What if Instacart became its own grocery store?
Instacart is a same-day grocery delivery service that has gained significant growth and popularity in the last few years (*cough* $2B in 2017 revenue *cough*). It has notably partnered with Whole Foods, Costco and more and is steadily increasing its roster of grocery stores as well as its business footprint 🛒📈.
I am a self-proclaimed grocery shopping hater. I don’t mind planning a week of meals ahead of time, I’m actually pretty good and cooking the meals too but I absolutely loathe going to the grocery store for absolutely any reason, especially for a forgotten ingredient 😭. I am that person going from aisle to aisle reconciling what I need to buy against what I vaguely remember is in the fridge at home and inevitably coming home to find I am the new proud owner of 3 full bottles of Sriracha 😑
With my distaste of grocery shopping I decided to finally take the plunge and try out Instacart. Let’s just say it wasn’t the absolute best experience ex: I received flat leaf parsley instead of kale — both green and leafy, I get it but seriously? Also, I didn’t quite enjoy the evolution of hidden fees throughout my checkout process — items, shipping, overcharge in case of price discrepancies, etc.
Despite all of this, as the nerdy PM that I am, as I was chopping my parsley I started thinking more about Instacart’s business model and wondering about it’s future strategy and potential. Which is what got me thinking:
Why does Instacart even need to partner with grocery stores in the first place?
What is the problem with Instacart?
Instacart’s simple grocery delivery service is already addressing an inherent need by giving consumers back their time. To put their service into perspective let’s break down the weekly grocery buying process and think about the approximate amount of time it takes to do each step
- Determine what you (and your family) are going to eat this week — approx 30 mins
- Based on the weekly menu & what supplies you already have in your kitchen, determine what still needs to be bought (and at which store(s)) — approx 30 mins
- Figure out when you are going to the grocery store — approx 5 mins
- Get to the grocery store(s) (with or without children) and get everything that you need (provided it’s actually all there and you don’t forget any key ingredients) — approx 60–90 mins (depending on # of grocery stores, parking, kids, etc)
- Get home, unload all of the groceries into the house — approx 20 mins
- Put away the groceries — approx 25 mins
Instacart directly eliminates steps #3, 4 & 5 which in this example translates to giving back the consumer approx 1hr 55mins of time, whereas without Instacart this full 6 step process takes the buyer approx 3hrs 20mins 🤯.
While giving me back my time is all butterflies and rainbows here 🦋🌈, the element I found to be Instacart’s weakness, or areas for opportunities, is in the confidence and trust aspects both for price & quality of purchased products.
Since customers are paying up front (before the products have been selected or delivered)
Grocery store inventory prices fluctuate constantly, we’ve all seen the flyers and coupons that help to move inventory quickly
I imagine this was one of Instacart’s largest hurdles to overcome in the first place, because grocery stores haven’t always been the most technically-savvy companies to begin with and to account for such a volatile price list which Instacart has no control over must not be easy to manage when it comes to customer experience.
When you’re in the grocery store and you see that there are no more onions or that watermelon you wanted is actually double the price, the solution is usually to pivot your menu. You may find a substitute ingredient, change the menu altogether or think about another grocery store you could go to — but this is not the case with Instacart.
The Instacart delivery person just wants to get your items and get out, they have no real concern for your grocery budget or your weekly menu. Instacart accounts for price fluctuation by slightly over charging you (even though they just gave you a series of items and prices to choose from) which makes sense from a business sense but from a consumer perspective, it’s not an ideal experience
Opportunity: gain access to and display accurate inventory prices in real-time to customers (on the instacart app) that are guaranteed when the items are purchased in real life
My previously mentioned experience with the parsley for kale swap is one thing (ie: incorrect inventory provided to end user), but I was also banking on some fresh mint for an amazing watermelon salad 🍉 which sadly missed the mint because it was spoilt 👏🏽 upon 👏🏽 arrival 👏🏽. Certainly this is an inventory problem from the grocery store itself, but also if a bit more care had been taken in the selection process, I’m sure a better mint package could have been selected and delivered
I must say that my friends who consistently use Instacart tend to purchase from Whole Foods and they love their experience. I imagine the produce quality is easier to manage in this case since WF themselves take pride in their produce quality and therefore there is little room for selecting rotten or poor quality products in the first place. The mint I purchased was selected from a smaller, non-chain grocery store which leads me to think that as Instacart scales (to more smaller grocery stores) how do they vet and ensure quality products?
Opportunity: Manage the produce quality and/or its selection by having a quality threshold or rating that both the grocery store and the Instacart shopper must maintain
How can Instacart deliver solutions for these opportunities with price and quality?
Far out future (10, 20+ Years) — Instacart Grocery Warehouses
Irrespective of the costs and time it would take, what if Instacart had its own warehouses of produce & products (like Costco or Amazon)? To take it a step further, what if Instacart owned and controlled the very farms where the produce was supplied from (similar to McDonalds)?
Did you know that McDonald’s owns the farms where everything from their eggs to their cows are reared? McDonald’s also has very explicit guidelines for farmers on how their produce and cattle should be watered, fed and managed. They have mastered optimization of every element of their operations down to the drops of water 💧 in order to guarantee consistent quality and taste for every single menu item across its millions of global locations 🤯.
It might seem a bit extreme at this stage to think that Instacart should start growing its own kale (and parsley), but think of how busy our lives are already and how we are currently very willing to pay someone to just pick up the products from existing grocery stores. Even with this service, there is still an element of doubt until the products reach your front door regarding how much it’s going to finally cost and what is the quality of the products I have to make dinners with? Think about the possibilities if you could confidently order from Instacart and know exactly what you were getting every 👏🏽 damn 👏🏽 time 👏🏽
To me, this would be the ultimate long-term direction that Instacart would want to work towards in order to dominate and own the grocery store vertical. Personally, I think we’re currently in Instacart’s “training module” with their current service as we get used to the idea of someone else picking up our groceries for us (this training module has generated $2B USD in revenue for Instacart already…)
Within the next 1 year — Inventory management software & feedback scores
While a Costco meets McDonald’s warehouse sounds really cool there are a few ways to address the same opportunities to optimize price & quality without needing to go that far
Inventory management software could be an interesting “new product” (I don’t know if Instacart already has this). Instacart would provide the software for grocery stores to use (or hook into) to manage their inventory and prices. Then Instacart would surface the prices (and related inventory if needed) directly on their website or app
This software would provide both an efficient service for the grocery store management team and also allows easy access for the prices to be accurately displayed (as much as possible) to Instacart customers.
Think of the data and analytics potential for Instacart when you start collecting and comparing data across different grocery stores, locations, seasons, etc 😍
Feedback scores for grocery stores, Instacart grocery shoppers and delivery personnel would be an impactful feature for Instacart to measure, analyze and iterate on quality control at specific parts of their service
Without this ability to provide feedback for stores, shoppers and deliveries how does Instacart evaluate the quality of their service other than to look at repeat purchases from a given customer?
I believe this would be the easiest solution to implement quickly and would provide tremendous value when observed over time. This data alone could help Instacart evaluate which grocery stores are more beneficial to the business than others and which shoppers and delivery personnel are more valuable or more costly to the company
What value do Instacart Grocery Warehouses provide?
The most obvious added value is that owning the entire supply chain provides full ownership and control to Instacart over the quality, consistency, operations and prices of their products and services
It takes out the “middle-man” and eliminates the need for Instacart to depend on grocery stores to manage their inventory, quality of goods and prices
This idea would also establish and reinforce trust and confidence in the purchases, therefore increasing the ability for business growth. Once the consistent produce has been finalized, think about the potential for add on services ex: pre-made meals delivered to your home 🍽
Why hasn’t Instacart become a grocery store already?
The reality is that this proposed strategy is extremely costly. Why reinvent the wheel, when there are already so many grocery stores that are taking on the costs of location, inventory sourcing and more. Instacart doesn’t hold any inventory, and warehouses or trucks the only real changes they have to make are based on software which is really the cheapest change to make in this industry. That is what has driven their $4.2B valuation to date, but competitors like Amazon are creeping in (uhh remember that Amazon + Whole Foods acquisition?) and we all know Amazon already has the customer loyalty established
What is the true growth potential of Instacart creating their own grocery stores? Are quality control and price management that difficult to manage with software? I don’t think Instacart Warehouses is the winning strategy for increased growth. It’s simply too costly and I don’t imagine the return on investment would be worthwhile
Thirdly, I think the most important element is buyer education. The concept of “giving up groceries control” to a company (essentially a stranger) can be a difficult for the average consumer to adjust to. The very mental model of how groceries would be selected, purchased and used would be completely shifted if Instacart simply owned the entire vertical.
While I do think Instacart Warehouses is an extremely interesting idea, and the thought of never having to enter a grocery store again would be heaven on earth for me. I think it would make more sense for Amazon to go in this direction, essentially obliterating Instacart altogether than the other way around 🤷🏽♀️🛒🍉🥒🥓🍖🍏🍇🌶🌽🍅