The Many Paths To M&A

The interest in the quick commerce space seems to be heating up globally, and this time it is the US that is making news. Uber Eats and Instacart recently announced a partnership¹, which will now allow Instacart users to order food from restaurants listed on Uber Eats. This begs the question - what do either of these companies stand to gain from this partnership? What is the end goal here?

Firstly, food delivery & quick commerce are not sunrise industries anymore in the US. Uber Eats did $12bn in revenues in 2023, which is 4x that of Instacart and given this scale difference, it is very very unlikely that this partnership is going to open up a new & untouched customer base for Uber Eats. In anycase, the food delivery market in the US is seeing DoorDash eat everyone’s proverbial lunch (breakfast & dinner) and resistance seems near futile.

Exhibit Source - Link

Exhibit Source - Link

For Instacart though, there are some benefits to this partnership. While there is no DoorDash like dominant #1 in the US quick commerce market yet, notice how Instcart is an odd one out in a space that is dominated by retail giants. And these retail giants, especially the top-2 are deep pocketed enough to fend off competition from within & entrants from the outside. Instacart’s position is enviable and not at the same time - it stands tall amongst these retail giants and yet, it is the most vulnerable one.

Exhibit Source - Link

Worse, when you combine usage frequency & market share in the quick commerce space, it looks like Instacart likely has a large user base, but they don’t transact as frequently vs. competition. It could be that Instacart’s users place larger orders (hence the lower usage frequency , but high market share), but low usage frequency is that slipper slope that can end in app deletions & dormant accounts. Instacart needs its user base to start transacting more frequently and this partnership with Uber Eats might help with that.

But, coming back to Uber Eats - what do they gain? This partnership is unlikely to open up much in the way of new customers for Uber Eats, given Instacart’s user base is much smaller than that of Uber Eats. If Uber Eats wanted to do quick commerce today, it could have taken the organic route, leveraging its large user base, tech and delivery fleet. Yet, they chose to do this somewhat puzzling partnership.

While Uber’s management has not given up much of their rationale or game plan, what you are likely seeing are Uber’s first steps towards an acquisition of Instacart. The food delivery market in the US will soon be getting into the saturation zone with slowing growth and then players (i.e. DoorDash) will go hunting for additional growth areas. Given the similarities between food delivery and quick commerce, it will be a logical market to expand into. And Uber Eats, the distant #2 in food delivery, is making its play for the quick commerce space, which incidentally is a much larger market than food delivery. The partnership route is a tentative approach, but it certainly gives Uber first dibs on acquiring the only realistic & valuable M&A candidate in the quick commerce market. And if Uber does acquire Instacart, it will seriously dent DoorDash’s prospects in quick commerce.

However, as of today, Instacart is independent. What needs to be seen is if Uber will eventually go for the acquisition? Or will DoorDash (or anyone else) preempt that? And if Instacart is to be acquired in the future, regardless of who acquires it, what role did this partnership with Uber Eats play towards the acquisition?

Thus far, we have the example of Zomato’s bold & outright acquisition of Blinkit, which to top it off, was done in a market that was unforgiving and skeptical of the relevance of quick commerce. And now there is this tentative play that Uber Eats seems to be taking, in a much more sanguine market. Let’s see what this leads to.

Read more on the Zomato-Blinkit saga here -

1. https://investor.uber.com/news-events/news/press-release-details/2024/Uber-Eats-to-Power-Restaurant-Delivery-on-Instacart/default.aspx