{"id":9635,"date":"2019-10-16T23:32:14","date_gmt":"2019-10-17T03:32:14","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-digit\/submission\/would-you-rather-lead-a-light-or-a-heavy-company\/"},"modified":"2019-10-16T23:34:44","modified_gmt":"2019-10-17T03:34:44","slug":"would-you-rather-lead-a-light-or-a-heavy-company","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-digit\/submission\/would-you-rather-lead-a-light-or-a-heavy-company\/","title":{"rendered":"Would you rather lead a light or a heavy company?"},"content":{"rendered":"

e-Grocery<\/h3>\n

E-grocery (or online grocery) depicts the business of the grocery domestic delivery to be arranged on digital platforms accessible by mobile apps [1]. This specific market has been rising in recent years, and the trend is still positive, as the 2018 Business Insider report indicates [2, 3]:<\/p>\n

\u201cOnline\u00a0grocery\u2019s market value has grown from $12 billion in 2016 to $26\u00a0billion in 2018, suggesting that consumers are starting to get more\u00a0comfortable ordering essentials and certain foods online. This\u00a0newfound comfort, combined with the overall convenience of online\u00a0grocery, is likely why the market is set to reach $117 billion in 2023.\u201d<\/em><\/p>\n

\"\"<\/a>
Figure 1 – Online Grocery Market Forecast<\/figcaption><\/figure><\/blockquote>\n

Following this trend, the main actors in this field (e.g. Amazon, Walmart, Costco, Peapod) have already invested tons of dollars to challenge traditional grocery delivery firms (Traditional Model, Figure 2) by establishing e-grocery business models. All these firms, however, adopted an asset-heavy model, as their operating models consist of both digital platforms, warehouse systems, and delivery fleets, and they are therefore supposed to replace entirely the downstream of the grocery retail supply chain (Asset-heavy Model, Figure 2).<\/p>\n

In such a panorama, the question is: how might a start-up carve a space out, which could be sustainable over time?<\/p>\n

This might be the story of Instacart, the $7.6bn company which succeeded by proposing to deliver your groceries right to your doorstep in an hour, as much as its competitors, but with a different operating model [4].<\/p>\n

\"Types<\/a>
Figure 2 – Grocery Delivery Models<\/figcaption><\/figure>\n

Flexibility at scale \u2013 The Instacart Case<\/h3>\n

It was back in 2010, Seattle. Apoorva Mehta, a 25-year-old electrical engineer from the University of Waterloo, was working on the Fulfillment Engine project at Amazon, struggling to work out how to deliver packages more efficiently, when he decided to resign [6]. He thought Amazon\u2019s model was unwieldy, since it requires warehouses to store perishable food, a fleet of painted trucks for logistics and workers to package and deliver the orders, which are costly and take time to set up [6].<\/p>\n

In the pursuit of flexibility, he crafted a lighter model (Asset-light Model, Figure 2), in which a digital platform disintermediates the traditional store-customer physical relationship. But Instacart does not maintain warehouses or trucks, and the service leverages an existent network, as it is assembled out of already structured peers \u2014 existing supermarkets, shoppers and their vehicles [4, 5, 6].<\/p>\n

When a customer places his order, he pays online to Instacart. The order goes directly to a shopper who then goes and visits stores to collect the required groceries. Shoppers pay the store through Instacart\u2019s prepaid debit cards, and then they go to deliver to the customer. All the interactions are governed by a central digital platform, and this is how Instacart is able to place the groceries you have ordered to your doorstep in under an hour [7, 8].<\/p>\n

Instacart\u2019s success relies on the design of a matching platform where customers can surf and shop from many different stores directly from their devices, from large chains to specialty shops, and where a wide range of supply options are available.<\/p>\n

This value is then captured in three ways [4, 6, 8]:<\/p>\n

    \n
  • Delivery Fees:<\/em> for every order processed, Instacart adds a standard delivery fee ($3.99-$9.99) depending on the purchased value and the requested delivery time.<\/li>\n
  • Membership Fee:<\/em> \u2018Instacart Express\u2019 is an annual membership fee priced at $99\/year, which allows users to get free delivery of groceries.<\/li>\n
  • Mark up Fee:<\/em> Instacart set a mark-up of 15% or more from in-store prices on a few stores. However, in 2014, Meta realized that customers didn\u2019t like the marked-up prices, and Instacart negotiated with suppliers to formalize a new pricing relationship. As a result, to date, most items on Instacart are now selling for the same prices as in stores.<\/li>\n<\/ul>\n

    To answer the first part of the question of the previous section, an asset-light operating model is not a sufficient, but instead a necessary condition to differentiate Instacart form its competitors. However, if we dive into the mechanics of the model, two conflictual elements materialize. Leveraging on existent supermarkets and flexible contract workers allowed Instacart to scale and to gain the benefits of network effects in a very short time. As a result, the platform\u2019s positioning was quickly reinforced, preserving the resilience to market fluctuations at once. Scale created a ripple effect indeed, allowing Instacart to gain credibility to sign deals with new stores because of the user volume, and to gain new customers for the very same reason. But at what cost? Will Instacart be sustainable over time, if contract workers are reported to exist in a state of uneven working conditions, with few legal protections\u00a0[9], and supermarkets are on the warpath because they are losing touch with customers and negotiating capacity with Instacart [10]? I hope you won’t bear a grudge with me if I have answered the second part of the question with another question.<\/p>\n

    References<\/h3>\n

    [1] Punakivi, Mikko, and Juha Saranen. “Identifying the success factors in e-grocery home delivery.” International Journal of Retail & Distribution Management<\/i> 29.4 (2001): 156-163.<\/p>\n

    [2] “The Digitally Engaged Food Shopper: Developing Your Omnichannel Collaboration Model: FMI”. 2019. Fmi.Org<\/i>. https:\/\/www.fmi.org\/forms\/store\/ProductFormPublic\/the-digitally-engaged-food-shopper-developing-your-omnichannel-collaboration-model.<\/p>\n

    [3] “The Online Grocery Report: The Market, Drivers, Key Players, And Opportunities In A Rising Segment Of E-Commerce”. 2019. Business Insider<\/i>. https:\/\/www.businessinsider.com\/the-online-grocery-report-2019-1.<\/p>\n

    [4] Isaac, Mike. 2019. “Instacart, A Grocery Delivery Start-Up, Raises $220 Million”. Bits Blog<\/i>. https:\/\/bits.blogs.nytimes.com\/2015\/01\/12\/instacart-a-grocery-delivery-start-up-raises-220-million\/.<\/p>\n

    [5] https:\/\/www.instacartcareers.com<\/p>\n

    [6]\u00a0“Apoorva Mehta At Startup School NY 2014”. 2019. Youtube<\/i>. https:\/\/www.youtube.com\/watch?v=wkmR7TYUt_c.<\/p>\n

    [7] “Grocery Deliveries In Sharing Economy”. 2019. Nytimes.Com<\/i>. https:\/\/www.nytimes.com\/2014\/05\/22\/technology\/personaltech\/online-grocery-start-up-takes-page-from-sharing-services.html?module=inline.<\/p>\n

    [8] “Instacart\u2019S Bet On Online Grocery Shopping”. 2019. Nytimes.Com<\/i>. https:\/\/www.nytimes.com\/2015\/04\/30\/technology\/personaltech\/instacarts-bet-on-online-grocery-shopping.html.<\/p>\n

    [9] “Introducing Instacart\u2019s New Earnings Structure For Shoppers”. 2019. Medium<\/i>. https:\/\/medium.com\/shopper-news\/introducing-instacarts-new-earnings-structure-for-shoppers-26a11df53581.<\/p>\n

    [10]”After Uproar, Instacart Backs Off Controversial Tipping Policy”. 2019. Nytimes.Com<\/i>. https:\/\/www.nytimes.com\/2019\/02\/06\/technology\/instacart-doordash-tipping-deliveries.html.<\/p>\n","protected":false},"excerpt":{"rendered":"

    Technology changes habits. 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