Instacart aims to grow its retail media business to 4% to 5% of GTV

The target: Retail media (and other revenues) accounted for 2.8% of Instacart’s gross transaction value in Q2—the same share as the same period a year earlier. But looking ahead, the company aims to grow that share to 5% by expanding both its advertiser base and its average revenue per user, said CEO Fidji Simo during the company’s earnings call.

• The company generated $228 million in advertising (and other revenues) in Q2, up 10.7% year over year (YoY), and grew its advertiser base 9.1% quarter over quarter to about 6,000 brands.
• We expect the company’s retail media business to grow 16.1% this year as it surpasses the $1 billion mark for the first time. We expect its retail media business to be behind only that of Amazon, Walmart, and Target in terms of scale.

The opportunity: Instacart sees plenty of runway ahead to grow its retail media arm.

• Earlier this month it introduced a series of new ad formats—recipes, occasions, and bundles—that aim to foster discovery and drive impulse purchases even when consumers are searching for a specific product. The approach is similar to the way grocers put complementary items like tortilla chips and salsa next to each other on shelves.
• The company recently inked partnerships with YouTube and The New York Times, which aim to help Instacart’s brand partners better target high-intent customers and measure campaigns more effectively.
• It rolled out its AI-powered smart Caper Carts at several retailers including Davis Food & Drug in Utah, select ShopRite stores in the Philadelphia area, and McKeever's and Price Chopper stores in Missouri.
• Instacart is also adding its Connected Stores solutions—which includes electronic-shelf label capabilities, an in-store app mode, and pickup fulfillment technology—to all Aldi US locations and will test Caper Carts at an Aldi store in Austria.

Instacart, which expects to add advertising to Caper Carts, envisions a future in which it offers a “portfolio of different advertising tools, both on our platform and outside of our platform, that can make us a real one-stop shop for CPGs,” Simo said.

Our take: “Instacart's positioning as a commerce intermediary gives it a significant advantage over other retail media competitors: it can combine granular SKU-level purchase data with cross-merchant shopping behavior,” said Sarah Marzano, EMARKETER principal analyst. “Because Instacart is not a retailer, the margin-rich revenues the company brings in from selling advertising aren’t offsetting the same significant operating expenses as its competitors in traditional retail, and has a greater impact on their bottom lines.”

Looking ahead, we’ll be watching Instacart's Connected Stores initiative, which could position it to take advantage of the massive potential for in-store retail media by bringing connected digital screens (as on their Caper Cart smart carts) into physical shopping environments.