Tech Check is a regular column on restaurant technology by Senior Editor Joe Guszkowski. It's also a newsletter.
I just returned from our FSTEC restaurant tech conference, where one of the refrains every year is that restaurants have historically been laggards when it comes to technology.
To hear some folks tell it, you’d think operators were still carving their menus on stone tablets while the rest of the world zoomed by in flying cars. The truth is, restaurants aren’t the only industry that has been slow to join the modern age. In fact, their counterparts in grocery are by some measures even further behind.
That’s why operators should pay attention to the initial public offering Tuesday by Instacart, the grocery technology company that hopes to push grocery stores into the future, and make shopping more convenient in the process.
San Francisco-based Instacart is primarily a delivery provider, like DoorDash or Uber Eats, but for groceries. Today, a customer can use its app to order groceries from more than 1,400 retailers. An independent contractor (known as a “shopper”) will then go to the store, pick the groceries and deliver them. Delivery fees start at $3.99, plus varying service fees and a tip. Retailers may also mark up their prices in the app to cover the commission Instacart charges them.
The main benefit for the customer is convenience. In its IPO prospectus, Instacart notes that consumers who shop for groceries in-store spend an average of 60 hours per year doing it, not including travel time. It argues that they can knock out that errand in minutes using Instacart.
Sound familiar? The same case has been made ad nauseam for restaurant delivery. A consumer can watch Netflix in their pajamas, clean the bathroom or tend to their children while someone else fetches their dinner for them. It’s more expensive, but that is the cost of convenience.
Despite the similarities between the two offerings, online restaurant ordering has leapt far ahead of online grocery shopping. Last year, only 12% of U.S. grocery shopping happened online, compared to 23% of consumer foodservice, according to Instacart’s prospectus.
Instacart believes it can help close that gap, estimating that online grocery shopping could double its share over time. Some of that share could very well come from restaurants.
Restaurants and grocery stores have long jockeyed for consumers’ food dollars. That battle has become even more intense coming out of the pandemic. Americans have been spending more at restaurants than grocers for years, and last year, the difference was more than 20%, according to the U.S. Census Bureau. But grocers are working to claw back some of that lost ground. They are increasingly investing in prepared foods that rival restaurants on convenience, quality and price. Walmart, the country’s biggest grocer, now delivers its $7 hot rotisserie chickens to customers’ homes, for instance. It says it sells 103 of those chickens every minute.
Grocers have also begun to gain the upper hand on price. In August, restaurant prices were 6.5% higher than they were a year ago, while grocery inflation cooled to just 3%. That could push price-conscious consumers toward grocery stores just as those stores are beginning to behave more like restaurants.
Restaurants’ secret weapon in this fight is still convenience. Whether you’re dining in, using the drive-thru or getting delivery, it’s likely going to be faster than buying groceries and cooking them up yourself. At the very least, you don’t have to do the dishes after.
Enter something like Instacart into this equation, and that advantage becomes less clear. Sure, you might still have to cook whatever your shopper brings you—unless it’s something like a frozen pizza, a bucket of fried chicken or sushi, of course. And you still saved time.
And while delivery is still the core of Instacart’s business, it has aspirations to make shopping in person more convenient, too. That includes things like AI-powered shopping carts that allow customers to scan and bag items as they go and then pay right from the cart, erasing one of the worst parts of grocery shopping: checking out.
Instacart has not been without its growing pains. Just like food delivery, its business exploded during the pandemic, and has slowed down since. According to Instacart’s prospectus, total orders increased 18% from 2021 to 2022, but were flat over the first six months of this year.
Nonetheless, it got off to a hot start as a public company Tuesday. By mid-afternoon, its share price had risen more than 22%.