Instacart is a clear winner among many other players who are trying to make same day delivery experience the most appealing to consumers. Google Express and Amazon Fresh, both part of tech giants with deep pockets, could not emerge as a winner in this race despite all the money that is poured into platform improvements and user engagement. To this date, no other “logistics pure-play” groceries delivery service emerged to gather enough attention from the VC community (FreshDirect has gotten some VC funding however they only exist in the NY metropolitan area and the funding they received is dwarfed by Instacart’s last round). So what is Instacart doing so differently that they are now most big grocers’ (Whole Foods, Shaw’s, Safeway etc.) preferred online vendor, and they are able to snatch $275 million from VC firms like KPCB, Andreessen and Sequoia?
Value Creation: What Instacart does differently first lies in its asset-light model. Contrary to other players who own and operate their own fleet and/or own warehouses, Instacart actually takes advantage of people who already have these assets, namely grocery stores themselves and people who are willing to work part time for delivery. They do a good job of focusing on the technology and customer engagement, which is their forte, and “outsource” the non-glamorous, asset heavy part of the job, which is warehousing and delivering (they use a shopper and delivery person who get paid on an hourly basis and get the entirety of the tips). The ingenuity of taking advantage of the sharing economy and becoming the Uber of the grocery delivery service is what differentiates them from their competitors. They use a “crowdsourced marketplace model” whereby they select among many shoppers and delivery people who make themselves available, which enables them to deliver on their “grocery delivery within the hour” promise. They even keep certan shoppers on premise, who then are able to start the orders in a very fast manner.
For the consumer, the value proposition is the following: Instacart tries to emulate having a personal shopper who looks out for your best interest. Their shoppers are trained to choose the freshest fruits and make sensible decisions while shopping (if an item is out, they don’t replace it with something completely overpriced or irrelevant). The app is very easy to use and intuitive, and has features that makes the experience delightful. Imagine you just checked out and already paid, and oh you forgot to buy butter! In real life, whether you made the purchase yourself or online, if you left the store or paid online with your credit card, you will have no butter until you make a second trip or a separate purchase. With Instacart, you can add items until your shopper is done shopping. How thoughtful is that? Even Amazon does not have this feature. Consumers are also able to mix and match products from different grocers in one order. The experience takes away all the pain of the existing alternatives, and puts an additional spin to make the overall experience great for the consumer.
Value Capture: They either charge a premium to the list price of the item you’re shopping for, or else they have a high volume driven discount with certain retailers where you as the consumer will see the same price as in store, however Instacart will pay the grocer less. In the case of Whole Foods, they have same in-store prices, and they even were able to negotiate shopping lanes that are only used by Instacart shoppers to ensure fast delivery. They pay their shoppers and delivery people hourly pay and the tips, which is a good motivator for the shoppers to a) deliver fast service and b) do a good job. Due to the popularity of the features and the convenience of using the app they are able to attract a high number of shoppers as well as customers.
As competitors are trying to emulate some features of the Instacart experience (Google Express recently added the fresh grocery category and became a direct competitor to Instacart), it will be very hard for them to beat the brand name and the network Instacart has been able to build in such a short time. A clear win for all of us!