{"id":14724,"date":"2016-11-15T20:26:22","date_gmt":"2016-11-16T01:26:22","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/instacart-the-digital-grocery-revolution\/"},"modified":"2016-11-15T20:26:22","modified_gmt":"2016-11-16T01:26:22","slug":"instacart-the-digital-grocery-revolution","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/instacart-the-digital-grocery-revolution\/","title":{"rendered":"Instacart: The Digital Grocery Revolution"},"content":{"rendered":"

The digital grocery industry:<\/u><\/strong><\/p>\n

Though we typically do not give it much thought, the traditional grocery shopping pathway is wrought with friction. First, a customer decides what to purchase. Next, the customer physically goes to the store, selects the items, waits in the checkout line, and brings the groceries home. For those frequenting urban stores, this can be a harrowing experience of bumping between people in aisle and waiting over 20 minutes in the checkout line (Figure 1). And finally, the customer uses the ingredients to make a meal. In today\u2019s world, we often don\u2019t reach this final step.<\/p>\n

\"Whole<\/a>
Figure 1: Whole Foods Union Sq NYC. Source: Business Insider<\/figcaption><\/figure>\n

Many firms are attempting to alleviate friction various portions of this consumer pathway1 <\/sup>(Figure 2). Restaurant delivery services (e.g., Seamless) are eliminating the entire pathway by delivering entire meals from restaurants through their online and app platforms. Blue Apron eases the selection and purchasing process by allowing a member to choose online recipes and shipping all the necessary ingredients. Fresh Direct allows consumers to view its warehouse inventory through an online portal, select a grocery list, and have it delivered to their doorstep.<\/p>\n

\"grocery-shopping-pathway-2\"<\/a>
Figure 2<\/figcaption><\/figure>\n

Among the increasingly fragmented digital grocery market, Instacart requires the smallest change in consumer behavior. Instacart enables consumers to shop their local grocery stores (e.g., Whole Foods, Costco, small local chains) through Instacart\u2019s online and phone app portals. Unlike Fresh Direct or Blue Apron, Instacart is able to work with its retail partners to mutually boost revenues.<\/p>\n

Instacart has three primary revenue streams2<\/sup>: delivery fees from consumers, volume-related fees from retail partners, and promotion-related fees from CPG companies. Consumers order from Instacart\u2019s web or phone app platforms by entering a zip code and selecting their preferred retailer among the options that Instacart populates. The platform then allows customers to choose grocery items among the thousands of SKUs from the retail partners\u2019 inventory. Because it partners with local stores, Instacart is able to serve its customers in under 60 minutes.<\/p>\n

An operationally-intensive service:<\/u><\/strong><\/p>\n

While the consumer interface is fully digital, Instacart\u2019s operations are human capital-intensive. Once the consumer places an order, the shopper begins collecting the requested items, using his\/her phone to scan each item as it is selected. If a requested item is out of stock, the Shopper will request the customer to approve a replacement item. The Shopper then proceeds through the check-out line to pay for the order. The orders are placed in a \u2018staging\u2019 area; hot and cold items are temperature controlled until delivery. An Instacart Delivery employee then delivers the items to the customer\u2019s destination.<\/p>\n

Gaining a competitive advantage through big data:<\/u><\/strong><\/p>\n

Instacart recognizes that much of its competitive advantage lies in the data that comprises its $100M annual revenues. Over the past several years, Instacart has built a team of 10 data scientists to analyze its customer, shopper, retail partner, and CPG partner data to boost revenues and minimize costs3<\/sup>.<\/p>\n

    \n
  • Instacart provides its CPG and Retail partners with data that is unavailable in a traditional grocery model. For example, Instacart orders indicate \u2018true\u2019 demand for a given item, even when it is out of stock. Similarly, Instacart\u2019s data indicate consumer preferences for replacement items when existing items are out of stock.<\/li>\n
  • Data analytics is also enabling Instacart to bring down costs: e.g., mapping out store layouts to optimize the Shopper pathway, batching orders and optimizing delivery routes to minimize Delivery time, and using data analytics to better predict delivery windows and staffing levels.<\/li>\n<\/ul>\n

    While they have not publicly revealed all their trade secrets, I imagine the data science team has identified far more data opportunities than the 10-person team can address. There are, however, two key opportunities that I recommend Instacart\u2019s team prioritize if it is are not already doing so:<\/p>\n

      \n
    • Instacart already has plans to compete directly with Blue Apron and Plated through a partnership Food Network to offer 500,000+ recipe ingredients for purchase4<\/sup>. I recommend that Instacart use its customer-specific data to offer a curated<\/em> recipe list by customer, making the browsing process more applicable and user-friendly. Additionally, this will increase consumer stickiness as they will be more likely to return to a platform that caters to their preferences.<\/li>\n
    • Instacart has the unique position of viewing how a given customer splits his\/her basket across retailers (e.g., what they purchase at Whole Foods vs. Costco). I recommend they sell this compelling data to its retail partners. This will likely pose conflicts of interest between its retail partners, however, so Instacart should be thoughtful in how to execute on this incredibly valuable set of insights.<\/li>\n<\/ul>\n

      Though it may feel unnerving that businesses increasingly mine personal data, this practice has already permeated our lives. If Instacart can channel the hunt for data insights to improve our grocery shopping experience, I\u2019m all for it.<\/p>\n

      Word Count: 792<\/p>\n

        \n
      1. Data Fox, \u201c7 Instacart Competitors Offering Grocery, Meal, and Recipe Delivery Services\u201d, November 15 2016<\/li>\n
      2. Fortune, \u201cInstacart Is… Generating Profits?\u201d, March 24, 2016<\/li>\n
      3. Instacart Tech Blog, \u201cInstacart Spotlight: Data & Analytics\u201d, May 17, 2016<\/li>\n
      4. Digital Trends, \u201cCan Instacart compete with Blue Apron now that it\u2019s partnering with the Food Network?\u201d, June 2, 2016<\/li>\n<\/ol>\n","protected":false},"excerpt":{"rendered":"

        With digital platforms and big data insights, Instacart is alleviated the cumbersome experience of grocery shopping in urban areas.<\/p>\n","protected":false},"author":1988,"featured_media":14725,"comment_status":"open","ping_status":"closed","template":"","categories":[20,1058,2069],"class_list":["post-14724","hck-submission","type-hck-submission","status-publish","has-post-thumbnail","hentry","category-food-delivery","category-grocery-store","category-instacart"],"connected_submission_link":"https:\/\/d3.harvard.edu\/platform-rctom\/assignment\/digitization-challenge-2016\/","yoast_head":"\nInstacart: The Digital Grocery Revolution - Technology and Operations Management<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/instacart-the-digital-grocery-revolution\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Instacart: The Digital Grocery Revolution - 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