Can Instacart’s no inventory solution to grocery delivery work ?

An article in AllThingsD (http://allthingsd.com/20130917/with-webvans-implosion-as-cautionary-tale-instacart-slowly-begins-to-expand-starting-with-chicago/) describes a grocery delivery in San Francisco and Chicago offered by Instacart (https://www.instacart.com/faq), with no warehouses but with delivery from existing grocery retail stores. The company charges $3.99 for orders exceeding $35 with delivery in 2 hours. Orders are filled by independent personal shoppers who get paid based on deliveries. In some cases, customers claim to have access to lower prices than those at the store. Will Instacart’s delivery service, which requires a high volume of spatially close orders, succeed in downtown Chicago ? Will the company, that currently only offers delivery of products from Trader Joe’s, need to expand to cover other chains in order to cover a larger segment of a customer’s shopping list ? Should shoppers be allowed to select from items across chains in order to get even more benefits from such a service ? What is the barrier to entry for any other courier service – is it the low prices charged by Instacart or its possible alliances with chains ?

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12 Responses to Can Instacart’s no inventory solution to grocery delivery work ?

  1. Kalyani Patri says:

    Currently Instacart orders only from Traders Jose and undoubtedly, to cater to a large customer base it has to order from many other stores to increase the variety in the products it delivers. This may even improve its scope for negotiation with its suppliers. As Insacart has only one supplier negotiation may not be possible. This option may increases the net profits. On the other hand, the transportation costs it incurs may increase but by looking into options such as peddling and crossdocking, transportation cost can be optimized which can offset the stockouts at suppliers. It also does not hold any inventory – this has both pros and cons. Instacart may have zero inventory holding costs but it might get very difficult to comprehend the stockouts at the suppliers end given the short delivery time required by the customers. For this option to work in favor of Instacart it should focus on getting efficient inventory management softwares and retaining skilled personnel.

  2. Qidi Cao says:

    In my opinion, this kind of delivery service will succeed if they get high volume of spatial orders. What it means is that they can get large enough people to sign up and become a shopper. Just like uber, they can then get benefits from it. In the article, it said the company only delivery products from Trader Joe’s, however, I checked it online it is now offering products from whole food and costco. So it is expanding to cover other chains to cover a larger segment of customer’s shopping lists. Moreover, I think shoppers should be allowed to select items across chains in order to get more benefits. In a word, I believe this benefits will be more successful in the future.

    • Kevin Morrisroe says:

      Very good points. This kind of thing is already being done by companies like Amazon and Walmart however, not with lower prices than in the stores and not with independent shoppers. It is taking an uber driver and giving him a shopping cart. Selecting across chains would not be hard as long as you are in a big city and can keep that 2 hour window. If you move into the suburbs, it may not be feasible driving from store to store unless the buyer allows for multiple deliveries (multiple shoppers used). The barrier to entry is the agreement with the stores; this is the key to get the lower prices and attract users to this service.

  3. Tanuja B says:

    Instacart’s no inventory model has several advantages in it’s pocket. With no inventory it can save on the costs of warehouses. Maintaining a warehouse to store inventory would require a space for storage and manpower for maintaing. Moreover perishable goods would have certain shelf life – this problem can be solved by using instant delivery. I think Instacart should collaborate with chains that are spread out over a wider region as it would be helpful to cater a larger customer base.Usually when a shopper would go shopping he would visit one particular chain for his needs. But on Instacart if the shopper gets to choose from different chains then it will be good attraction to the shopper.Barrier to entry for any new courier services would be due to the possible alliance with chains since this will give them economies of scale. The profit margins being thin and thus overall profit can be increased if volumes are high. The higher volumes and operational efficiencies are provided by franchising with different chains.

  4. Rahul Srinivas Sucharitha says:

    Considering the chicago traffic and the dense population in need of these goods, the transportation structure of Instacart should be highly efficient keeping in mind these issues to succeed and gain more customers due to word of mouth.
    Since Trader Joes do not provide all the commodities, in order to expand their business, it is most definitely needed to expand to cover the other chains and get a larger segment of the customers into their domain.
    Considering that the customers would definitely prefer to have more options to choose from , it would be preferable if the shoppers be allowed to select from items across chains and gain more benefits.
    I think the low prices of courier services of instacart could be due to the possible alliance with chains.

  5. Greg Nichter says:

    Instacart’s grocery delivery service is a good idea. People in big cities such as Chicago and San Francisco have a hard time getting their groceries up to their highrise apartments, especially if there is not a good place to park nearby. Unfortunately for Instacart, they need to watch out for competitors. Amazon is in the middle of launching a similar service, AmazonFresh. With Amazon’s existing distribution network, they have an advantage over all other grocery delivery services. In addition, Amazon is planning to open brick and mortar grocery stores in the future, starting with a location in Silicon Valley.

    • Joseph Mista says:

      I think Greg nailed it with the Amazon reference. They will be able to push out the competition should this type of thing heat up. This model will only be successful in those larger cities where a 2 hour lead time is actually possible, so it will be interesting to see what Amazon is able to do to cater towards a different demographic.

  6. Gautam Hardikar says:

    Tesco, in certain areas in the U.K offers such service where it delivers to the neighborhood near its stores through vans serviced from its stores. This essentially counts as a shelf sale. Instacart’s mode is slightly different as it relies heavily on the inventory levels at the stores to fulfill its demand. This makes the service prone to high risk of loosing potential customers. On the up-side, it does add tremendous value to many people in the neighborhood that do not own a car, or older people to get their groceries delivered by someone in the neighborhood who has the means. Instacart’s customers would be delighted if they are able to choose from a variety of item-store combination for their groceries but what would also help is for customers to have a real time inventory position when they place an order. This may lead way to a possible co-ordination between Instacart and the retailers. W.r.t. the competition, I think Instacart has a very unique advantage of keeping its operating cost extremely low. This would be the biggest challenge for any new entrant thinking of entering into the grocery last mile delivery market.

  7. Ankita Singh says:

    Instacart’s no inventory model would work to derive best of the advantages in a high demand scenario. More and more orders they get, more and more their network expands. As Qidi rightly pointed out that this model works very similar to that of Uber.

    Maintaining zero level inventory surely promises high saving on inventory front. However on the downside, the risk of loss of revenue is increased substantially. It would be interesting to see how this model functions in densely populated cities of Chicago and San Francisco. The probability of success increases, as people would prefer ordering grocery stuff and get it delivered at their doorsteps rather than travelling in dense traffic and struggling with parking spaces.

  8. Manish Singh says:

    If we consider the total logistics costs then we will find that more than 70% of the costs come from transportation.So, Instacart’s no inventory model is saving significant costs on inventory only after trading off with higher transportation costs.And,this transportation costs will rise as demand for the Instacart’s services will increase.So, under this model ,Instacart’s transportation needs to be very responsive and efficient to meet the demands in cost effective manner.

    If the company networks with other suppliers then it will not only get the negotiation strength to get the better deal for its customer but its lead time will also improve because in that case it can deliver to the customer from the nearest grocery store where the product is available.

  9. Kairui Jia says:

    What Instacart does is an innovation in business form. It segments the market precisely, seizing the point that it’s inconvenient for people to pick up goods in groceries without cars. And its 2-hour delivery service avoids the situation that the white-collar workers pick up goods when they commuting, which satisfies customers need immediately. As it is positioned to segment market, any expansion, whether from service region to product category, should be carefully considered.

  10. I think Instacart will do well in chicago with it’s unique features like same day delivery. It should use cross docking and paddling to make its supply chain more optimized.Again it also needs to signup with more shoppers for the same category that will give it more bargaining power for its price.The only cost that Instatcart incurs is the transportation cost. The company should also expand its shopping list , also customer base( from 13 neighborhood to entire city),This will also give it economy of scale and as a result its transportation cost will also go down.Active promotion and increase of customer awareness before entering into a particular market will also be useful.

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