How the Instacart IPO Could Affect Your Grocery Bill

If there were any winners that came out of the pandemic, Instacart would certainly be among them. With people staying at home, grocery delivery became the norm, and Instacart became the default choice. Capitalizing on its growth over the past two years, Instacart went public a couple of months ago.

Here’s what that could mean for your grocery bill.

Read: 3 Things You Must Do When Your Savings Reach $50,000

Instacart’s IPO

Instacart (Nasdaq:CART) had its initial public offering, or IPO, on Monday, Sept. 18, 2023. The share price was set at $30, and immediately upon Tuesday’s opening, shares jumped to $42, an increase of 40%. But the stock’s stellar performance was short-lived, as shares dropped throughout the day on Tuesday. The slide continued the following day, and at the end of two days of trading, shares closed barely above the opening price at $30.10.

Instacart’s First Earnings Report

On Nov. 8, 2023, Instacart reported its third-quarter 2023 earnings, the first since its IPO. The company reported an increase in what it calls gross transaction value, or GTV, which is the value of the products sold based on their prices. GTV for the quarter was $7.494 billion, up 6% year over year. The company processed 66.2 million orders, which was 4% more than the same period the prior year. The average order value was $113, 2% higher than the same quarter in the previous year.

The company posted a $2 billion loss in the third quarter of 2023, primarily due to the cost of providing stock-based compensation as a result of the IPO.

What Does the Instacart IPO Mean for Your Grocery Bill?

Could the fact that Instacart is now public have an impact on your grocery bill? If you use the service to get your groceries delivered, it very well might. Here’s why.

Price and Wage Inflation

Part of Instacart’s strong third-quarter performance could be attributed to the persistence of inflation. The third-quarter comparisons were against high inflation last year, so there may have been two things at work here.

First, consumers were encouraged to see that prices, while still high, were moderating and the shock of the price increases of a year ago was lessened.

Second, wages are beginning to catch up, so even if grocery prices don’t come down, consumers can buy more if they are earning more.

The Instacart Business Model

These economic factors are constant across all grocery companies; however, Instacart has a couple of factors to consider that are specific to its business model. The surge in demand that Instacart saw during the pandemic is waning. While there are some people who appreciate the convenience of grocery delivery and will continue to use a service like Instacart even when it is safe to go to the supermarket, there are others who will go back to shopping in person.

Instacart also has a different employment model than the traditional grocery store. Workers in grocery stores are employees, often with a regular schedule and consistent income. Instacart uses independent contractors to deliver groceries, with pay dependent on the number of orders they opt to deliver.

With wages increasing across the board as employers try to fill jobs, having a steady paycheck regardless of customer demand can be appealing. This may leave Instacart and other companies that use gig workers in the position of having to increase their payout in order to have enough delivery people to meet their demand.

Shareholders Will Demand Results

Now that Instacart is public, they need to answer to their shareholders. While the venture capitalists who financed the company prior to the IPO may have been willing to wait to get their money back, the typical shareholder is far less patient. Instacart may find itself in the position of having to raise prices in order to provide the returns its shareholders are expecting.

The Future of Instacart

Nobody has a crystal ball, so it’s impossible to say for certain what will happen after the Instacart IPO — or your grocery bill in the future. The company expects its gross transaction value to continue to increase and expects a large increase in earnings before interest, taxes, depreciation and amortization, or EBITDA, in the fourth quarter.

The company also indicated in its earnings announcement that it is seeing better results from newer, smaller retailers it has signed up recently. As the large grocery chains continue to build out their own delivery services, bringing on board smaller partners is a smart move.

It’s possible that Instacart could continue to compete with grocery store delivery services and other players like DoorDash, or it could carve out a niche for itself with smaller retailers and a pricing model that depends on consumers who will pay a premium for convenience. Regardless of which direction the company goes, it’s likely to be a little volatile in the short term, and that volatility may be reflected in your grocery bill.

FAQ

• When was Instacart's IPO?

  • Instacart's IPO took place on Sept. 18, 2023, with shares trading for the first time on Sept. 19, 2023. The company's stock was priced at $30 per share for the IPO, jumped to $42 on opening, and then declined to below the IPO price in the first few days of trading.

• Is Instacart IPO a good buy?

  • You can't buy Instacart at its IPO price anymore, which is a good thing, since the price has dropped quite a bit. Whether the stock is a good buy right now is a tricky question. Third-quarter earnings were mixed, with revenues up but orders from mature cohorts down. The company reported a $2 billion net loss, mostly due to the expense of providing stock-based compensation as a result of the IPO.

• When can I buy Instacart IPO?

  • The IPO for Instacart has already taken place, so shares are now trading on the Nasdaq exchange. As of Dec. 5, 2023, Instacart shares were trading at $23.73, well below the IPO price of $30.

• How much will Instacart stock cost?

  • Instacart stock is now trading on the Nasdaq exchange, at $23.73 as of the close on Dec. 5, 2023. This price is near the stock's all time low since it began trading in September.

Information is accurate as of Dec. 7, 2023.

This article originally appeared on GOBankingRates.com: How the Instacart IPO Could Affect Your Grocery Bill