Instacart recently announced a round of funding that evaluates the firm at some $7 billion. That is amazing for a firm whose drivers are presumably not employees and that holds no real inventory but sells food. It may seem like a naïve question, but what does Instacart do exactly? I know it delivers food, but I ask, it is a food firm or a delivery firm? The distinction is tremendous and the impact on strategy profound. It is caught between both, and it leverages the brand recognition of grocery retailers to make sales. It touts delivery from Whole Foods (Amazon) Costco and loads of other chains. Indeed, one “shops at” Whole Foods or Costco via Instacart. Here are some questions worth examining about Instacart and perhaps the entire grocery business.
- Does the Store and Its Brand Matter (Anymore): Amazon saw value in Whole Foods and its brand. On Amazon and within the Prime offering, Whole Foods and the related 365 brand are prominently presented. Indeed, Whole Foods stores are exercises in the perfect presentation of food. Branding matters, a lot. If a customer does not visit the store, but instead gets product via delivery, does the store origin of the tomato matter? To many, Whole Foods has better produce, and the tomato is worth more from Whole Foods. Instacart value proposition suggests that it does matter because you can get items from specific grocery chains. The brand of the grocery is a selling point. But outside of fresh or ready to eat items, does anyone care how the box mac n’ cheese got the house? If the product is from Kraft or Annie’s does it matter if it passed through a Whole Foods or a Jewel or Kroger? I doubt not. Price will matter. Somewhere in this is a changing of customer values and a realignment of brands in food and food sourcing. For Amazon, Whole Foods is clearly a brand and outlet for fresh and prepared food. Amazon, I think, can deliver packaged food for much less than Instacart (albeit with a schedule at this point). I expect more Whole Foods will do local delivery, too.
- Delivery is a Valuable Service: Instacart takes the time out of shopping. Going to Costco, where I live, is easily multiple hours. The drive, parking, shopping, checkout, self-packing, and unloading are all unwelcomed. Whew – it is lot to even write! It is great that there is a service to take away what looks and feels like work to a busy person. But this service is really most valuable when one can’t do it or can’t wait for the product. Amazon Prime can get me many items in a couple of days. Since Instacart offers the option to have the food quickly delivered. Its core value (as I see it) is quick delivery. Maybe it is like any delivery service, then, such as Uber or Task Rabbit. In a service, you are paying for someone’s time to give you time back in an urgent (or lazy) setting. In that situation, the amount paid for delivery must not exceed the economic utility of the time saved with some consideration for the fun factor. Some people find shopping fun and will do it for that reason. More specifically, delivery is a cost driven business, not a brand driven business. Get it to me faster and cheaper will always win. Speed and costs are in a perpetual tussle. No different than before 10 AM, by 4PM, second day, four day, and every other delivery option at the parcel providers. Perhaps others can and should offer grocery store delivery services, including the USPS and Fedex. In this, we see the struggle facing Instacart – does it delivery food fast or source the best food at the best prices? The answer suggests different value propositions, commanding different prices. Best food is different than food delivered fast.
- Disrupting Instacart: Here is an idea for grocery stores: Allow shoppers to order groceries on-line directly with the nearby store. The store packs the food and an Uber driver or Task Rabbit driver picks up the box for delivery (urgently or at some scheduled time). Here in Highland Park, IL Sunset Foods even has its own delivery trucks to bring groceries right to the home. Of course, the tasks and work of running around the store is borne by the grocery store in this model. It would be like the 1890s and people might actually love it – stores that deliver their products (for a price). I remember when bread, milk, fish, and tamales were all delivered fresh each day in Tampa, even into the 1970s. But we fell in love with shopping centers, cars, and forgot that stores once did delivery (sometimes for no extra price). Delivering food is a clear service that food providers can own. Today, grocery stores feel beholden to Instacart because they have a digital platform for reaching customers. Instacart relies on energetic and underpaid workers to do this running around. Maybe, stores know their products and local customers best. Maybe, in the future, Kroger, Publix, Wegman’s, Tops, Jewel, Amazon, Alexa, Siri, or even a simple search app can be enough technology to place a food order from a local provider.
- Food Comes with Regulation and Rules: Instacart does not make or market food. It provides delivery. Restaurants and stores produce and market food and carry the responsibilities of being food purveyors, such as passing health inspections and having proof that sick workers are not handling food. Some restaurants have but the brakes on food delivery services that attempt to resell their meals without permission, citing health and legal responsibilities to know and to interact with the end customer. If a customer accuses a restaurant of sickening food, and a third-party delivery agent was involved, how can the restaurant or customer know that the food was properly handled? It is a valid charge and will cause Grubhub, UberEats, and Instacart to be careful about health regulation that requires they conform to the food industry. Watch each walk back from being consider food providers to simply being delivery services.
- Data vs. Food: Instacart is an amazing data machine. It is creating interesting and potentially valuable data on food brands, customer preferences and behaviors, grocery store chains, drivers, and even the layouts of stores. But who should control and have this data? Instacart does because it is the digital platform with the customer. What is in it for Amazon to allow Instacart to map its Whole Food stores on the supply side and track customers on the demand side? I think it will be a battleground, frankly. Amazon can do that with its own stores and customers. I expect the Instacart – Whole Foods agreement to sour fast. Amazon knows data and knows the first thing about data is to not allow others to collect it. Period. I expect other grocery firms to realize that, at some level, investing in a food delivery service is worth the customer data to be created.
- Food More Directly: In many ways, Instacart lives off of the grocery stores placement of stores near customers. Instacart shoppers, ideally, have short distances to travel. For Instacart, the stores are akin to distribution centers. But they are not distribution centers. They are showcase facilities, designed to make customers comfortable. They are big and cumbersome to Instacart shoppers and come with time delays. Consider a real food distribution center, like one by Sysco, or US Foods. Consider using it for food delivery directly from the center to customers. The real estate will cost less. The sourcing and packing can rely more on automation and robots (and not workers running around stores). Delivery can be formulated with trip optimization in mind. Delivery might, someday, be done by an autonomous vehicle or simply be handled by your local USPS driver. Disruption favors the lowest price.
The challenge with Instacart is it is not the lowest price in food delivery now and likely not in the future. That is not sustainable.
Professor Walker provides keynote talks, seminars presentations, executive training programs, and executive briefings.
Recent talk topics enjoyed by clients have included:
“From Big Data to Big Profits: Getting the Most from Your Data and Analytics”
“Leveraging Artificial Intelligence and Automation at Work”
“Winner Take All – Digital Strategy: From Data to Dominance”
“Success with an Inter-Generational Workforce: From Boomers to Millennials”
“FinTech, Payments, and Economic Trends and Outlooks in Consumer Lending”
“The World in 2050: Risks and Opportunities Ahead”
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About Russell Walker, Ph.D.
Professor Russell Walker helps companies develop strategies to manage risk and harness value through analytics and Big Data. He is Clinical Professor of Managerial Economics and Decision Sciences at the Kellogg School of Management of Northwestern University. He has worked with many professional sports teams and leading marketing organizations through the Analytical Consulting Lab, an experiential class that he founded and leads at Kellogg.
His most recent and award-winning book, From Big Data to Big Profits: Success with Data and Analytics is published by Oxford University Press (2015), which explores how firms can best monetize Big Data through digital strategies. He is the author of the text Winning with Risk Management (World Scientific Publishing, 2013), which examines the principles and practice of risk management through business case studies.
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