Some call it personal shopping for the masses; others see it as instant gratification in grocery. However you define Instacart, it’s starting to catch on across the country with everyone from time-stressed working parents to college students.
The company is one of the latest entries into the hotly contested grocery delivery market, still a bold experiment garnering mixed results at companies like AmazonFresh and Google Shopping Express and limited success among geographically limited services like Peapod and FreshDirect. Walmart has been testing a grocery delivery service in the San Francisco Bay area since 2011; several other supermarkets, including Safeway, have also developed delivery services.
In some ways grocery delivery concepts are still haunted by the specter of Webvan: The company burned through nearly $1 billion in cash trying to build an infrastructure before closing its doors, and became the symbol of excess when the dotcom bubble burst in 2000. Webvan’s automated facility in the Bay Area, which boasted some five miles of conveyors, was eventually sold to Kaiser Permanente as a distribution center for the delivery of drugs and supplies to its hospitals.
Instacart has a new twist on the model. The company delivers groceries from customers’ favorite stores to their doorstep, often in an hour or two, through “crowdsourcing” — a network of trained and screened couriers or personal shoppers, rather than through capital-intensive, mega distribution centers.
This alone gives the company a leg up on AmazonFresh, which is quickly becoming one of the most talked-about figures in grocery retailing.
Instacart is the brainchild of CEO and co-founder Apoorva Mehta, a former Amazon supply chain executive, who also worked as a design engineer for Qualcomm and Blackberry parent company Research in Motion. Mehta moved to San Francisco at a time when people were outsourcing grocery shopping on sites like Craigslist and TaskRabbit, and he started working on software for grocery delivery.
Since then, the fledgling service has gained significant financial backing — $8.5 million — from Silicon Valley venture capital firm Sequoia Capital — whose chairman, Michael Moritz, once held a minority stake in Webvan when he was with Benchmark Capital. Asked in a recent San Jose Mercury News article about the decision to get involved with another grocery delivery service, Moritz said, “We all held hands and prayed.”
Instacart began operations in late 2012 in San Francisco and quickly expanded to nearby Oakland and Berkeley. Last September the service was exported to Chicago where the company began delivering to 27 neighborhoods — including students at Loyola University Chicago and Northwestern University — from Whole Foods and Jewel-Osco stores. At that stage, company officials said Instacart was growing at a rate of 10 percent weekly.
Instacart has since rolled out in Boston and Philadelphia, and industry analysts are speculating that this delivery model could appear in other major metro areas in New York, Texas and Southern California by the end of 2015.
Company officials have said Instacart has tens of millions of dollars in revenue but has not yet reached profitability.
Efficiency in logistics
Industry observers note that Instacart enjoys several major advantages over Webvan: broad availability of high-speed Internet; extensive use of mobile devices by consumers; and more sophisticated software for ordering and route planning.
But some analysts have stated that Instacart’s failure to secure agreements from the supermarkets where it fills customer orders means that it pays the same prices as other shoppers, so it has to boost its prices in order to make the business profitable. Amazon, on the other hand, controls its own grocery prices.
Tom Furphy, one of the original architects of AmazonFresh, told the San Jose Mercury News that “There are so many flaws in layering labor on top of the existing industry model that I do not give [Instacart] much chance without … cooperation from retailers and manufacturers.”
Instacart works with a changing group of retailers in each market, offering as many as 70,000 grocery items. Consumers can order items from multiple stores and the order will be filled by different personal shoppers. “Our goal is to offer an Amazon-like experience without building the infrastructure,” Mehta has said.
In order to build efficiency into logistics and predict delivery times, the company maps individual stores and tracks how long its shoppers take to pick orders and drive to different destinations. Additionally, these hyper-detailed analyses take weather and traffic patterns into account, resulting in delivery times that can be accurate to the minute.
Overall, Instacart makes deliveries from 9 a.m. to 11 p.m., depending on store hours in a particular area. While a range of delivery options are available, the under two-hour service is the most popular, according to company officials. Available delivery times show up during the checkout process. At that point, the system also recommends that shoppers choose an alternative product to replace items that are frequently out of stock in the stores. The system also has a “no replacement” option.
If personal shoppers have not begun working on an order, changes can be made. This includes adding or removing items, rescheduling deliveries, changing the delivery address or canceling an order entirely.
If an order is canceled or the order-placer is not reachable at the time of delivery, consumers can be charged a $15 fee, but the order total is returned to a customer’s Instacart account as a credit toward the next order. On the other hand, if personal shoppers are overwhelmed with orders and can’t make the scheduled delivery time, customers get immediate notification showing the next available delivery slot.
A user’s first delivery is free. After that, the charge to consumers is $3.99 for orders greater than $35 and $7.99 for orders less than $35 that are to be delivered in two hours or less. The minimum order is $10. The company also offers Instacart Express, a membership program offering participants free delivery on orders greater than $35 for $99 annually (compared with the $299 annual fee for Amazon Prime Fresh).
Meanwhile, Instacart has evolved beyond just delivering commodities to a recipe service that can be accessed by customers. Eventually, the company is planning to expand that service to allow customers to upload their own recipes.