Instacart is quickly headed to become the largest grocer in America, and it's already too late for incumbents like Amazon and Walmart.

Why?

1. More scale. Instacart already owns half the US online grocery market - the fastest growing component. They have become synonymous with online grocery.

2. Grocery requires local stores, refrigeration, etc. Amazon doesn't have enough - or enough selection. Its Amazon Fresh rollout has been too slow. Slow and steady growth isn't going to help you when Instacart owns the 80%. Amazon Fresh is not going to be able to keep up unless in 2021 they roll out more 1000 stores, not a couple at a time here and there. Don't believe me? Keep watching for the next few years.

3. Use of capital. Here's what most miss about a marketplace model. Outside of its gig workers, Instacart is a technology company. Almost all their revenue plowed back into acceleration of selection, technology, advertising, data science, etc. Walmart and Amazon have to buy stores or products. No nationwide transportation and distribution of goods, either. Instacart's upcoming IPO will give them expansion capital they need to compete with Walmart.

4. Advertising. This is the killer. The greater the selection, the more advertising dollars from brands. The more brand advertising dollars, the higher ad revenue. This is the economic engine of the business.

5. Consumers rarely switch apps. By and large, they just don't. Within 5 minutes of a Walmart, and within the 4 walls of Walmart selection, there is a big advantage for Walmart. The quality and service can be a lot better. But the selection and delivery advantage of Instacart will win out. You will always keep Instacart on your phone if your favorite brand isn't in a Walmart. You aren't going to have 3-4 of these services you use regularly. You will have a primary and a backup.

Online is the fastest growing component of the market, and Instacart is taking most of the share in that component. A marketplace model will win online, and online will be the biggest grower in the next few years.

A robust debate bubbled up in the comments section of my initial post on this topic on LinkedIn, with Tim Reilly spearheading the argument (and betting me a steak/sushi dinner!) against what I’ve stated here. His main counterpoints, excerpted here:

• “You could take versions of your 5 reasons, rewind the clock 20 years or so, and use that explanation to argue why eBay would become the country's largest retailer. We both know how that played out.”

• “I think using COVID trends and projecting out for 5-10 years isn't realistic…What happens when most of us return to offices? Those Tue 11am delivery slots aren't as useful.”

• “What's so inherently good about a grocery marketplace model? Do you think the core grocery consumer is so concerned with selection that they'd be willing to pay the inherent premium to purchase items that require trips to multiple stores to fulfill?”

There was more, but I also want to highlight these “hot takes” from Andrew Bethel, who calls out the parasitic nature of providing a service that’s entirely middleman-based and relying on gig workers:

How can Instacart “own” the online grocery market? They don’t have any products. They simply buy and resell on a micro-level within each transaction. They don’t have employees. They exploit gig workers and expect their customers to subsidize them through tips. Talk about income inequality! They don’t have stores. Their gig workers are like “parasites” clogging up the aisles to their “host” stores. They don’t have distribution. They steal the use of their gig workers’ own vehicles. Prices in-app are NOT the same as the prices in-store. Consumers are especially price sensitive when it comes to groceries and consumers goods. How is this a winning business model or strategy? Where is the supposedly innovative technology that separates them from the rest of the market? Instacart is an opportunistic startup, not a market leader. They were headed towards bankruptcy before the COVID-19 pandemic put new wind in their sails. Walmart, Kroger, Amazon or even Target could easily buy Instacart if they wanted to.

I am always delighted when people get fired up about the issues I’m raising, even if we disagree. I so appreciate these contributions and the hearty discussion that emerges from these comments from folks all throughout the e-commerce sector. My take here is that as long as Instacart doesn't stumble, it's already theirs to lose. The opportunity is there, and there is not much stopping the freight train.