. Consumer Analysis Within the UK, the most noticeable shift in consumer tendencies has been the increased frequency with which people are ordering groceries online. According to Waitrose’s Food and Drink Report, 25% of UK shoppers shopped online for the first time in 2020, with growth interestingly being led by older age groups (Walker, 2021). This is an important shift in consumer behaviour in terms of online grocery delivery growth, as older demographics are historically the most skeptical of these types of services. The fact that the pandemic instilled these habits somewhat out of necessity is a boon for grocery delivery services. Furthermore, nearly 40% of consumers in the UK plan to do at least half of their shopping online even once the pandemic is over, indicating that a level of confidence has been established in the grocery delivery industry that has positioned these services as beneficial alternatives to in-store shopping (Briggs, 2020). Throughout the course of the pandemic, consumers have found comfort in protecting their health through online shopping, but also realized the benefits that grocery delivery services can provide under normal circumstances as well, such as improved access to a wider range of products, greater convenience, and time efficiency. Market & Competitor Analysis 5|P ag e

The UK online grocery and grocery delivery market in the UK is a fast-growing industry and was experiencing this strong growth even before the COVID-19 pandemic. Over the past five years, the industry has maintained a compound annual growth rate of 7.4%, with revenues expected to reach 22.6 billion GBP by the end of 2021 (IBISWorld, 2021). When you consider that most of this growth had already been occurring prior to the acceleration brought on by the pandemic, the prospects for the industry look very promising. Furthermore, consumers in the UK have an incredibly strong affinity for delivery over pickup in terms of how they receive their online grocery orders, with 88% of consumers preferring to have their groceries delivered (Galante et al., 2013). This plays directly to Instacart’s strengths and would serve as a strong way to position their services to consumers. Competitor Analysis The UK market is currently dominated by four major retailers that hold the vast majority of online grocery market share: Tesco (30.7%), Asda (17.6%), Ocado (15.3%), and Sainsbury’s (14.4%) (BusinessWire, 2020). As such, the UK market is more saturated than some other European markets. However, these competitors are, for the most part unable to compete with Instacart in terms of variety and delivery speed, which are two critical points of advantage in the industry. However, online grocery as a percentage of total grocery expenditure in the UK has doubled since the pandemic began and is expected to double again within a few years (Davey, 2020). This leaves strong opportunities for growth and still provides plenty of opportunity for Instacart to establish itself and gain market share, especially with the competitive advantages that their service can offer. Alternatives Alternatives for helping Instacart establishing its operations in new market are provided below and key decision-making matrix and criteria associated to the problem statement have been designed and presented within appendix 3 below. 6|P ag e

Alternatives

Description

Pros

Profitability expansion opportunities in UK through social media

Increase revenue streams through expansion into UK and other surrounding emerging markets such as France, Spain, Italy etc., by using social media marketing tools and stabilizing these markets by opening new offices and developing new products and services.

Instacart would get exposure to new and diverse customer groups through this alternative, which will help grow the customer base as well as diversify revenue bases for these companies. It will also provide Instacart with an opportunity for expansion within regional markets along with international markets.

Offer access to exclusive deals and prices to attract new customers

Instacart would be able to penetrate deeper into the existing and emerging markets by offering exclusive prices to new customers. Example: If a new customer is ordering grocery, Instacart can provide customer with some discounted pricing and future discount coupon, and this will help Instacart acquire new customers while retaining the previous customers.

Strengthen customer value network by leveraging partnerships and technology

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By performing market research, Instacart would be able to discover new consumer groups, and potential diverse target consumer groups, who would be interested in their services. Thereby, increasing the overall revenue share for the company. Market research combined with use of technology would help Instacart identify gaps in the market, and this analysis would then mostly be directed towards fulfilling this gap by providing offers to new customers. Instacart should This alternative will help monitor the use of Instacart acquire new grocery service by customers, and this would customers by also help Instacart leveraging eliminate the new entrants partnerships with local from the market by firms and technology. increasing barriers to Instacart can provide entry. Instacart can these customers with leverage its partnership discount codes, offers, with other firms and offer or deals basis their deals to customers basis

Cons As Instacart would be entering new markets, it involves risk on returns as the firm would be unaware on operating rules and would have to spend money to hire capable resources. Also, Instacart would need to spend money in developing base\branches to focus on customer-centric strategy. Overall, this alternative requires high-cost investment.

Instacart would need a solid roadmap for utilizing this alternative as it involves increase in costs because of research and innovation involved. The company would be offering exclusive deals and prices which can increase their overhead costs; therefore, Instacart would also need a contingency plan for this alternative in case the strategy does not work as planned.

Improving the quality of customer service by offering deals and promotions through partnerships and technology such as AI and machine learning would increase IT and employee management costs. As customer service would be focusing on augment

spend on the grocery. This will help Instacart retain a competitive edge over its rivals in the new market.

their spending pattern. This alternative will help Instacart in multiple ways such as maintain its network with the customer, increase profits, and provide competitive advantage over other rivals.

service levels, tech-quality team would be required to monitor and share regular updates with management.

Implementation Plan From the list of alternatives discussed above, the most effective and favorable choice is Alternative 3 “Strengthen customer value network by leveraging partnerships and technology” with a maximum score of 92 out of 100 in the decision matrix. Firstly let us understand what this alternative offers Instacart and how it would be beneficial for the company. To strengthen customer value it is important to understand the buying behavior of customers through local grocery stores. The local firms are a very useful resource to know the best sellers of place or the most preferable grocery stores in that place. Instacart can partner with those firms and can bring in their existence in a new country by providing certain loyalty programs, offers and discounts programs to the customers. Also to get a competitive online grocery industry in a country needs more refined and advanced technology to attract customers towards Instacart’s online platform and buy their grocery from that online medium. For this, Instacart can hire local people for their IT and management team increasing employment in the country as well as brand awareness. Though this move will incur more costs to the company but it can ensure some good returns to it. This option will increase the feasibility factor as it is expected that the partnership plan is more feasible and efficient than bringing a whole new market in a new country. Additionally, partnering with local firms will help the company to gain customer satisfaction and trust.

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Customers would want to rely on the online services and their products that are coming from a trusted firm. If Instacart will deliver products from these firms it will increase customer satisfaction for their online services and products. This idea of penetration into new markets will increase barriers for new entrants. Talking about the timeline of the recommendation plan, Instacart should focus on introducing in UK in few phases. These phases can be explained as follow: 1. Phase 1: Researching about local firms and technology This phase will should take 2-3 months of time period to research about the grocery market in UK and understanding consumer behavior towards buying grocery online. This time will also be utilized to establish the potential local firms that consumers prefer to go to. 2. Phase 2: Partnering with the firms selected This phase should take 1-2 months of time period to get through the local firms selected for partnering. This time will be utilized to approach the firms and establish partnerships with them. Help them understand the benefit of Instacart being related to their firms. As the culture of online grocery delivery services is increasing it will not only help Instacart to build their brand but also will help the local firms to increase their sales. 3. Phase 3: Introducing Instacart online grocery-delivery service This phase includes introducing Instacart using social media platforms and firms marketing techniques. The local firms will let its customers know about the online delivery services offered by Instacart and will introduce the customers with the loyalty programs, discounts and other benefits they will get by using Instacart services. This branding phase is ongoing as company would like to spread the word and increase brand awareness as much as possible. 4. Phase 4: Measuring Instacart scalability 9|P ag e

In this phase, Instacart will access the efficiency of its services. This phase will come when Instacart will acquire new customers in different regions. The efficiency will be measured based on the sales produced by the investment done by Instacart in order to get that market penetration. This can be done after quarterly in a year after the services are open to customers.

Contingency Plan Considering that there are pros and cons of all the alternatives mentioned in the report, if the recommended option of strengthening customer value by partnerships fails at some point of time we will consider to go with the Alternative 1 “Profitability expansion opportunities in UK through social media” as the next move. This alternative will involve the Instacart to expand in UK as well as other surrounding emerging markets such as France, Spain, and Italy etc. This involves setting up new functiona...