Instacart was all about grocery delivery. Not anymore.

When Fidji Simo took over as CEO of Instacart in 2021, the grocery delivery startup’s growth collapsed as its pandemic boom petered out. The board asked him to find new ways for the company to make money.

Ms. Simo, a former executive at Meta with experience in advertising, played to her strengths. She has aggressively expanded Instacart’s advertising business, launched in 2019, which lets food brands pay for better placement in the company’s app. Brands wondered whether the ads were useful, so Ms. Simo commissioned studies showing their effectiveness, two people close to the company said.

It also developed a plan to sell software tools and other products to grocery companies to help improve shopping experiences, they said. She then embarked on a goodwill tour to visit grocery companies and hosted their executives at her home in Carmel, California.

As Instacart prepares to go public next week, it’s a markedly different company. Envisioned in 2012 as a service connecting people at home with contract workers who would shop for and deliver groceries, the company has increasingly focused on advertising and software products as that its delivery activity was slowing down.

Last month, Instacart revealed in an offering prospectus that ads and software sales allowed it to do what skeptics said was impossible: turn a profit. Other so-called gig economy companies that use contract workers to deliver goods via apps have generally not been successful.

Nearly a third of Instacart’s $2.5 billion in revenue last year came from its “highly profitable” advertising and software division, according to its prospectus. In the first half of this year, Instacart’s $406 million in revenue from advertising and software helped propel it to a profit of $242 million.

Instacart shows that one way for a historically unprofitable gig company to enter the public markets is to diversify into more lucrative areas and move away from its gig economy roots. It’s been a long road for the startup, which has overcome years of money losses and the 2021 resignation of its co-founder and former chief executive, Apoorva Mehta, after friction with the board.

Still, Instacart’s profits may not be enough to attract investors to its IPO. Once valued at $39 billion in private markets, the company has reduced its valuation several times, most recently to $10 billion. In a filing this week, he set a price range of $26 to $28 per share, valuing it at $8.9 billion at the midpoint. Instacart plans to list its shares on the Nasdaq stock exchange, days after the public offering of Arm, the British chip designer.

In an interview last year, Ms. Simo, now 37, said she was overseeing a “third act of the business” — after first attracting consumers, then grocers — that included the tools software for retailers. She said her goal is for Instacart to compete more with Amazon, which offers grocery delivery services, and to help grocery stores adapt to the digital world.

“It shows very clearly where we are going as a company and this new ambition,” Ms Simo said.

Instacart declined to comment, citing a quiet period ahead of its IPO. Meredith Kopit Levien, chief executive of The New York Times, serves on the board of Instacart.

Since its founding in 2012, Instacart has spent a lot of money, like other companies of the era that took advantage of the proliferation of smartphones and cloud computing to offer real-world services through apps. With the press of a button, these apps conjured up services such as dog walking, cleaning, takeaway and taxi rides.

Investors ate them up, betting that the companies would grow big enough to generate profits. But even though consumers liked the convenience of the apps, they didn’t care about the high fees. Many companies went bankrupt or were sold. The top performers – Uber, Lyft and DoorDash – have never turned an annual profit.

Mr. Mehta, co-founder of Instacart, intended to change that. A former engineer at Amazon, he determined early on that Instacart could create a business promoting products to its customers using the data it collected on their grocery purchases, just as Amazon had done.

“We thought if we got big enough, we could create an interesting advertising business,” said Ali Rowghani, an investor at Instacart.

When Instacart began selling ads four years ago, its executives wondered whether they would turn off customers, a person familiar with the conversations said. After internal testing showed the impact was minimal, the company increased the type and frequency of ads served.

Ms. Simo took over Instacart during a volatile time. The company benefited from the pandemic when people stuck at home ordered groceries through the app, causing its grocery sales to surge 303% in 2020. Growth continued in 2021, but slowed to 20% overall that year as people returned to shopping in stores in person.

Ihar Mahaniok, an investor at Geek Ventures who funded Instacart in 2012, said the startup’s potential excited him but worried about its ability to make money. He was encouraged by Ms. Simo’s appointment, he said, because he had worked on her team at Meta and seen first-hand how she balanced innovative ideas and efficiency.

“I really had faith that she would be able to figure this out, and she did,” he said.

Ms. Simo beefed up the advertising business by adding more than a dozen tools, including video ads and pop-ups. She also presented Instacart Platform, the software offering intended for grocery stores.

Ms. Simo had proposed working more closely with grocery retailers on Instacart’s board before starting her job. She suggested the company buy startups like Caper, which makes an electronic shopping cart that helps customers check off their grocery lists and lets retailers track their purchases, a person with knowledge of the conversations said . Instacart purchased Caper in October 2021 for $350 million.

Grocers had long feared that Instacart would compete with them, but Ms. Simo emphasized that the company wanted to be a partner rather than a rival, the retailers said.

“She is very powerful in asserting that message and has been very consistent in her actions over the last couple of years,” said Neil Stern, chief executive of Good Food Holdings, which operates several regional grocery chains. He became one of the first testers of the Instacart platform after a series of Zoom meetings with Ms. Simo in the summer of 2021.

Instacart still faces challenges. The company relies heavily on a few large grocery retailers like Kroger and Costco for orders, making it vulnerable if one of those chains moved to a competitor.

Its grocery delivery business has also stagnated. In its prospectus, Instacart said grocery orders increased 18% last year, but orders in the first half of this year were flat compared to the previous year. This slow pace could hamper its lucrative advertising business if there aren’t enough delivery customers to serve the ads to.

“The advertising business only works because you have the core business of broadcast,” said Nikhil Devnani, an analyst at Bernstein. “They are an integral part of each other.”


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