The fast-moving grocery delivery business got a new shock on Wednesday when The Information reported that DoorDash has held talks in recent months about exploring a possible acquisition of Instacart in a deal that would be valued between $40 billion and $50 billion.
According to one analyst, the move makes sense and would create a powerful combination.
“Things are changing so quickly in the grocery industry that a combined DoorDash [and] Instacart will be a formidable company,” Brittain Ladd, chief marketing officer of robotics and technology company PULSE and a frequent contributor to Forbes and others on retail, e-commerce and last-mile delivery trends, told Modern Shipper.
In a lengthy LinkedIn post on the topic, Ladd noted that DoorDash (NYSE: DASH) needs to transform its business model “away from restaurant delivery to more a business model focused on grocery delivery and dark kitchens.”
The Information said talks about a DoorDash and Instacart deal collapsed partly over antitrust concerns from U.S. regulators.
After market closed, DoorDash reported its Q2 2021 earnings, announced revenues of $1.24 billion, up 83.7% year-over-year, but a loss of 30 cents per share. Analysts polled by FactSet were expecting a second-quarter loss of 20 cents per share, or a loss of 6 cents per share on an adjusted basis, on revenues of $1.1 billion.
The company said orders increased 69% year-over-year to 345 million and its Marketplace gross order volume (GOV) increased 70% year-over-year to $10.5 billion, and it earned 3 percentage points in market share in the quarter. Adjusted earnings before interest, taxes, depreciation and amortization, was $113 million, up from $79 million in Q2 2020.
DoorDash said GAAP gross profit increased 101% year-over-year to $657 million, but a GAAP net loss of $102 million compared to net income of $23 million in Q2 2020.
The company said it is anticipating a seasonal decline in Q3.
“Among other factors, our outlook anticipates a seasonal decline in new consumer acquisition and order rates in Q3,” it said in the earnings release. “Our outlook also anticipates increased levels of investment in new categories, international markets, and Platform Services in Q3 and Q4. While we observed encouraging trends in the first half of 2021, we caution investors that significant uncertainty remains and consumer behavior could deviate from the expectations included in our guidance.”
Platform Services is the company’s business designed to help stores build and grow first-party digital channels.
DoorDash ended the quarter with $4.7 billion in cash, cash equivalents and marketable securities with no debt it sad.
DoorDash could be feeling the heat as food delivery services begin to retreat from the record highs reached during the height of the pandemic. An acquisition could be a quick way to expand its customer base and diversify its revenues.
“It’s clear to me that the executive team at DoorDash understands how vulnerable they are as a company. DoorDash is also making the right moves by exploring opportunities. DoorDash had the potential to even become a grocery retailer at some point if they choose,” Ladd wrote on LinkedIn. “Instacart also understands how vulnerable they are as a company. In addition to DoorDash, I’ve recommended that Uber, Facebook, or Google acquire Instacart.”
Ladd has also previously suggested Gopuff, Urbx and DaVinci Micro Fulfillment could be good acquisition targets for DoorDash. Gopuff, valued at $15 billion, on Thursday announced it was acquiring Dija, which operates approximately 40 microfulfillment centers across Europe, including in London, Paris and Madrid.
“Will DoorDash acquire Instacart? It’s possible. I believe a better question to ask is this: Should [DoorDash] acquire Instacart or Gopuff?” Ladd asked on LinkedIn. “If DoorDash acquires Urbx and DaVinci Micro Fulfillment, they don’t need to acquire Instacart or Gopuff because DoorDash can create a better business model than what Instacart or Gopuff offers. However, if DoorDash doesn’t acquire Urbx and DaVinci Micro Fulfillment, they should acquire Instacart or Gopuff. If I ran DoorDash, I would acquire Gopuff over Instacart, but DoorDash can’t go wrong acquiring Instacart.”
Earlier this month, reports surfaced that DoorDash was in talks to invest in German-based grocery delivery firm Gorillas. Gorillas launched 15-minute grocery delivery in New York City in May. Ladd doesn’t think Gorillas has a lot of value for DoorDash, though.
“In regards to Gorillas, I’ve recommended DoorDash to only acquire Gorillas if they can do so for no more than 200 million U.S. dollars,” Ladd told Modern Shipper. “Gorillas does not offer a technology platform or a business model that can’t be copied so I struggle to see why DoorDash should pay more for the company.”
The Information said that Instacart also reached out to Uber about a sales partnership earlier this summer, less than a year after it sued Uber in a dispute over data-scrapping by competitor and Uber-owned Cornershop. That suit was settled.
Online grocery shopping has skyrocketed 230% compared to pre-pandemic levels, but since the beginning of this year it has cooled. Instacart is seeing that trend and looking at options to diversify its revenue. In July, the company announced it would start building microfulfillment warehouses in partnership with retailers.
“With the rapid adoption of online grocery shopping that’s taken place over the last year, the grocery industry has experienced an accelerated transformation that’s required retailers to reimagine their e-commerce footprint and explore new technologies to meet the needs of their customers,” Instacart wrote on the company blog Thursday morning.
As COVID-19 took hold of the U.S., e-commerce grocery sales skyrocketed, although earlier this year they started to slide. In September 2020, research firm Mercatus released a survey that found 43% of shoppers shopped online in the previous six months and 40% were likely or very likely to continue doing so. Mercatus predicted online grocery sales will reach $250 billion by 2025, representing 21.5% of all grocery sales in the U.S. Since then, though, a slow decline has taken place. January 2021 was the peak sales month for online grocery sales, reaching $9.3 billion during the month, according to a Brick Meets Click/Mercatus Grocery Shopping Survey conducted Jan. 28-31. Sales in February started to fall, dropping 14% to $8 billion, and have remained on a slow decline since, as more Americans began leaving their homes. Sales fell 24% from January through June, according to research firm Bloomberg Second Measure.
Instacart has been making inroads into the grocery delivery wars. As of June 2021, Bloomberg Second Measure said that Walmart Grocery (NYSE: WMT) handles 48% of online grocery delivery sales and Instacart 45%. Shipt, which is owned by Target (NYSE: TGT), collected 6% of sales, followed by Peapod and FreshDirect with 1% each. The latter two are regional firms, with PeaPod operating primarily on the East Coast and FreshDirect in the New York City, Philadelphia and Washington, D.C., areas.
Uber (NYSE: UBER) recently announced it was expanding its grocery delivery service to more than 400 cities. Launched in July 2020, the service will partner with Albertsons Co. Inc. (NYSE: ACI) and 1,200 of its grocery stores, including familiar names like Safeway, Jewel-Osco, ACME, Tom Thumb and Randalls. With an even larger network in place, Uber hopes to cut grocery delivery times from days to hours — or even minutes. DoorDash this summer also announced its own collaboration with Albertsons and nearly 2,000 of its banner stores.
Click for more Modern Shipper articles by Brian Straight.
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