The Zhitong Finance App learned that Instacart (CART.US) has established a partnership with Uber (UBER.US) to provide restaurant delivery services through the Instacart app. The move is aimed at competing with DoorDash (DASH.US), the top US food delivery platform.

Instacart users will be able to order food from hundreds of thousands of restaurants within the next few weeks via the Uber Eats interface embedded within the Instacart app. These orders will be fulfilled by Uber's delivery agents, while the grocery delivery service remains independent and continues to be operated by Instacart.

Uber CEO Dara Khosrowshahi (Dara Khosrowshahi) said in a joint interview with Instacart CEO Fidji Simo (Fidji Simo) that this collaboration poses a competitive threat to DoorDash, whether as an independent entity or partner. He emphasized that this is a competitive market, and the beauty of this partnership is that both Instacart and Uber can use this opportunity to grow their respective businesses.

As of press release, Instacart's stock price rose nearly 3% in early trading, Uber fell slightly, and DoorDash fell nearly 3%.

Seymo revealed that she is the initiator of this collaboration. Although she did not detail the financial terms of the deal, she said Uber will pay a certain referral fee for every order transferred to Instacart. However, Kosrosasi pointed out that restaurant merchants will not be able to distinguish whether orders are from Uber Eats or Instacart customers because Instacart restaurant orders will be delivered through the Uber Eats system.

The partnership will help Uber expand its reach among suburban home customers and enable Instacart to provide more value to its subscribers who pay a monthly membership fee of $9.99, who now enjoy free delivery on grocery or restaurant orders over $35.

The current state of competition in the delivery market

As the growth of regular ordering habits developed since the pandemic gradually wanes, US delivery apps such as Uber, InstaCart, and DoorDash are looking for new growth points. At the same time, these companies need to be responsible to Wall Street investors, maintain low costs, and achieve continuous profits. They are scaling down their operations while expanding into non-restaurant takeout segments and providing sponsored ad slots.

According to Bloomberg Second Measure, through this partnership, the two companies will compete with DoorDash, which has a 67% share of the US food delivery market. DoorDash also operates a growing grocery business and announced that the business has doubled for the third consecutive quarter. Furthermore, DoorDash also has the largest delivery network, which will reach 7 million by 2023, while Uber has about 6.8 million drivers worldwide, and Instacart has about 600,000 drivers in North America.

In contrast, Instacart was founded in 2012 and early signed exclusive agreements with grocery chains to move their inventory online to serve customers who are used to going grocery shopping every week. However, as these terms have expired in recent years, DoorDash and Uber have also established their own grocery delivery services and attracted many of the same retailers, successfully stealing some of the instant or small grocery shopping business from Instacart. At the same time, as Amazon and Walmart further expand into the field of fresh agricultural product distribution, competition is also intensifying.

According to public documents, Instacart remains a leader among third-party apps for bulk grocery purchases and has over 5 million paying users. Instacart's chief financial officer Nick Giovanni said in November last year that these loyal users account for more than half of Instacart's activity, and the platform has more than 7.7 million monthly active users.

However, Uber began as a ride-sharing service for wealthy customers in the city, and now the company sees Instacart's family-centered suburban customer base as a potential market opportunity. Uber can attract this group of customers by partnering with Instacart without having to go through an actual acquisition (that is, buying Instacart) to achieve this goal.

Kosrosasi said that although Instacart is a strong competitor in terms of grocery delivery, this partnership is an opportunity for Uber to expand its Uber Eats business, particularly into the suburban market where Instacart is particularly strong.

In January of this year, Wolfe Research analyst Deepak Mathivanan considered the possibility of a merger between Uber and Instacart and believed that this would bring “financial synergy in terms of revenue,” which prompted him to raise his rating on Instacart stock. Instacart's stock price recorded its biggest one-day increase in three months within three months after the report was released.

Kos Rosasi is an experienced deal broker. He has always focused on controlling Uber's costs and said it is “not yet possible” to carry out an acquisition. Instacart's Seymour said her company is committed to operating independently.