Instacart's Q1 2024 earnings call was a masterclass in understated confidence. The company, already the undisputed king of online grocery delivery in North America, boasted accelerating growth, expanding profitability, and a robust technological roadmap for the future. Yet, hidden beneath the layers of impressive metrics and strategic pronouncements, a subtle shift in strategy emerged, one that could propel Instacart beyond its current domain and into a realm of unprecedented influence over the entire grocery ecosystem.

The catalyst for this potential paradigm shift? Instacart's newly minted partnership with Uber Eats, bringing hundreds of thousands of restaurants onto the Instacart platform. While the immediate implications of this deal – increased selection for customers, a more valuable Instacart Plus membership – seem straightforward enough, the long-term implications are far more profound.

On the surface, the Uber Eats partnership appears to be a strategic foray into the restaurant delivery market, a natural extension of Instacart's mission to cater to all food needs. However, the underlying dynamics of this partnership suggest something far more ambitious. It's not just about adding restaurants, it's about fundamentally changing consumer behavior and deepening Instacart's grip on the entire food value chain.

Consider the subtle language used by Fidji Simo, Instacart's CEO, during the earnings call. She repeatedly emphasized the "incremental audiences" that Uber Eats brings to the table, particularly families in the suburbs, a demographic largely untapped by existing food delivery services. This suggests Instacart sees the partnership as a means to not only capture existing restaurant delivery demand but to cultivate an entirely new generation of users accustomed to ordering food, both restaurant and grocery, through the Instacart platform.

"“By bringing on hundreds of thousands of restaurants to Instacart overnight, we are creating an unmatched combination of grocery and restaurant options for Instacart customers.” - Fidji Simo, CEO of Instacart"

The conversion of these new users from occasional restaurant patrons to loyal, high-frequency grocery shoppers is crucial to Instacart's long-term vision. This is where the true brilliance of the Uber Eats deal shines through. By seamlessly integrating restaurant delivery into the Instacart experience, the company is effectively creating a "gateway drug" to its core grocery business.

Imagine a family in the suburbs, new to the world of online food ordering. They download the Instacart app, lured by the promise of convenient access to their favorite restaurants. They order a pizza on Friday night, a burrito bowl on Tuesday, a sushi platter on Saturday. With each successful order, the friction of online ordering diminishes, replaced by a growing sense of trust and reliance on Instacart.

As this familiarity and comfort grows, the line between restaurant delivery and grocery delivery blurs. Instacart subtly nudges these users towards grocery ordering, highlighting deals, promoting convenient pickup options, showcasing the vast selection available from their favorite grocery stores, all conveniently accessible within the same familiar app.

This strategy is further bolstered by the "twice as valuable" Instacart Plus membership, offering free delivery on both grocery and restaurant orders over $35. This incentivizes users to consolidate their food ordering through Instacart, creating a powerful network effect that locks them into the ecosystem.

Projected GTV Growth with Uber Eats Partnership

The chart below illustrates the potential impact of the Uber Eats partnership on Instacart's Gross Transaction Volume (GTV), assuming a conservative 10% capture of the US restaurant delivery market.

Reference: Based on US restaurant delivery market estimates and Instacart's historical transaction revenue rate.

The potential impact on Instacart's business is staggering. By capturing a significant share of the restaurant delivery market, the company gains access to an entirely new customer base, primed for conversion to high-value grocery shoppers. This not only boosts GTV growth but strengthens Instacart's bargaining power with both retailers and brands, solidifying its position as the indispensable platform for anyone seeking to reach grocery consumers.

Here's where the numbers get interesting. If we conservatively assume that Instacart captures even 10% of the US restaurant delivery market, estimated to be worth over $100 billion, that translates into an additional $10 billion in GTV annually. Factoring in Instacart's historical transaction revenue rate of around 7%, that's an extra $700 million in revenue, not to mention the potential upside from advertising and other revenue streams.

But the financial implications are only part of the story. The Uber Eats deal, if successful, could fundamentally reshape the grocery landscape. By controlling the primary channel through which consumers discover and purchase food, both restaurant and grocery, Instacart becomes the de facto gatekeeper to the entire market.

This newfound power extends beyond consumer demand. Instacart's vast data trove, enriched by restaurant ordering data, becomes even more valuable to retailers and brands seeking to understand consumer preferences, optimize pricing and promotions, and navigate the increasingly complex world of omnichannel commerce.

The Uber Eats partnership, while seemingly a tactical expansion into a new market, could very well be a Trojan horse for Instacart's total grocery domination. The company is not just building a marketplace, it's building an ecosystem, one that captures the entire food value chain, from farm to fork, and positions Instacart as the ultimate orchestrator of consumer demand. This is a hypothesis that bears close watching, as its successful execution could redefine the very fabric of how we buy and consume food in the years to come.

"Fun Fact: Instacart's first order was placed in 2012 for a single pint of Ben & Jerry's ice cream. From humble beginnings, the company has grown to handle millions of orders annually, reflecting the dramatic shift in consumer preferences towards online grocery shopping."