Instacart is in talks to raise $400M at a $3B valuation. I think they’re gonna get crushed. Read on.
I used Instacart for 2 years — it was a great way to trade money for time. By not having to physically go to the store, wander around, wait in line, then commute home… I would save about an hour. I could just open the app, choose what I wanted, and press submit. The groceries cost about the same, maybe 10% more, plus I’d tip 10–15%. So saving an hour cost me $5–10 (plus $99/year).
This is quite a first world problem but in an entrepreneur’s worldview, an hour is totally worth $10. I can spend that hour working on my company or unwinding from work. If I were working for someone else, I’d definitely charge more than $10 so why spend an hour of time to save $10?
So what’s the problem?
Right, all this sounds great. Here’s a common Instacart experience of mine that starts to explains why I think they’re gonna lose:
I order 15 items on Instacart. It takes minutes to order, they come in a timely manner (2–3 hours later). All great, except 3 items have been replaced and 4 are missing. Now those tacos I was planning on making aren’t gonna happen because Safeway was out of the salsa I ordered. Time to figure out something else to do with this ground beef. Stress.
If you’re at the store you’d just get another salsa, no problem. To be fair, Instacart has a feature where you can specify an item to get instead if the one you want is missing. It’s just not enough. Every order I made would have nearly half my items get replaced or left out. After months of this I decided it was no longer worth it and cancelled my subscription.
The root problem is that Instacart doesn’t know what Safeway has in their grocery store. They know what Safeway typically has, but not at a specific given time. Amazon delivers from their own warehouses, so they know exactly what’s there. Which is why I think Amazon is in a great position to crush Instacart. Also everybody already uses Amazon so why would they go out of their way to pay for a new membership with a new company when they already have a relationship (and probably a Prime subscription) with Amazon?
How could they turn it around?
I don’t have a crystal ball, this is just what I see happening based on the information I have. Here are some things that Instacart could do to improve their situation:
- Integrate with grocery stores. Hook into an API with Safeway, Whole Foods, etc. to know exactly what they have in stock so you never let a user buy something that they don’t have. Does such a thing even exist? Would Safeway be cool with that? No idea.
- Add a metric for average # of items missing/replaced per order. Track it ruthlessly and drive it down to near zero.
- Open their own stores/warehouses. This eliminates the problem entirely because they would always know what they have available.
I’m not incredibly familiar with Instacart’s plans so maybe they’re already doing this. I like the idea of a larger number of niche companies (like Instacart) rather than a smaller number of powerful companies that do everything (like Amazon), so I’m rooting for them.
I feel like if I write down predictions like this then I’ll hold myself accountable to checking whether they come true, and more importantly learn something when I’m wrong. Thanks for reading.