Maplebear Inc. (CART) Earnings Call Transcript

All right. We're going to go ahead and get started. I'm Doug Anmuth, JPMorgan's Internet analyst. We're pleased to have with us Instacart CFO, Emily Reuter. Instacart is powering the future of grocery through technology, partnering with more than 1,500 retail banners that represent more than 85% of the U.S. grocery market. The company has around 8 million active users on its platform. Emily recently became CFO after joining Instacart as VP of Finance in January. And over the last decade, she served in a number of finance roles at Uber, including most recently as Head of Corporate Finance and prior to that as CFO of Mobility. So welcome, Emily.

Thanks so much for having me.

All right. You joined in January. Curious what attracted you to Instacart and how you'll leverage your background and skill set to strengthen the company going forward?

Sure. So starting with what attracted me to Instacart, the company is the clear leader in the online grocery space, and it's a massive market opportunity. You obviously know that it is relatively underpenetrated as you look at other categories. And I think there's just a tremendous amount that the company can do to continue to penetrate the online grocery market and maintain its leadership position. Additionally, the company has a really strong vision for continuing to innovate and drive technology adoption within the grocery industry at large. And so I think the runway ahead and the ability to sort of continue to innovate and transform grocery is just enormous. In terms of what I think I can bring to the table at Instacart leveraging my experience at Uber over the past 10 years is, first and foremost, have a lot of experience operating in a multisided marketplace, experience really balancing growth and profitability. During my time as the CFO of the Mobility business and in corporate finance, finding ways to continue to invest in growth at the same time as delivering consistently improving economics year after year after year. So we did that while investing in and developing a broad portfolio of products that help serve a broad set of user use cases and needs. And so I think that I can bring that all -- that new lens to Instacart. And the last thing I'll say there is also just bringing that experience of having help take Instacart -- sorry, take Uber public, becoming a newly public company, getting into sort of that operating cadence of being a public company. And so Instacart is well ahead of many companies at this point in its journey in terms of profitability and financial rigor, but can definitely help bring my experience to bear in that regard.

Okay. Great. So maybe you can talk about where you have focused most of your time over the past 4 or 5 months. Have there been any surprises to you so far? And is there anything that you've identified that maybe you'd do differently?

Sure. So maybe I'll start with surprises. I think the thing that surprised me most was just how great the company is operating and executing and making decisions very quickly cross-functionally. It's a large organization at this point in time, but it still operates incredibly nimbly. I think I was -- from the outside, one of the things that drew me to Instacart was the fact that it is entirely focused on the grocery industry. So all of its technology really purpose-built for grocery, but coming inside, really just understanding the depth of the competitive advantage that the company has in the space across a whole host of areas that we can get into as we move forward. But it's just been really nice to see. What was the other part of your question, sorry?

Anything you would potentially do differently and where you focus your time most?

Great. Yes. So I spent a lot of my time focused on understanding the trade-offs that we are making and we'll continue to make between growth and profitability. That's something the company has obviously been doing through its history and continues to do. But I'm really trying to take my own lens to the business and understand where are we spending, when, why, how and are there opportunities to continue to evolve that. Maintaining leadership position as a clear category leader is a core priority of ours. And so we are looking across the spectrum, whether that's what we've been talking about the last couple of quarters, leaning in, in some cases into investment opportunities like incentives where we are able to be more targeted and sophisticated and personalized but also in terms of thinking about how we're developing our product portfolio. And so I think there's just a lot more that I'll be doing in the coming months in terms of spending my time, ensuring that we're both continuing to invest in robust growth but also delivering improvement in profitability.

Okay. Great. So let's talk about the industry overall. Grocery remains underpenetrated online. For it to go to north of 20%, what's the path to get there? What really has to happen, in your view?

So I think, first and foremost, bringing both new users to the category and reengaging users that have tried the category. We have a product today that is the best it's ever been. If you tried Instacart 4 years ago and you come back today, it's an entirely different experience in terms of the selection, the quality, the convenience, all of the things that we think make our position incredibly unique in the industry. And so we are spending time and energy and dollars against marketing because we know that if you come back and try the product today, it's just an amazing experience. So that's part one. The second part is, I think, continuing to go deeper on all the things that make us differentiated today. So we talk about selection. We have 1,500 retailers in the platform, 85,000 locations. We know that selection really matters to our users because on average, they shop at over 5 retailers over their lifetime. And so we want to continue to expand that selection. Whether that's through expanding the set of products and services that an individual retailer offers. But also in the most recent quarter, we actually were able to add an incremental retailer to all of our users just by increasing our delivery radius because we've become so efficient at delivery. On the affordability front, cost is and continues to be a barrier to adoption. So we spend a lot of time ensuring that the kinds of deals or discounts that you can get in-store like using your loyalty card or what you get from the weekly fire that you get in the mailbox, we now have digitized that. We integrated with loyalty programs so that customers are saving $4.75, which is 20% more than they were saving a year ago. So we're very focused on how do we continue to drive down costs, both for that initial adoption but also for -- to encourage ongoing usage. Quality. We are best-in-class at quality. It matters to customers, surprisingly, not surprisingly, that they get what they ordered. And that is -- sounds simple, it's very hard because the inventory on the shelf is changing all day every day. We have deep integrations with retailers that allow us to know what's on the shelf, but even that information gets stale very quickly. And so we layer on that information that we get maybe the morning of or in some cases, several times a day with hundreds of millions of data points that allow us to predict -- it might have been on the shelf at 8 a.m. When you're ordering at 2 p.m., I'm going to tell you that it's likely out of stock. And that helps me ensure that you select a backup. And actually, if it's really critical to your order, maybe you actually readjust. And so ultimately, we know that we're able to deliver really high satisfaction orders even when there is, on average, one replacement order. We can deliver 95% satisfaction with our replacements or substitutions. And that's incredibly important in terms of having you come back into the ecosystem for your next order and your next order and your next order. So across the board, just continuing to do all the things we do. The last thing that I'll mention is speed. We're really best-in-class at delivering speed, the combination of quality and speed and selection. This is not speed for 2 items from the corner store. It is speed for a $100-plus basket. And 80% of our orders in the most recent quarter were on demand. 40% of those or roughly half were priority orders, which for us, our median delivery time of 50 minutes, in many cases, 30 minutes. And so this is, again, 30 minutes for your full grocery order for the week with a level of quality that is really unmatched. And so we think that if we keep doing all of these things and then we keep bringing customers back into the ecosystem, that will really help continue to drive that online penetration and allow us to continue to be ahead of the curve from a leadership position.

Okay. Great. Market share across basket sizes is a frequent discussion with investors. Maybe you can just help us understand CART's market share position, both higher and lower basket sizes? And then how do you gauge the competitive risk from other third-party delivery providers and then also some of the grocers themselves?

So we're the clear market leader in online grocery as it relates to third-party players. And from a large basket perspective, we continue to be more than 70% share. And from a large -- sorry, small basket perspective, we continue to be more than 50% share. And both of those have grown year-over-year. So both are important. So I'll start maybe talking a little bit about large baskets. Why are we so good at large baskets? Why do we care about this category? Well, we care about the category because 75% of the market is in large baskets. So of course, it's important, and we want to be there. And because of that, we've focused on it. And we've become excellent at it, and we're better than anyone else at delivering those large baskets. So we'll continue to focus on that, continue to grow our market share there. We're 5x better than others at activating large baskets. We're 5x better at converting small baskets to large baskets. So of course, that is an area of focus. So I think then the question actually becomes what about small baskets? And this is an area of focus for us as well. We want to continue to be a leader in small basket, but we want to do it in a way that is sustainable over time, meaning I want to, for our weekly shop customers, be there for them when they want to do a fill-in basket midweek. I want to be there for them when they need a convenience shop. I don't necessarily want or care about an order that is here today because it is subsidized that goes away tomorrow when that subsidy goes away. So we're very conscious of making sure that we're absolutely available for the use case. In terms of what I said earlier, the speed, we can do those small baskets and I can do them very fast. I can do them effectively. But again, we want to make sure the ones that we're going after are the ones that ultimately convert to profitable customers over time. So we think about it from a customer lens, is this customer going to be profitable over time? The order can be unprofitable, that's okay. But if it's a perpetually unprofitable customer, I'm okay missing out on that.

Got it. Okay. Helpful. On GTV growth, so GTV grew 11% in 1Q, also included some onetime benefits. And the high end of the 2Q guide suggests 9% growth. Can you just talk through some of the key drivers in your view to return to GTV growth in the double-digit levels?

Sure. So I think we talked a lot in Q1 about some of the onetime items. Those were things like Leap Day, of course, but also inclement weather. And that was worse than we expected but also somewhat exacerbated actually by how strong our supply is in the market today. And that's important because whereas the winter weather was more extreme this year versus a more mild winter weather season last year, but also we were able to match those spikes in demand more effectively. Meaning that a year ago or 2 years ago, you might have had a spike in demand, and you actually end up with unfulfilled orders. Today, we're able to be even more dynamic than we were in the past to be able to actually satisfy those orders. And I say that because it's important in understanding the dynamics of Q1 but also in understanding our capabilities, which is that it doesn't matter what's happening, whether it's weather or something else, we're able to flex that supply. And it's a very important part of our underlying business model. As it relates to going forward and sustaining double-digit growth, we're, of course, very focused on getting the business back to double-digit growth, particularly focused on maintaining our clear leadership position. And that takes a lot of what I talked about earlier. It takes just continuing to add new users, continuing to engage existing users, and we're doing that through all of the elements I talked about earlier. So we feel really good about that underlying health of the business and the improvement that we've seen quarter after quarter after quarter through 2023 and now into 2024.

And what would need to happen from a cohort perspective to get there?

So it's an interesting question because in 2023, we talked a lot about specific cohort behavior. And the reason we did is that 2023 was very impacted by what we call mature cohorts, but really sort of COVID and pre-COVID cohorts because, one, we had COVID cohorts that were a very sizable part of our business. So they're over 50% of the business, and they were declining because some of those customers had come to the company for other reasons than convenience, right? They came for health reasons, which is very different. And so the expectation, of course, was that some of those might go away over time. And they did, and that happened in 2023. It was even more exacerbated by the fact that we have actually been a pioneer in building out EBT SNAP for online grocery. And so when EBT SNAP benefits -- there was incremental benefits related to the pandemic, when those came off really ending in March of last year, that created an additional headwind because we have been so far ahead in EBT SNAP. So we spent a lot of time talking about cohorts because it was, in and of itself, really impactful in 2023. And of course, we'll always call out for you all when we see these kinds of situations. That all said, going forward, we think about cohorts from our perspective as an output, not really an input. We don't operate the business day-to-day thinking about there's someone on point to drive 2020 cohort growth, right? That's just not how we run the business. We think about how much do we want to allocate, and what returns are we getting on new users? Same thing. How much we want to allocate, what return are we getting on existing users or lapsed users? And we look for the highest and best returns. So while we're pleased to see that the mature cohorts, the decline has continued to improve for 4 quarters in a row. We have added new users in 2024 that are bigger than our pre-COVID cohorts. So we're very pleased with the direction of travel there. We'll probably spend less time unpacking or talking about the specifics of cohort behavior because, again, it's just not how we day-to-day operate the business.

Right. Okay. That makes sense. All right. Shifting to merchants and partnerships. How important is exclusivity for Instacart going forward? And how should we expect these deals to trend?

So first and foremost, what I'd say is exclusivity is not our strategy. For the better part of a decade, Instacart was sort of the de facto exclusive partner of many retailers because there weren't a lot of other options. So direction of travel, we'd expect that retailers over time will add their businesses to other marketplaces, and that's okay. What we're focused on as a business is continuing to provide value across the value chain to our retail partners, and that allows us to help them grow their business over time. So continuing to deepen our relationship. That means, as an example, we obviously have many retailers on our marketplace. But we also power the owned and operated websites of many of our retail partners. We power Carrot Ads for them in many cases, which is our adtech and our ad sales team powering ads where we can both participate in the economics of those ads. We're continuing to expand our set of products and services with those retailers like EBT SNAP, like pickup, alcohol, prescriptions. There's a host of things that we can do to continue to deepen those relationships. And so what happens when a retailer goes nonexclusive, they stay with Instacart. We're an important part of their business. We continue to expand those set of services. We continue to grow our business. If you look at as examples, ALDI and Schnucks, which went nonexclusive over a year ago, both of those businesses are growing compounded at a growth rate higher than our total company. If you look at Albertsons is another example that went nonexclusive prior to that, if you exclude the impact of EBT SNAP, where Albertsons, we were particularly early in rolling out EBT SNAP, and it was particularly over-rotated towards the benefits of -- the pandemic-related benefits. If you exclude EBT SNAP, we will be growing with Albertsons in Q1 year-over-year and quarter-over-quarter. So across the board, just really looking to continue to provide that full value chain of services help our retailers grow their businesses. And we feel good about that path.

Okay. So that brings us to the announcement last week. Uber announced it would expand its partnership with Costco, which we believe is one of your top retail partners. What does that mean for Instacart and GTV growth going forward? And how are you positioned to hold on to share?

So I'd start with the fact that Costco, just for context, has never been an exclusive partner to Instacart. The -- and so within that context, Uber and Costco have had a pilot program in Texas for nearly 3 years across 25 stores. So we look obviously at that period of time and ask what happened. During that time, we have maintained the vast majority of Costco's e-commerce business in Texas. We haven't seen a meaningful impact to our business. And another way we look at it is our business in Texas with Costco has grown at about the same rate as our business in other geos. So overall, no noticeable impact from that partnership. We estimate today that, that partnership is in about 17 states that reflect about 30% of our order volume with Costco. So we feel pretty good about the -- we feel great actually about our relationship with Costco, which, at the same time, has just continued to deepen over time. So in addition to Costco being on our marketplace, we have -- we power their owned and operated same-day site. We have continued to expand with them. We just rolled out EBT SNAP. And so overall, from a relationship health standpoint, we feel really good about where we are with Costco.

Okay. Let's talk about 2 other large players in the space, Walmart and Amazon. Maybe you could just talk about what makes Instacart's offering so differentiated versus those players, and in particular, some of the advantages from the 600,000-plus shoppers on the platform?

Sure. So I talked about several of our advantages earlier, and I'd point to really 2 specifically standing out as it relates to Amazon and Walmart. The first is on selection. So I talked earlier about how, on average, our consumers shop from more than 5 retailers. That's because people like selection, and they show it in terms of their shopping behavior. It may be that they have their favorite retailer that they're shopping from week to week. They supplement that with club retailers on a monthly basis, and then they have specialty retailers that they're using for an occasion and new vertical use cases. So we believe that our selection is a powerful differentiator. We have 1,500 retailers in the platform. And we continue to expand both the number of retailers but also the set of services that we have with them. The other factor is speed, and we talked a bit about that. 45% of our orders are accepted by a shopper that's within a mile or already at the store, which means that we can already start pick packing and delivering the order. And that's a really differentiated experience. I don't know if you've had that experience of hitting order, and then it's accepted very quickly, and you're already getting updates. That's a really magical experience, and we think that, that is and will continue to be a differentiator. And to your point on the 600,000 shoppers, that's a big part of it. I talked a little bit about our ability to flex to meet demand related to winter weather, but that's every day. So there are spikes in demand that happen throughout certain parts of the day, you don't want your groceries less fast on Sunday afternoon just because everyone is ordering then. You probably want them also in 30 minutes or 50 minutes or whatever your time constraints are, and we can do that. It's a very different model than needing to pick a 2-hour window or next day. We would like to also serve those use cases. People have different needs. They have them -- sometimes the same person has different needs week-to-week or month-to-month depending on I'm ordering today later than usual, and now I need priority order or maybe a different day, I don't need as speedy. But generally speaking, we know given that 80% of our orders are on demand, that people care about speed, and we feel particularly differentiated there.