{"id":6573,"date":"2015-12-09T21:56:58","date_gmt":"2015-12-10T02:56:58","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/instacart-changing-the-game-for-everyone\/"},"modified":"2015-12-09T21:56:58","modified_gmt":"2015-12-10T02:56:58","slug":"instacart-changing-the-game-for-groceries","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/instacart-changing-the-game-for-groceries\/","title":{"rendered":"Instacart: Changing the game for groceries"},"content":{"rendered":"

\"Screen<\/a><\/p>\n

Founded in 2012, mobile-app based Instacart promises to change the way you shop for groceries by making it more convenient to have groceries, when you want them, where you want them, from wherever you want them. A model of highly efficient operational\u2013business alignment, the company has shifted its revenue stream to reflect maturing market dynamics, enabled by a flexible operational model. As such, it has demonstrated the its ability to react and adapt to a changing landscape, a promising indication of future performance.<\/p>\n

\"Screen<\/a>Adding value to Customers and Clients:<\/span><\/p>\n

From a consumer value standpoint, Instacart boasts the biggest assortment of items of any competitor in the space, and with the most diverse number of store options, customers can order from multiple stores in one order. In return for modest premium pricing, Instacart delivered consumers convenience and quality in addition to groceries.<\/p>\n

Initially, Instacart\u2019s business model was based on item-level markups plus a small delivery fee. Ordering online, customers paid a 15-20% premium on products from stores such as Trader Joes, Whole Foods, Costco or local-market retailers. In the last 18 months the company has expanded its business model to include revenue-sharing partnerships (most notably with Wholefoods). In this new model, Instacart charges customers the same prices as can be found in stores, further incentivizing consumers to shop through the app. Rather than charging customers the premium mark-up, retailers instead pay Instacart a percentage of basket revenue.<\/p>\n

The value-add for retailers is multi-faceted. Firstly, retailers partnering with Instacart have demonstrated an increase in incremental sales volume – adding customers who would otherwise not shop there. More importantly, Instacart shoppers also have much lager basket sizes, on average 2.5X an in-store purchase basket sizes, increasing store revenue per customer. This incentivizes retailers to view Instacart as a valued partner and drives their willingness to share the resulting revenue stream.<\/p>\n

Additionally, Instacart adds value to retailers by acting as a partner rather than competitor. They help protect stores from incumbent delivery giants like Amazon, to whom the grocery delivery market is highly appealing. Instacart essentially acts as a plug and play Logistics+SaaS provider to retailers, providing a delivery and logistics service that is not within a grocery store\u2019s core competency. Retailers do not have the capacity to create this offering themselves, nor would it be worth it for them to do so. By building relationships now, Instacart simultaneously protects its business in the future by protecting and partnering with brick and mortar retailers. Retailers provide the infrastructure, inventory and revenue, and in turn Instacart provides the operational capabilities that outlets desperately need.<\/p>\n

Operational Excellence:<\/span><\/p>\n

Instacart\u2019s operational and business models are tightly tied. \u00a0Unlike traditional competitors, like Fresh Direct, which require vast capital to develop their infrastructure and which maintain their own inventory, Instacart\u2019s primary cost is labor. The company utilizes a labor force primarily made up of contracted workers who are matched, via their proprietary app, with a customer order to fill and deliver. As markets achieve scale, the order fulfillment process is decoupled. Orders are prepped in advance by specialized store-shoppers, and then picked up for delivery by different shoppers, effectively batching the inventory preparation process and increasing both the speed and capacity of the labor force. Specialized shoppers have a much higher speed and quality output, and specialized delivery allows drivers to deliver 3 to 4 orders at a time.\u00a0 Instacart has also opened staging areas within high-volume partner stores, further decoupling the process for order preparation, and further increasing system efficiency and profitability.<\/p>\n

\"Screen<\/a><\/p>\n

Recently, Instacart began to offer shoppers the option to work as part-time employees rather than contractors. An operational decision, this also has significant revenue implications. With an increased ability to retain and train part-time employees, Instacart positioned itself to offer an even more valuable value proposition to the customer (better able to pick the right produce, etc.) and more importantly improve their own operational efficiencies (know the stores better, able to work faster and lower costs for the company).<\/p>\n

What really sets Instacart apart and provides a meaningful competitive advantage is the technology behind and enabling, <\/em>their operating model. The logistics batching and tools (the app) used to shop are critical to company success and are not easy to develop or scale. Coupled with their partnerships and first-mover advantage, it becomes clear that Instacart has created a meaningfully deep moat for competition.<\/p>\n

Looking Forward:<\/span><\/p>\n

As they focus on the next stages of expansion, the operating model provides ample space and flexibility for business growth in new industry segments. For example, the company has discussed the potential to move from grocery into other high-frequency categories such as pharmacy. Given the existing proprietary back-end infrastructure already in place, ability to scale and manage a labor force, and skill in developing retailer relationships, it seems clear that Instacart is primed to leverage their operational knowledge successfully into other markets and segments and that the business will quickly follow.<\/p>\n

 <\/p>\n

 <\/p>\n

Sources:<\/p>\n

    \n
  1. Instacart Employee Interviews, October 2015<\/li>\n
  2. http:\/\/www.thelowdownblog.com\/2015\/06\/the-reason-instacart-is-turning.html<\/a><\/li>\n
  3. https:\/\/www.internetretailer.com\/2014\/12\/31\/grocery-delivery-firm-instacart-raises-210-million<\/a><\/li>\n
  4. http:\/\/www.nytimes.com\/2015\/04\/30\/technology\/personaltech\/instacarts-bet-on-online-grocery-shopping.html?_r=0<\/a><\/li>\n
  5. http:\/\/www.huffingtonpost.com\/2015\/02\/02\/instacart-workers_n_6548822.html<\/a><\/li>\n
  6. http:\/\/www.inc.com\/kimberly-weisul\/35-under-35-2014-instacart-instant-gratification-business-model.html<\/a><\/li>\n
  7. http:\/\/www.forbes.com\/sites\/briansolomon\/2015\/01\/21\/americas-most-promising-company-instacart-the-2-billion-grocery-delivery-app\/<\/a><\/li>\n
  8. http:\/\/www.nytimes.com\/2014\/05\/22\/technology\/personaltech\/online-grocery-start-up-takes-page-from-sharing-services.html<\/a><\/li>\n
  9. http:\/\/www.bizjournals.com\/profiles\/company\/us\/ca\/san_francisco\/instacart\/3374384<\/a><\/li>\n
  10. http:\/\/qz.com\/323310\/the-aggressive-delivery-startup-thats-proving-it-pays-to-play-well-with-others\/<\/a><\/li>\n<\/ol>\n","protected":false},"excerpt":{"rendered":"

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