In Vancouver, our most popular local supermarket chain (Save-on-Foods) has started offering a service where you can order groceries on the web or in an app at the same prices as in the store. Then, you can either quickly pick up the collected groceries for free, or you can pay them a fee for delivery if you prefer. Even though the chain is local and the service is new, the software works well, the service works well, and overall it's a good offering.
So my question is: how do investors project that an intermediary like Instacart can outcompete the same service provided by the supermarkets themselves? Doordash can compete on variety and speed, but most folks shop at the same one or two supermarkets all the time and rarely need groceries urgently.
this is not quite the right question to ask, because it assumes that the delivery business is the revenue driver for instacart, and that for instacart to win, they need to be better at delivery than the grocery store. it's very hard to make such a logistics business work in the last mile because it's so inefficient. grocery stores know this, which is the reason they are reluctant to implement such services themselves, not because they afraid of innovation (rather, lots of pricing innovation happens in grocery stores, to squeeze what little margin they can out of the value chain). companies like fedex and ups subsidize last-mile through their much more efficient long-distance logistics operations, which people are willing to pay more for.
the delivery service is actually a loss leader for instacart's underlying business, which is influencing purchase decisions through their app and getting paid for it. this is where brands compete with each other (just like shelf space in the store, which they also pay for), so it's where the money is. instacart also has fantastic shopping data tied to individual accounts that they can monetize in a number of ways. and then there is a bit of a winner-take-all element in that grocery stores are unlikely to want to integrate with more than one such service.
this last part is where the valuation comes from - it's a bet that instacart can become critical marketing infrastructure for the grocery industry. like many others, i'm skeptical because it's a risky strategy, but if they pull it off, they get a big payday.
This seems a bit left field. If you were a $100MM startup I could buy this argument but at $3.4B you better believe that their valuation is tied to their gross volume of goods and revenue moving through their platform.
Which is why the recently announced a change to tipping, where it would no longer be hanlded separately but instead as part of the regular checkout so as to make their revenue numbers look better.
They could certainly look into an advertising model for virtual shelf space, but that will be a significantly smaller amount of money than what they are doing in grocery delivery.
This is the same play as Seamless/Grubhub, and while they have a "promoted" listing which generates revenue, the majority of their revenue still comes from creating and order and doing the delivery.
The real benefit to Instacart from an investor perspective is that they are taking a distributed market and consolidating it into one single player. So while some stores may do their own delivery, by consolidating that space into a single player they are able to create tremendous volume.
Now, at 33% the value of whole foods that's a different matter. But there are some attractive pieces to Instacart's revenue story.
They don't stock inventory, so there aren't many carrying costs, they are charging 20% on the order which means they directly benefit from customers spending more and you can quickly see that their immediate revenue model assuming they can keep costs under control is definitely enough to justify the price.
The real question is how much money they are losing and if they are able to become profitable in the long run, but that will be a question that is decided well post IPO.
So while some stores may do their own delivery, by consolidating that space
into a single player they are able to create tremendous volume.
OP's point was that shoppers typically shop at 1-2 grocery stores. Seamless/GrubHub is different because people are more likely order from several restaurants across time.
clairity makes an astute point that Instacart's personalized data is more valuable than any single grocery store's data. and competing on "store shelves" allows them to negotiate with brands directly, and totally circumvent the grocery stores.
.... but in order to do that, they need to capture the market, and they need their operating model to work well for long enough to meet that goal
>> it's very hard to make such a logistics business work in the last mile because it's so inefficient. grocery stores know this, which is the reason they are reluctant to implement such services themselves
Home delivery has been a standard offering from all major supermarkets in the UK for 5-10 years now. It's available in built-up areas and cities, as well as rural villages. They are able to do next-day delivery and give you a 1 hour delivery window. Groceries are the same price and delivery ranges from £1-5 depending on the delivery window you select. I really don't see how Instacart could compete with that if Wallmart and the others start to offer it in the US.
Off-topic, but you seem to have a really educated perspective in this sector. I'm interested and working on something in it with a lot of potential (hopefully) but lack experience.
You don't have your email listed, but I'd love to get in touch if you could email me (in my profile). Thanks!
i have been working on the "future of work" problem and so have thought a bit about the business models of on-demand companies like instacart (relative to what they pay their workers). and i've been lucky enough to have people with interesting perspectives to talk to about such things.
>The delivery service is actually a loss leader for instacart's underlying business, which is influencing purchase decisions through their app and getting paid for it
If that were true, wouldn't a heck of an easier approach have been to setup an "ad network for retail delivery apps"? I think you might be underestimating both the difficulty of the logistics side of their business, and therefore its value as well. I've never really looked into Instacart (Not available here), but I imagine a more likely Instacart investment thesis is "if local businesses were given the option to not have to manage their delivery fleet, with minimal impact on other parts of their business, would they switch? + How much can we reduce the cost of local delivery due to scale/volume, and therefore is a monopoly position in local delivery achievable?
i agree with you that the logistics problem is incredibly hard but we may be disagreeing on whether instacart has cracked the problem (or even can). having talked to shoppers (instacart's workers) in the past, i don't believe they have solved the logistics challenge yet. their recent tips fiasco tells me that they're still gross margin negative and needed to fudge those revenue numbers into fitting with this valuation.
it's certainly possible that they have a credible story around how they get operationally profitable with the delivery business, but that's a margin-limited business that i don't think investors will get excited about. data and services are relatively high-margin businesses and that's why i think that's the play here.
but i agree that whoever solves the very hard last-mile logistics problem is going to be fabulously well-positioned (amazon, walmart, fedex, ups & uber seem to be the leading contenders). thinking that scale/volume will solve the problem is enticing, but so many companies have chased that holy grail only to fall short that i'm not sure that it isn't a mirage.
it's possible, verticalization can give a cost advantage, but it also opens you up to extra customer service expenses, so i'm not sure that that's enough to overcome the expense (haven't tried to do the math though). as k-mcgrady notes in a nearby comment, groceries do home delivery in other countries like the UK, but the cost of delivery is probably now well baked into the cost of groceries. i haven't looked into how that developed - maybe delivery was successfully positioned as a premium offering with a larger surcharge and they moved down market over time and moved to a nominal surcharge (£1-5 most likely doesn't cover the cost). here in the US, there's a bit of a first mover problem since no one wants to unilaterally raise grocery prices and a delivery surcharge limits growth of the service.
the other disadvantage of verticalization is that it limits access to consumer data. an aggregator like instacart will have access to comparative consumer data across stores and i think that should be far more valuable given how competitive the consumer products space is.
Hey, I co-founded Instacart and can offer some thoughts on this.
In most cases we are helping retailers create a new delivery experience for their customers, not replacing one that exists. It's actually quite complicated to operate our business and there are economies of scale that retailers benefit from by being part of a marketplace.
Also, when we talk to our customers about why they use Instacart, many of them do need groceries urgently, which is one of the reasons they use Instacart over alternatives. Most orders are delivered within 1-3 hours of being placed.
Well I could see Instacart helping (and potentially being acquired by) certain chains who simply don't want to be involved with online ordering and fulfillment. I suppose there's also the added benefit that they can choose from multiple retailers in case certain retailers carry products you can't find at others.
But on the topic of delivery/fulfilment, look at some of our grocers in Canada (Metro, Loblaws, Walmart) who are worth billions of dollars, yet whose only foray into online ordering is for pickup. Wow! Innovation!
A Loblaws near me was applauding itself for setting up the ability for buyers to order products online and pick it up in store, while people in the UK and parts of the US have been able to order groceries online and get it delivered for years. In 2013, Amazon Fresh expanded to SF. Full ordering and fulfilment. While in 2014, Loblaws launched the concept of click and collect, but has not expanded their offering to include delivery.
It's baffling to me that neither Loblaws nor Metro have at least tested online ordering and shipping in downtown Toronto like the way Amazon Fresh expanded into major American cities.
Not only is it baffling to me also, its annoying as well. I came from the UK where I would order a week's shopping and get it delivered Saturday morning. I never had to visit the store and placing an order took maybe 20 minutes.
Now I live in downtown Toronto and I have to walk to the store (no car here) a carry groceries home, which means at best I can purchase a few day's worth of food at a time.
I would so gladly pay a reasonable amount for delivery, and I don't mean these bespoke pick-everything-and-deliver-within-an-hour services - I just want to be able to choose a time, pay maybe $5-$10 and have a week's worth of food delivered. Is that so hard Loblaws?
> I would so gladly pay a reasonable amount for delivery, and I don't mean these bespoke pick-everything-and-deliver-within-an-hour services - I just want to be able to choose a time, pay maybe $5-$10 and have a week's worth of food delivered. Is that so hard Loblaws?
It takes time for the labor- maybe 2 hours of time for someone to get your food, bring it to your house, and go back. So that's probably at least $30 worth of their time.
So yeah, $5-$10 is not reasonable. If you're paying that little the labor is being subsidized by something else, or you're exploiting a desperate underpaid worker.
> The marginal cost of one delivery is obviously not 2 man-hours, that'd be ridiculous.
Why not? 1 hour to walk around the store and collect everything, 20 minutes to check it out, load the car, drive the the person's house, 10 minutes to walk the groceries to their apartment, wait for them to sign and open the door, 20 minutes to drive back. At least 2 hours of work.
Of course if you run a delivery service in the most idiotic way, it'll cost you a few man-hours per delivery. But we're talking about supermarket chains, i.e. people who know a thing or two about preparing orders and dispatching them efficiently.
The killer feature for Instacart in NYC is that they will deliver Costco to you. Typically at Costco you're buying more stuff than you can carry, so you'd take a car home, and this would cost $20-$30ish [0] plus you'd have to carry your heavy groceries from the car to your apartment. So a lot of times Instacart is actually the cheaper option.
[0] This assumes you're in Instacart's target market, aka rich yuppies who don't live in East Harlem
To me, the dealbreaker is the fact that it's a percentage-rate fee as opposed to a flat-rate fee. I was able to justify spending extra for Google Express as long as I made a large order.
With Instacart, the pricing is extremely blurry with an added-on fee of ~20% or so. I can't justify spending $20 + 20% on groceries. I might as well as just order out every day.
Maybe I'm lucky that I live within walking distance of a grocery store, but I'd be hard pressed to pay anything more than $5 for someone to drive my groceries to me. I could afford to pay for it, but if I kept that mentality my finances would die the death of a thousand papercuts.
this can be dangerous because it means they rely on a single other company for their killer app. if instacart gets too big, costco might feel they're losing out on a lot of membership fees or that they could make more money delivering themselves or partnering with Amazon. this could totally freeze out instacart
Investors are banking on the fact that grocery stores are historically bad at innovation. Some may role out delivery products, and some of those products may be good, but most grocery stores are not going to be good at developing their own ordering/delivery service. It's similar to why self-checkout still doesn't work well at many stores and why Walmart hasn't created a wonderful online shopping product. Whether or not the margins for instacart make the business model work, I don't know. But, I doubt competition from grocery store innovation is going to put them out of business.
>not going to be good at developing their own ordering/delivery service
How hard is this? Online ordering and grocery delivery is an existing thing and was before Instacart.
>It's similar to why self-checkout still doesn't work well at many stores
Self-checkout is a pain in the butt for things like produce. When you do a large grocery shopping, it is much easier and more efficient to have a clerk quickly scan everything (and there's usually a bagger too).
There are some experiments with shoppers self-scanning as they shop. Maybe something like that can still eventually work and you deal with produce somehow. (And figure out ways to minimize losses.)
Scan as you shop is common in certain chains in Norway, but I always observe people wondering how to scan certain things. Especially produce and special promotions. And when I tried it, no less than three scales were out of labels so had a hard time with the produce...
Self checkout works better.
It seems the situation around online grocery ordering and taxis is particularly bad in the US, this might explain the excitement for these companies. I remember ordering groceries online in Brazil (of all places!!) as early as 2006 from a major chain and things just worked (and continue to work).
EDIT: relying on anecdata from HN comments, I have never tried online grocery shopping in the US.
Here in the US, many Kroger and Walmart location have online ordering with pickup already in place. So I'd imaging it wouldn't be a big jump for either of them to offer delivery. My other local grocery chain, Publix, has gone the instacart route for their grocery delivery for now.
This is something that has baffled me since I moved to the US. In the UK, most of the major supermarkets have offered their own online delivery service for 10+ years:
Yeah, but there's no requirement for services to be national or to cover areas outside cities with insufficient density. I suspect it has more to do with large US supermarkets with large parking lots and high auto ownership.
[ADDED: For example, Peapod is only available in some areas of the Northeast and Midwest]
Well since there's no-requirement for it to be national then, I'd point out that in the D.C. area there are 2 major chains that delivery groceries, and 3 others that allow online ordering and pickup at select stores.
Exactly until the time comes when Publix and others will see money in delivering themselves and out of their free will will ban delivery services from their stores.
This service is not so popular yet (Im having hard time counting one friend who uses delivery services) but make it popular enough and Instacart and others will be out of the door.
This will be similar to LA-Fitness and other chains of gyms like Gold's Gym forbidding outside trainers for training gym members. You can only hire a gym instructor that is employeed by gym you attending.
Of course Instacart can ignore such ban and shop "incognito" but I doubt it would be great sales pitch to shareholders/investors.
I know my local Albertson's and Tom Thumb both offer delivery. I find that to be of limited use, since I don't want to let the store employee search for my produce / bread / meat / milk. They're bound to find the stuff closest to clearance.
This is the same in the UK, all major grocery stores (Tesco, Sainsbury's, Asda, Morrissons, Waitrose/Ocado) all allow you to order and either collect for free or have them delivered for between £2.50 and £5 depending on the delivery time. I can't see Instacart having a market outside of the US and even then major stores will start to offer their own delivery services with no price bump which will put Instacart out of business, at least at any reasonable size.
We recently launched pepperly.com, working with mom-n-pop Indian Grocery retailers in Boston area. Very early stages as it currently works with one local retailer. Order online for either pickup or delivery. Same prices as the store. However, it's not picked up enough traction. Partly it's a behavioral thing. People like to go to the grocery store and talk to the Grocer. Would love feedback or suggestions on how to improve the uptake of the service.
Maybe it's the size of the grocer that encourages the talking crowd? I can't imagine this being as popular in larger stores, although I did have several repeat customers who I enjoyed talking to when I worked in a grocery coffee cafe.
Maybe variety is key. It could be that people with extra money to spend, are really particular about what they order, and don't really look too deeply into their bills(for example they believe it when instacart says they take 15-20% margins).
BTW, for the grocery market., a $3,4B valuation isn't that large .
There was a post on here recently that showed instacarts margins were double and triple what they claim. The delivery guy accidentally gave the dude the real receipt and he compared Instacarts prices to the stores actual prices, they were insanely higher.
It's pretty big. Whole Foods' market cap is under $10B.
Plus I don't think Instacart is really in the grocery business. They are in the delivery business and grocery stores are their warehouses. I really have a hard time seeing $3+ billion of value there.
Maybe they are thinking about getting into the grocery business though.
WF is a terrible example because organic, vegan, sustainable are now basically mainstream. I can go to almost any medium town in Texas and find a natural food store to make hummus from scratch. WF has to up the ante by doing more local, exclusive, seasonable, sustainable and experimental/incubator products to differentiate from traditional mainstream grocers and also competitors like Trader Joe's.
But the bigger issue with Instacart / Google Shopping Express is they're effectively value-add middlemen whom can be cut-out, undercut, gamed and so on. WalMart, Safeway/Vons, Amazon, Costco have the muscle ( distribution and capital) to squash them like Mr. Wonderful's proverbial cockroaches.
What service do supermarkets provide themselves? I think it's debatable. Safeway in CA had delivery, and using it was a guaranteed way to get bruised, nearly un-sellable produce. Safeway must have told its pickers to pick the fruit and vegetables that were about to expire... and the same for milk, cheese, or any limited shelf-life item.
Instacart has only the incentive of pleasing the customer. I've had zero issues with suboptimal produce being picked by Instacart shoppers.
So I'd argue that whatever supermarkets need as a core competency to compete in the existing (pre-Instacart) market, providing high quality delivery and e-commerce experiences are not part of that.
I think supermarkets are essentially market makers for household goods, produce, etc. They must understand demand in order to keep the right items in stock.
Beyond that, they seem to flounder between providing super-low margins (and the corresponding slow checkout lanes) or a more premium expeirence with higher markup and other entertainment features (music, oyster bars, etc.)
In the cities I've lived in, all of the in-house delivery options had significantly constrained delivery options.
If there is as much money to be made as Instacart's valuation implies, then it's just a matter of time until the big chains, at least, start offering their own online shopping.
This strikes me as another version of AutoByTel.com Remember them? They worked between you and the dealership, and generally got you a much better price on a car, usually the fleet rate.
They did well until dealerships figured out how to use the web, and then the company hasn't been anywhere near as relevant for a long time. It tough existing between web-based customers and physical dealers. There isn't a lot of loyalty, so as soon as tgere is a better price customers will change sites. Also, Autobytel's business is really offering highly qualified sales leads to dealerships. The basics are nothing fancier than that.
I see the same thing for Instacart. Grocery stores tend to be effective at shipping stuff around, but tge same "shoping" experience has worked for many, many years.
It seems like the grocery stores have a lot more power than Instacart, and Instacart is going to have a very hard time getting between customers and stores. It's going to be hard to make a profit when stores offer free/cheap delivery and develop their own shopping apps.
Unless Instacart deeply integrates with each stores inventory, they will ultimately lose.
The biggest problem with Instacart vs Amazon Fresh is that with Instacart you never really know what you are going to get. You never know what your end bill is going to be, and you never know what the real markup is. I don't think I've ever place an order on Instacart and had it filled 100% with everything I wanted. Place a large enough order and 10+ items might be missing. Miss the call to try and find a subsititue? Too bad.
The end user experience for Instacart is actually pretty damn bad. It's often just "better than nothing", but I don't see how that's sustainable.
Instacart would benefit from keeping inventory data synced more accurately, but ultimately Instacart offers a solution in the form of the shopper making a reasonable decision.
Instacart used to prompt the buyer to approve all substitutions, but it got tiresome pretty quickly. Now you can still do that, but the default experience lets the shopper make the (usually obvious) choice.
Grocers do not always have everything in stock, and so I think Instacart's solution is the best I've seen so far. If you are someone who wants to know the exact total in advance, then request no substitutions, it's very simple.
> The Amazon Fresh model is far superior. If the item is out of stock, it shows out of stock.
How is this better? Most supermarket items are sold alongside many competing items that are nearly identical. As a customer, I may or may not have a strong brand preference.
In my case I have a brand preference for only about 10% of the items I buy. For the rest I'm largely indifferent. Also, in the vast majority of cases, the store brand is an adequate substitute.
So I would argue that by actually applying intelligence to the problem, Instacart's approach is better. Showing out of stock puts the burden on the user to solve the problem of which alternative to choose.
> If there is as much money to be made as Instacart's valuation implies, then it's just a matter of time until the big chains, at least, start offering their own online shopping.
They already do. We sometimes use personal shopping at Whole foods, it costs like $15. You drive up and pick up the groceries. Super easy. Another smaller chain store, for $20, they will shop and deliver to your door.
While great in terms of saving time, the problem is that you sometimes dont get exactly the item you would have picked nor get the option to pick up extra items or things on sale.
> While great in terms of saving time, the problem is that you sometimes dont get exactly the item you would have picked nor get the option to pick up extra items or things on sale.
Seems to me that the grocery stores have an advantage of Instacart in this, actually, because they have access to their own inventory systems while Instacart doesn't. To vertically integrate delivery would make a lot of sense.
Where I live in the midwest, one of the chains has started doing delivery or curb side pickup for free if you spend at least $100. We started shopping there exclusively for awhile because of it, super convenient.
> If there is as much money to be made as Instacart's valuation implies, then it's just a matter of time until the big chains, at least, start offering their own online shopping.
That depends on what grocery stores are good at. It seems to me that grocery stores are the ones with the outdated model. Why would we expect people who make many multiples of the wage paid to a shopper to enjoy wandering through a warehouse putting goods into a cart?
High end chains offer samples of gourmet food, pleasant music, oyster bars, etc., but ultimately when I'm there I'm sacrificing a LOT of time simply for the pleasure of shopping manually.
Instacart has created an extremely polished, highly usable shopping experience. When I order I don't really care where the items come from (I have no loyalty to the local grocer). I typically shop at Whole Foods because it carries many high-end items, but why should my grocer have to buy prime retail space just to put a bunch of short-shelf-life items on display in a beautiful shopping environment hoping that I'm happy to pay a 20% markup over a Safeway or other competitor?
Instacart is the best solution to the problem of "how do I keep my fridge and pantry stocked with the items I want with minimal cost and effort" problem.
Think about if we had to browse through cartons of mail in a local postal service warehouse just to collect our mail. Delivery makes perfect sense for things that we need on a routine basis.
> but tge same "shoping" experience has worked for many, many years.
This is almost an absurd luddite-ism and I won't even respond :)
In this case though I don't see a secret sauce that keeps the customer with Instacart rather than going direct to the retailer.
With something like Uber or Lyft, you're accessing a pool of drivers that can't immediately be created by a small competitor. Even in a local environment.
With a grocery store I'm generally ordering from the same place repeatedly. If they offer the same service directly, I see no advantage to dealing with Instacart.
Maybe if they integrate vertically but at that point they become a modern grocery store without a store front (I bet they're considering this already). But otherwise they're just tacking a markup on something the stores can do directly.
Another example would be a maid service like Homejoy. It's great if you don't have a contact to begin with but once I've had a maid come to my house, I want the same person to come back again. It's in my interests (cheaper, same person) and the maid's interest (no commission to service) for it.
You did a really good job illustrating the idea we're all talking about this with the Uber/Lyft metaphor. It's hard being a 'value add'-only business, ultimately when things get competitive those people are going to go bankrupt first before the people actually holding the supply, even if they're suffering or hurting.
It sounds like this sort of business can only exist in non-competitive spaces.
as i mention elsewhere on this thread, the delivery business is not the bet that VCs are making. they're making a bet that instacart will become critical marketing infrastructure for the grocery industry.
the disintermediation that you talk isn't applicable here. instacart is creating and sharing value in the value chain rather than trying to take a cut from the downstream customer (i.e. dealerships, in your example).
It must be really weird to work for Instacart. The shoppers spend the entire day in the supermarket, shopping for other people, waiting in the checkout line over and over again. The drivers are just sitting around in the grocery store parking lot most of the time. [0]
You can tell the Instacart shoppers in the store by the way they charge around frantically, almost pushing people out of the way. They stick out like a sore thumb.
I'd much rather have those jobs than many other manual labor jobs. At present many grocery stores are quite pleasant. I don't necessarily want to spend time there, but I'd do it for pay if the wage was competitive with my other best options.
Not to mention the free samples. Shopping at Whole Foods all day would mean tons of free chips and guac, gourmet cheese, etc.
My takeaway that in all of the initial "no"s, no one had actually looked at what they were saying no to. He had to be told "maybe" before he was even allowed to explain what the product was.
I get that what you're saying is tongue-in-cheek, but yes, when you're usually trying to persuade anyone --person, organization, business, etc., having a grasp in the local language is almost always a requirement.
In this particular example, however, those points are completely irrelevant as he just used his app to show off Instacart's delivery feature.
What I was saying (on International Women's Day) is that many opportunities are still afforded to people based on group identity that are denied to others, and that "all problems" can be solved trivially... for some people because of their inborn traits. It was a rejection of the "all problems can be overcome with sufficient gumption" theme of this thread.
Beer, Maleness, being physically present in the USA, English - all of these are group signifiers.
It saddens me to see HN users rejecting this on a day designed to highlight this inequality.
Well, yes, you have to relate to the person you're trying to persuade. If I have a thick latino accent it's hard to persuade someone if they can't understand me.
I've found Instacart to be prohibitively expensive. When in New York I've used Fresh Direct and have never felt that I was being over charged. I have never had an order with Instacart that made me thing the increase in price was worth it. I'm sure a lot of people like it but I'm having a hard time being one of them.
At this point, the store cost me $86.87. Instacart is now up to $142.47 after taxes and fees. This is a difference of $55.60, or 64%. I added a 10% tip (honestly, the shoppers deserve it, especially shopping in a grocery store on a Sunday for me), which brought my Instacart total to $154.80 for an $86.87 grocery bill, or a difference of $78.20.
So it basically boils down to be a service for those few who either can make more than $78 in an hour working rather than shopping, or those who don't like shopping (spending all day in front of bunch of monitors I love to go shopping just to anonymously socialize for a moment).
So as long as Instacart can survive with 1% of regular folks shopping with them, they are golden.
Wow, thats quite the markup. I wonder if thats because of the Instacart<->MarketBasket relationship, or if its similar for all Grocery Providers.
I have not noticed a significant increase in prices (other than Tips & Delivery) over my previous weekly spend at H-E-B, but...I seem to have a lot more targeted shopping cart doing it over InstaCart.
No matter what, for the hour+ it saves me, its probably well worth a <20% markup.
Not entirely on topic, but in Denmark we have something similar called "Vigo", where other people buy your groceries for you, and deliver them to you. The fee you pay is fixed (about 6 USD).
People who want to make a little extra cash then log on to the app, look for tasks nearby, and pick a task they want to complete. Then they buy it, deliver it, and get paid.
The stores are partnering with the app to provide their inventory, so that you can pick what you need and expect it to actually be available for your shopper to buy.
Curious to see if something like Instacart would break through here.
What's the big deal with going to a grocery store, I mean seriously? I can understand a market for wealthy people, who just want someone else to do things for them, but to have enough market that the common person would find this worth it?
Also, who wants someone picking through all their produce/meats/perishables? That's a pretty subjective thing.
> What's the big deal with going to a grocery store
It's tedious and a waste of time. Some people enjoy grocery shopping. Power to them. I hate it.
Online ordering lets me plan what I want to buy. This lets me research--and save--my preferences in a way that can't be done in the aisle. It also removes the after-work parade of junk-food temptations. Stores are great for sampling. I like shopping at farmers' markets because I can nibble. But for that purpose, restaurants and tasting menus are superior.
I don't use Instacart. But I love FreshDirect. Not only are their prices competitive with brick-and-mortar stores, their produce is fresher. When someone says "I want lettuce on Tuesday," they message their farms and ensure it's picked at the right time so there is minimal delay between harvesting and delivery.
You're obviously in the tiny tiny minority if your commute is 2 minutes. Surely you can understand why many people who have longer commutes and longer work days wouldn't want to spend more time/effort grocery shopping, when they could be doing something more pleasurable?
Actually what I was getting at, is people don't seem to mind accepting jobs with two hour commutes, but going to the grocery store once a week is out of the question. But I see your point.
> people don't seem to mind accepting jobs with two hour commutes, but going to the grocery store once a week is out of the question
Playing devil's advocate, the all-in cost of a short commute is likely higher than that for grocery delivery.
Let's compare a White Plains, NY <--> Midtown Manhattan commute to an Instacart delivery. That commute takes about 1 hour [1]. The average 1-bedroom in White Plains goes for about $2,270 a month [2]. In my neighborhood, Flatiron, it goes for $5,660 [3]. Let's assume 260 working days in a year [4], i.e. 520 [5] hours of commute. That $3,390 difference in monthly rent comes out to $40,700 a year, or $78.30 per hour of commute.
By coïncidence, that's what this guy on Reddit [6] estimated Instacart's markup to be. You'd have to order $87 in groceries (i.e. $150 on Instacart) twice a day every working day to come out even against a 2-hour-a-day commute between White Plains and Midtown.
Do you have kids? I detest all the kid-related shopping experiences (mystery addition of candy to cart, whining, fighting with each other, i need to go bathroom) and it takes about 50% longer with them in tow.
No, I'd rather spend that time playing with them @home or park.
That's a good market for this sort of thing. One of my local chains will also pick for you and you pick up at the store. Anecdotally it doesn't seem to be used much but I imagine you provide a good example of a case where people are fine with driving to the store but don't want to do the actual shopping.
I'm in the same boat as you, I'm literally 3 minutes walk from work.
I walk to the supermarket every day (which is about 10 minutes each way), and probably spend 10 minutes wandering around inside even if I don't need to buy anything (I'll find something to buy), just to stretch my legs.
For sure if I spent over 30 minutes each way to work, I'd be less inclined to spend a lot of time at the supermarket.
I actually have a similar commute right now (more like 5 minutes by foot). My apartment is just a block away from the office.
As an aside, if you ever find yourself in a situation where it's possible to do this, I highly recommend taking the plunge, even if it means paying a bit extra in rent. It's been life changing for me.
I completely agree, being '2 minutes away' or so is absolutely life changing. Sure, I laugh with everybody else when I see a $10,000/month, 250 square foot apartment in the center of wherever, but there's a reason it's worth that much. Location really does matter.
My daily "commute" is a few hundred feet, and it's really changed my life. "Ugh, I've got to go to _x place_" suddenly sounds ridiculous when that place is a 3 minute walk away. You can wake up later, have more time for everything else in life... it's very nice. Sure, you might have to take a smaller place, but I'd rather have a small place that I can spend time in than a large place I never see.
I rarely go to store anymore for anything and find going to the grocery store so incredibly mind numbing and unpleasant that I would pay a premium to have groceries delivered. I also don't have a car so a service like this helps me get the food I need in the most convenient way possible without owning a big, expensive, depreciating object.
camera pans, zooms into face
I am askafriend and I am part of the "Amazon generation".
You're in an upper echelon of consumers that can afford the luxury of not having to go and pick out your own food. Which is what I was referring to in my original comment.
In 1879 Karl Benz was granted a patent for his engine [1]; 3 decades later the Model T began production [2]. I think it's safe to predict falling last-mile delivery costs over the coming years.
Middle-mile distribution, with a touch of marketing, is all grocery stores are. They just offload last-mile distribution costs to the consumer; Instacart and friends attempt to play economies of scale against that. Yes, they are currently a luxury. But it seems fair to predict they won't be for long.
I don't really think you have to be in the upper echelon of consumers to afford the occasional grocery delivery. It's more about not being in the bottom echelon, i.e., you definitely do need to have some disposable income every month.
As with many personal finance questions, it's very hard to make straightforward comparisons because people spend their money in such drastically different ways. The person going out to bars every weekend might express exasperation at the person ordering groceries through Instacart every other week, without realizing that they're both spending the same amount of disposable income but on different things.
In the UK it costs me £1 to have my groceries delivered to my door. My nearest supermarket is only 10 mins walk, but spending a few pounds a month to replace a weekly 30+ min shopping trip with deliveries is still a no-brainer.
And that's before I even consider that my local supermarket seems to have higher prices...
It can be particularly annoying to get groceries if you live without a car in certain parts of a city - maybe the nearest full grocery store isn't super close so your options are to walk home 20 minutes with heavy groceries or try to take the bus with them. Or pay for an Uber, at which point for not very much more money you can just save an hour of your day and have someone bring them to you.
Or, maybe it's not hard but still worth $20 to save an hour of your weekend. It's not like this is an expense that only the super wealthy can afford.
I can afford it, and there are other things I'd rather be doing with that same amount of time. It's exactly the same reason I hire someone to clean my house and take care of my yard. Seems pretty simple to me.
A rational response. I honestly have to wonder how people who find grocery shopping this incredibly stressful experience get through the day.
Personally I didn't love Peapod last time I used it a number of years back. But, as someone who has a car and can conveniently go to the grocery store, I'd probably give Instacart a spin every now and then if it were available where I live.
Like you I use services for various things that I could do myself: lawn cutting, oil changing, periodic house cleaning. I don't see anything wrong with it but I do recognize they're somewhat luxury goods.
> Also, who wants someone picking through all their produce/meats/perishables? That's a pretty subjective thing.
Remember, you're addressing a group of people who probably would drink Soylent if it was sustainable. Some people don't care about the ripeness of an avocado as much as you (or me).
Or perhaps there's room for Instacart Premium, personalised produce selection..
I went without a car for a year, in Los Angeles. I lived near a subway, worked remotely, and used Uber when I had to. The one thing that was still annoying to handle was groceries, Instacart solved that. I only used them for stores where the prices were the same as in-store, and I handled tipping in cash (drivers were also the shoppers in my case).
I was very happy with the service, but my circumstances were pretty specific. I'm now in a small town in the outskirts of a city and they're not an option here. Even if they were, I have to have a car for other purposes and wouldn't use them anyway.
I don't know how they'll expand outside of urban centers, honestly.
On a side note, about half the Ubers I see around here are pickup trucks, which would make using them for grocery trips more practical. Hmmm.
It's pretty rare that a popular subway station would not have a convenient grocery store nearby. Major chains don't want to lose out on all that foot traffic. Seems like Instacart would be used as a temporary band-aid, until Ralph's, or Whole Foods, or Target Supercenter, or Trader Joe's arrive on the scene.
That's not really true although some degree of density is needed. I can't get any of the latest VC-backed services but I can get Peapod and live well outside the nearest major city on a number of acres. Where I live is certainly not "very urban."
speaking personally, in NYC (and presumably other cities where you often don't own a car and instead use public transit) it's quite a pain to get groceries. if you're walking back, you're carrying a lot of crap that's broken to breakage or spillage. then there's the risk you might have too much to carry yourself, then what do you do? getting them delivered is a big help and above a minor convenience for me - i just wouldn't buy groceries otherwise
Would more frequent, smaller purchase trips be better or is the human traffic/congestion at the grocery store in NYC consistently just too much of a time drain to make that strategy reasonable?
-- EDIT --
I'm curious about others' grocery buying habits because I don't use Instacart.
Ok, so let's say hypothetically this takes off. Now you have an army of grocery getters, for every person in NYC that doesn't leave to get their own groceries. All this does is offset all of those issues, to the person delivering your food. I guess if that convenience is worth the crazy money you have to pay for it sure, but I'd just go out to eat at that point. Especially in NYC.
Where I live in LA, the only grocery store in reasonable walking distance is a Whole Foods. It's actually cheaper for me to use a grocery delivery service for basics like milk, eggs, and produce every week than it is for me to buy the equivalents from Whole Foods. Delivery services are a no-brainer in my situation.
(I do use a particular delivery service that has direct relationships with farmers, so that could partially explain why it's so cheap.)
I lived in Venice, CA in the mid 00's, about 2 blocks from the Ralph's on Lincoln. They used to let us leave with the shopping carts. Then they'd send a pickup full of guys to pick up shopping carts every evening. So we would just unload the cart and leave it in our front-yard for pickup. I absolutely loved it.
In contrast, in Brooklyn, they won't even let you bring the shopping cart into the parking lot. But then again, just about everyone I knew in Brooklyn had one of those pull carts and just used that to shop / carry their groceries home. That said, I generally chose FreshDirect over dragging my own groceries around once FD finally came to Bushwick.
> All this does is offset all of those issues, to the person delivering your food.
The person delivering food may be able to use different mechanisms (e.g. vehicles) or division of labor (teamwork) that are not practical for the recipient.
> I'd just go out to eat at that point.
This is not always practical or desirable for lots of people: the sick, those with young kids, the infirm, etc.
Hehe, you sound a bit like a luddite. What's with all these people using the internet? How long would it take them to go down the library and look at a book.
The US is quite a way behind the times when it comes to online groceries. This is a proven market in other countries.
For reference, 11% of the UK now shop for groceries online[1]. We got our instacart equivalent almost 15 years ago (Ocado[2]). That's a HUGE market. Ocada market cap is something like £1.5 billion last time I looked[3].
Now all major grocery chains offer their own equivalent service, you pick a time slot and pay £5-£10 extra to have it delivered to your door in an hour time slot. Take off petrol costs and it's pretty low cost compared to time saved.
We also have click and collect which allows you to pick up pre-picked groceries on your way home.
That much? I usually pay £1 for my deliveries. And that's for an hour slot, at a reasonable time, and I usually only have to book a couple of days in advance.
It's miserable and I hate the experience, I have to figure out what I want and I always leave with multiple things I don't need while forgetting multiple things I do need. Also I live in New York so getting the stuff home sucks.
The problem for me is that ordering online is even worse. It fixes the part where I have to lug the bags home and up stairs, but I don't know how to browse for groceries effectively online. At least wandering the aisles is a mentally tractable concept.
So it just all sucks. I mostly settle for listlessly watching episodes of COPS on my Apple TV and ordering one Seamless meal at a time. Oh well.
In a society with a disappearing middle class, this actually makes sense. A few people at the top won't know or care what food costs, and the rest will do just about any menial task for near-starvation wages. Shiny grocery stores like Whole Foods will disappear as the people who would be impressed simply send their insta-serfs. They'll be replaced by warehouses like Food4Less, filled with scurrying underpaid pickers.
I felt exactly like you until my baby boy was born. Now Instacart and I are pals.
In a while, when schlepping him around isn't such a production and I'm back to an appropriate amount of sleep, I'll probably start going to the grocery store again - but honestly, right now I can't imagine my life without delivery services.
My wife sends me on a 30 minute drive to the grocery store and asks for things I've never heard of, and for other stuff I can't find. I waste an hour away from my kids and don't find everything she needs.
Compared to shopping online, it's quite inefficient.
They got physical storage on premise at grocery stores who are not going to give that to providers 2-> infinity. It's highly unlikely that anyone beyond the stores themselves will be able to compete, and they would struggle mightily.
I have no comment on the valuation, but the service has made my life better.
I no longer fight with my significant other about grocery store trips, and the house is always stocked with healthy, delicious food from Whole Foods.
In 3 years, I'm not sure I've ever had a problem with an Instacart delivery, other than them occasionally forgetting items.
edit: I should have mentioned that I'm not very picky about what is actually delivered, I'm just happy to have a bunch of fresh vegetables, fruit, and sparkling water stocked in my house at all times.
As a counterpoint, I've never had a positive experience with Instacart. Whenever an item is missing (and sometimes I suspect they just can't find the item in store - one time they told me Whole Foods had no parmesan cheese at all), there is a frustrating back-and-forth texting frenzy to decide whether or not you want something else. Not only is it not what you want, it inevitably costs more, and a typical order will have something like a dozen texts from the shopper. In addition to this, the markups are way too high in my opinion. And since I'm not in the store, I never know what's on sale and can never take advantage of it.
After about a half dozen tries I gave up on Instacart. It was so much worse than just going to the store myself.
For what it is anecdotally worth, this has gotten better. It launched in Chicago at least a year ago and the first few orders my wife and I placed, I felt like I should have shopped myself for how many items weren't found and how much hand holding the shopper needed to replace items. We almost gave up on it, but with a baby in the house my wife kept with it and the replacement feedback loop has really gotten much better. Nowadays, out of a 25 item order, maybe 1 item is replaced and usually without a back-and-forth necessary (something reasonable is picked and you have the opportunity to reject it). Also, luckily, in the Chicago market most of the stores are "same-price-as-in-store" and the prices seem fairly reasonable where I mostly believe that.
My biggest gripes with them include what you just mentioned.
I usually order from them when I'm making a large meal with typically uncommon ingredients. Today I'm making Cuban — I needed Seville oranges for mojo, yuca, rice paper for turrón, etc. Instacart is a gamble for me, and the UI is frustrating.
I want to search for several items across stores and see which ones have them all. Instead I have to try stores one by one and see what's in stock. It's not enough to get me to stop using them, but it is annoying. But the really frustrating thing is when they claim a store has an item, but the shopper doesn't have much incentive to spend time looking for those hard-to-find but critical items. So lots of my orders have missing items which I then have to go out and find myself anyway.
Also bad is that many items are hard to order specific quantities of. Some common produce items are sold by the pound, when I really just need one two count (e.g., onions). Worse, some items are labeled "per unit" but when I order two, they're converted to a weight value and I get fewer than I ordered. Again necessitating a trip to the store.
I acknowledge that most people aren't making the kinds of meals I'm doing, and not suggesting they cater to my admittedly small market segment. But if they solved these problems, they would be amazing instead of "slightly worth it".
Funny, my wife and I are the same way. We love grocery shopping together, we get a nice solid hour or so of walking together looking and talking about food. What's so bad about that?
Interesting that even though we have Whole Foods here (though not nearly as many as other parts of the country) it's not an option, only HEB (large regional grocer in Texas) (I'm in Houston)
>$400 million round of venture funding
As it stands now, I believe Instacart will fail and this money will be wasted. The only hope for the company is to be acquired by someone larger looking to bootstrap grocery delivery (or maybe Uber or Amazon or something).
I regularly use Safeway grocery delivery https://shop.safeway.com/ecom/home and I've always been happy. Delivery fees can get as low as $4 while grocery items are (I assume) the same price as inside the store.
Instacart needs to do something different. Why don't they just copy Blue Apron/Hello Fresh and offer meal packages with all the ingredients and recipe? Hell, I'd be way more interested in the service if I could get that along with groceries.
Postmates
Blue Apron
Hello Fresh
Instacart
Amazon Fresh
etc etc
These companies need to become each other, before Amazon becomes all of them. It seems like the biggest innovation from Instacart I could find was "the company wasn't collecting beverage can and bottle deposits accurately until recently, and the fix has increased gross margins by 25 cents on average deliveries nationwide.". This company is doomed.
Side note, I still can't get over the fact that I can't view a single item they offer without creating an account. Even going to browse their website for this comment, I walk away disappointed.
I thought so too. However, the valuation of Instacart is now in the range of Whole Foods $3.4B vs $9.3B
Expect to see much rougher competition from Whole Foods. They have quietly already started this with their coupon app[1] (the wedge) and pickup (powered by instacart)[2]
The valuation doesn't necessitate what they may ever sell at. It'd be very easy for whole foods to acquire instacart after their hypothetical exit never happens and their valuation tanks.
Why can't Whole Foods just open new stores in markets with high Instacart customer base? They did it in downtown LA. Seems like they find Instacart useful for their site development and expansion.
We use InstaCart to keep the fridge and pantry stocked at my small company. It works like a charm, and saves us nearly 2 hours a week. You get "free" deliveries with InstaCart Express for $149/year. The website and iPhone app are easy to use, and interaction with the shopper works almost flawlessly. Honestly, it's a no-brainer for us.
I think you are a bit, because I use a lot of these services and am not rich
Uber/Lyft isn't "I'm too rich to drive" it is "I'm drunk at the bars and need a ride home." or
"The BART is closed because high winds blew stuff on the tracks and my flight leaves out of SFO in just a bit. "(Lyft really saved me on that one, no cabs around)
Instacart isn't "I'm too rich to go grocery shopping" it is "I'm a mom of two kids, one of them has diarrhea right now, we need some things from the store"
I'm honestly not sure how much larger on a percentage basis the labor pool is that's associated with "I'm too rich to be bothered with this task" services is.
After all, lawn/cleaning/etc. services have long been a thing. So are babysitters, taxis, etc. For someone with enough money, they could have had full-time personal assistants, cooks, drivers, etc.
What seems to be mostly new is that technology is making certain tasks more efficient and/or more efficient to time-slice in a way that people who are merely comfortably well-off but not really wealthy can afford them. (And the challenge is that tasks that are sliced up that way need to be sufficiently cookie-cutter that the context and knowledge a full-time assistant might have aren't required.)
> After all, lawn/cleaning/etc. services have long been a thing. So are babysitters, taxis, etc.
With the exception of taxis, those have traditionally been cash (i.e. untaxed) businesses with no middlemen and long-term relationships. They're "I'm too rich to be bothered," but also "I've been paying you to mow my lawn for years." The new insta-serf companies break this relationship and take a big cut to pay six-figure salaries to a handful of techies.
I have used their service many times and am in general not satisfied. Items are missed, the quality of produce picked is not the best, items ordered are not found and replaced, same day delivery is almost gone as an option now, the service fee of 10% stinks of mal-intent. Also, I am not sure how they will compete with Amazon Pantry/Prime or Google Express. The investment and valuation seem bloated.
I just logged in for the first time and used a lower manhattan zipcode, the options seemed fairly sparse. I assume that it is more useful in other parts of the country?
So my question is: how do investors project that an intermediary like Instacart can outcompete the same service provided by the supermarkets themselves? Doordash can compete on variety and speed, but most folks shop at the same one or two supermarkets all the time and rarely need groceries urgently.