By Dillan Pindoria, Nishil Lakhani, Holly Bridges, Hassan Wahba, Bhav Rambhiya (University of Nottingham), Nathan Walemba (University of Oxford)
Photo: Marques Thomas (Unsplash)
Overview of the deal
Target: Caper AI
Total Transaction Size: $350 million
Closed date: 19/10/2021
Acquirer advisor:Baker McKenzie
Leading online grocery platform Instacart has announced that they will be acquiring the leading AI-powered shopping cart and checkout technology platform Caper AI for $350 million in stocks and cash.
Instacart will be looking to tap into expanding its rapid growth through cutting-edge technology provided by Caper AI, which will bring together a seamless in-store shopping experience with an existing excellent online grocery shopping service. Valued at $39 billion as of March 2020, Instacart is predicted to significantly increase this value, after rumors of an IPO have been released since its recent successes. In comparison, DoorDash, which could be considered one of Instacart’s main competitors, is valued at ~ $71 billion. They have also recently announced an acquisition of Wolt to get ahead similarly.
The driving force behind this acquisition will open up synergy opportunities for Instacart, after also recently acquiring Foodstorm, which offers catering technology to retailers. This boost of business for Instacart has been promoted through the prevalence of online grocery shopping due to national lockdowns and consumer fear stemming from the COVID-19 pandemic.
“We’re excited to bring Caper’s leading smart carts and smart checkout platform to more retailers around the world, as we all reimagine the future of grocery together.” - Fidji Simo, Instacart CEO
Company Details (Acquirer - Instacart)
Instacart, the world’s largest online grocery service, is a private American company founded in 2012. The company specializes in allowing American and Canadian consumers to order groceries from any of the 40,000 local grocers registered with Instacart to their homes via their website or mobile app. This business model has naturally captured the surge of demand for such services throughout the pandemic period. As shoppers return to physical stores, however, Instacart looks to establish a footing there through its acquisition of Caper AI.
Founded in 2012, headquartered in San Francisco, California
CEO: Fidji Simo
Number of employees: 10,000
2021 EV: $39bn
2020 Revenue: $1.5bn
2021 EV/Revenue: 26.0x
Company Details (Target - Caper AI)
Caper AI, founded in 2016, is a private retail software and artificial intelligence company that utilizes several technologies such as computer vision, machine learning and sensor fusion to automate the checkout at retailers, grocers and convenience stores. Based in New York, the company partnered with American retailer Kroger to launch ‘KroGro’ in 2020 which was first rolled out in Ohio but is making its way across the rest of the US.
Founded in 2016, headquartered in New york, USA
CEO: Lindon Gao
Number of employees: 63
Market Cap: N/A (private company)
LTM Revenue: $10.2M
LTM EV/Revenue: 34x
Projections and Assumptions
Although some short-term consequences of the deal remain unclear, with Instacart yet to detail the integration of Caper Carts into their business model, the new enterprise service undeniably hits a new target audience.
It comes as no surprise that as we emerge from the grips of the COVID-19 pandemic, consumers are looking for a new hybrid shopping experience. Instacart’s acquisition of Caper AI and presumed implementation of carts into partner stores provides a gateway into the physical grocery market for the online grocery provider.
Initially, the rollout of Caper Carts will allow Instacart to gain brand recognition amongst a new target audience of consumers who may have previously shied away from the online grocery market. The acquisition also bridges the gap between the online and physical shopping experience for current users, increasing app usage and reliance. For Instacart, this allows for the opportunity to collect consumer preference data and shopping habits, from which they can tailor their advertisements and service to meet the consumers' individual needs.
After Instacart’s most recent funding round in March, the company raised $265m from existing investors, highlighting the huge opportunity cost of the all-cash and shares deal worth $350m. The all-cash and stocks deal may negatively impact Instacart’s cash flow, limiting growth opportunities in the short term.
In the future, Instacart aims to further integrate Caper AI into their business model to help them achieve their overall aim of creating a “seamless shopping experience”.
However, the cashier-free technology space is still developing; many start-ups such as Trigo, Standard Cognition, Shopic, and Imagr are also aiming to build a seamless shopping experience.
The “Caper Cart” differentiates itself by providing a “plug-and-play” lower-cost alternative to these competitors. This product enables retailers of all sizes to integrate modern technology without the need for excessive investment. Bringing the “Caper Cart” to supermarkets will allow them to remain competitive against the likes of Amazon Go.
Instacart has the potential to supercharge Caper AI’s expansion by providing it access to its wider network of existing grocery partners. These include ALDI, Costco Canada, Sprouts, Wegmans, and many more. In addition, many synergies will arise from this acquisition including the opportunity to integrate Caper’s AI technology into Instacart’s app. For example, using the “Caper Carts” touchscreen technology, Instacart can provide on-screen recommendations while consumers shop. Also, customers would be able to plan their shopping lists using recipes which could create a new subscription-based revenue stream.
Overall, Instacart aims to ultimately persuade shoppers to buy more. Their acquisition of Caper AI will allow them to develop new technologies and revenue streams over the next few years.
Risks and Uncertainties
Given the high cost of smart carts relative to regular carts, grocers are unlikely to use them unless Instacart makes them available at a low or no cost. It’s unclear at this stage how Instacart aims to integrate the carts into its current offering. The price Instacart paid for this technology puts away any doubts that this is an experiment. Given that it was $85 million more than their last funding round, it’s clear that this is a major focus for the company.
This acquisition also raises questions over control of shopper data. This control varies by the size of retailers, with larger ones more likely to view Instacart as a threat. By allowing Caper Carts in their stores, grocers will essentially be opening the gates for Instacart to gain data and insight into shopper habits and leverage this to increase profits. This has the potential to damage the relationship Instacart has with its retail partners and risk alienating them if it becomes a competitor to them. Instacart would need to go all-in by itself if it chooses to compete with them, and some analysts have indicated this is the direction they see Instacart taking.
With highly advanced ‘just walk out’ supermarkets being offered by the likes of Amazon Go and Trigo, there is the risk that the Caper Cart will soon be obsolete in the presence of these technologies. Regardless of which direction Instacart chooses to take, this is a data play and Instacart is looking to move beyond its current business model and expand into new avenues.