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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Global Supply Chain Musings 
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
In my opinion, this kind of delivery requires a high barrier to entry because it requires a high volume of the orders. That is, the company would have to make sure that they have enough of existing customers. If it has enough of customer base, which would be a critical factor, the company has a chance of being successful in the industry. However, in order to establish more customers in the future, the company might need to expend its service to other chains to cover more customers’ needs. The shoppers should also be allowed to select from items across chains so that this would be more attractive to them. The barrier to entry includes its possible alliances with chains because this kind of relationships would be win-win to both parties.
Winnie, I think that we should be more focused on the order mix rather than the product variety in this situation and the reason for the same is, the consumer would like to order things which they require on a daily basis through instacart and thus the orders would be more repetitive and would, therefore, be better to forecast. Further, the question asks about the entry barrier for “courier company,” thus we can safely assume that a courier company would already be having a decent supply chain, though not very robust. Therefore, IMO, the entry barrier is not very high as there is no requirement of high capital since there are no warehouses and that only collaborating with the retailers would help. Considering the already dense network of the retailers in the city, and with the introduction of shops like Amazon Go, I think instacart should focus more on the product mix rather than getting alliances with more chains as most of the products offered by other chains would be same and that for few products, the logistics costs can increase drastically.
Yash, I agree with your argument that InstaCart need to focus on increasing the product mix it offers on its list, but don’t you think the grocery stores have limited stock and variety due to capital and space constraint? I think to increase the product mix they have to expand their supplier base as well. Also, InstaCart and AmazonGo works on different model, so there is no comparison between their strategy.
To provide the needed grocery at doorstep, the delivery charge $3.99 for order above $35 is very less considering the cost of labor. This makes the entry barrier high for this business. To expand consumer base so as to increase the order size, developing the offering list is necessary. This will increase the number of customers served per personal shopper and make this business model feasible.
I think the success of such model works well in places there is very high demand and also the transportation network of Instacart should be extremely efficient. Instacart did expand its contracts with many other chains like Aldi, Sams club, Costco etc. to cover a larger segment on the customer’s list. Also, it had to expand mainly because Amazon took over Wholefoods. The barrier to entry would be difficult for a new player because it needs to establish a good logistics network and also contracts with various grocery chains. Amazon could enter this segment because it already had a very good transportation network.
Gopi,
I would think that the barrier to entry is low due to the fact that instacart is just a platform that connects two ends: customers-drivers. Since it doesn’t carry any inventory I don’t feel the logistics (besides making a strong platform) behind this method will be to difficult to imitate. The contracts with grocery chains could be easy to get if a good service is offer, as seen there are a couple of competitors already in Chicago. Do you think that Instacart is different from the other like the one mentioned Peapod or amazon go? Or is it more related to a platform like Uber that connect two ends?
In order for such a business model to work, the service certainly needs to be offered in large cities such as SFO and Chicago with large volume and spatially close orders where they can use a combination of strategies such as peddling to optimize the delivery system. There are three unique customer aspects of this model: lower prices, fast delivery in 2 hours and possible ability for shoppers to choose from various chains. Having no warehouses definitely adds a huge advantage to Instacart as it has no holding costs. The main barriers entry are both the lower prices and their relationships with chains. Given that they have established alliances with other stores now, it will make it much tougher for new entrants to compete. However, with companies such as Amazon who already have a brilliant transportation network set-up, existing competition would be quite challenging. Apart from the barriers mentioned above, an excellent logistics network that is coordinated and responsive needs to be established for a company to survive with this model. Furthermore, having shoppers be able to select from items across chains would only work if they have “spatially close” orders which is very important to manage the transportation costs, and so this service would work well only in cities where there might be various chains located closer to each other than in the suburbs.
Peeyush,
Do you think that the chains may just start offering this service and cut-out the middleman? By using their employees, during idle time they can re-stock and other value added activities. They only service stores lack is the final mile. If they create a partnership with Lyft or Uber would this squeeze a service like Instacart out of existence?
Mark,
Don’t forget that not all grocery stores offer the same products, and if they do, then they don’t always offer them at the same prices. A company like Instacart pools all the products available at these different stores and has them compete for prices, and that is why it will be quite difficult for them to cut-out the middleman. The middleman induces competition, which is in favor of the end customer, who specifies demand. It seems unlikely that grocery stores will cooperate with each other to offer the same service without a middleman, which is why i don’t see this happening.
Uber already does have Uber Eats, which is a service where Uber drivers deliver food to customers from restaurants that do not have their own delivery system, so it does not seem too far-fetched that they would enter this market as well. Given Uber’s much larger network of drivers and customers, it could pose a threat to Instacart merely with their economies of scale, by offering faster deliveries and possibly lower prices.
The model is similar to any independent online food delivery company where they pick up orders from restaurants and deliver it to the customer. They generate revenue from the delivery fee and commission from the restaurants. Instacart can also opt for incentivizing the grocery stores for higher sales with a commission. But unlike online food delivery, often people may order groceries of variety where pickups need to be done from various stores. And as stated by many, Amazon can easily beat them at this approach of 2-hour delivery.
Instead, Instacart can club their delivery with an additional service of buying the cheapest lot available in the market and taking a cut (say 20%) out of the total money the customer saves. For example, a 5.2 oz Pringles Potato Chips cost $1.5 at Payless whereas the same is available at a nearby dollar store for $1. Thus, the company can help save the customer 50 cents over a single item. and charge 20% i.e. 10 cents for finding the best deal. For multiple items, savings and profits for the customer and the company respectively will increase. Knowledge of the best deals won’t be a huge barrier as the company can again incentivize the retailers to keep them updated on their deals for increased sales and publicity.
Nikeeta,
I like you idea of finding the customer savings. I did not see this in any articles. It appears that currently retailers determine the price on Instacart, while they have exclusive deals, they do not guarantee the in-store price is not cheaper.
If shoppers create relationships with customers and as their knowledge of product sales/deals increase, do you think that shoppers may cut out the middleman? I know one of Instacart’s major employee complaints is the pay is too low. Do you think this could motivate shoppers to go rogue and do you think consumers would hire them to save more?
I don’t see a large barrier to entry for a competitor. The only exception is Instacart’s agreements with stores that may offer them a lower price or a share of the profit from each order. But I don’t know that these services can compete with stores that provide this service.
My wife has used a shopping service at HyVee previously. There the order was picked for free if you purchased over a certain amount and you could pay a fee for delivery. I would seem that the final mile, delivery to your home would be something that stores may be willing to partner with a third party. The only advantage to the store of using a third party shopper is when customers are unhappy, that third party is at fault. For instance, one time my wife picked up the groceries from HyVee and when she got home the bag of oranges and the underside of some packaged tomatoes were moldy. HyVee refunded her money and drove 30 minutes to our house to deliver replacements for free. So, is correcting customer issues worth an exclusive or cost reduced agreement with a third party?
I would think that the advantage to a large store is that the employee who is shopping for customers, can be used for other tasks during their idle time. It would seem that Instacart benefits from keeping a lower number of stores to choose from in an attempt to make the shopping more efficient. Meaning the shopper knows where items are and can quickly get the listed items and leave.
I don’t know about Instacart’s claims to save shoppers money by reducing impulse buying, but time is not free. In my option, Instacart has been smart in entering specific markets where people have higher income so they associate a higher $ value to their time and are willing to pay these fees. I think the largest challenge is keeping customers from using chain store in-store purchasing services with a delivery service. I think it will be hard for Instacart to truly differentiate from others outside of stores available to order from.
In my opinion, Instacart’s delivery service will succeed in downtown Chicago since Instacart spent quite a long time to choose a new city to expand the delivery service and the trial in San Francisco is a success which can direct the practice in Chicago as well. Moreover, Chicago has characteristics including high concentration of households, decent median household income, etc., satisfying the prerequisite conditions of success. Moreover, the trail in Chicago is in the beginning and just offers delivery of products from Trader Joe’s, while in the near future, to satisfy diverse demands of customers, Instacart will expand to cover a larger segment of customers’ demands. Further speaking, Instacart’s success lies in its zero-inventory strategy, while other competitors had or have inventory, increasing total supply chain costs. On the other hand, to guarantee zero inventory, Instacart has a limited set of city options, which may reduce the profits of the company. Therefore, in the future, Instacart needs to make a trade-off between keeping zero-inventory and improving service scopes.
Instacart works on a similar principal as that of Grofers back in India. They will definitely succeed in Chicago as they cover the need for products required by the customer within a couple of hours rather than the customer spending time going to the grocery store or ordering online and wait for 1-2 days. One of their biggest logistical efficiencies is that they have personnel at the store outlets they have tie ups with which reduces a chunk of time required to fulfill the orders till start of delivery/loading. Instacart would probably have to expand the number of retail chains they have tie ups with to cater to a huge customer demand. However, in the event of this happening, it seems unlikely that the customer could order various items from different retail chains as opposed to 1 as this would drastically increase the time and cost to fetch products from various retail outlets. One way to counter this issue would be to select a close vicinity (<500-600m) of probable retail outlets they have tie ups with. In another case, assuming they have multiple connections with other outlets, in case an item is not available at one place, they could contact the personnel at the other outlet and fetch the product that they need. In the second case, the profit margin could be lower or even match the cost but would satisfy customer demand and that at the end of the day is a retained customer.
Pairing customers with personal shoppers, Instacart has a unique business model. Expansion of Instacart into other cities, however, depends on the prevailing socio-economic conditions of the chosen location. Also, critics view Instacart shoppers as inexperienced. The qualification process to be an Instacart shopper considers only age, availability and ability to lift weights. It doesn’t ensure customers that their products are picked up by shoppers who can inspect the quality of the product being picked. Also, there are concerns about transparency about pricing policy and passing promotions and deals to the customers. Therefore expansion poses managing shoppers before worrying about managing inventory. The entry barriers for competitors are not as high as hyped. Although online grocery delivery is a competitive segment, with big players such as Amazon go, with the increasing demand and ease of delivery, the growth rate is high.
In this article I just observe another platform build to connect users. Same as Uber or other apps that just connect to ends and just work if two people connect for the same mean, in this case one is requesting (groceries) the other deliveries it. This company has no barrier to entry just the amount of competition that it might have in the case of Chicago that counts with some of other delivery services. While in SF this might’ve worked, in Chicago is could be tough due to its complexity as a big city and traffic. The only pro I can see is that a lot of people can become users due to the fact of the cold weather during spring/winter.
If the plan rolls out in an efficient way, it is good to start small just with one partner like Trader joes to see how the market is behaving and how the users are accepting this new platform. If there are good signs of it then its when the company should start adding whole foods, costco etc along the way. Maybe by request of customer adding some other popular local grocery stores.
The promotion and discount system clearly is a plus for a company like this one and if a good coordination is made with this big retail (grocery) stores, a better outcome can be carried out. Instacart should continue pursuing this sales and discounts by the retailers so they can attract more customers and users in both ends.
Instacart’s business model is quite similar to the one of Uber’s (Uber-eats). Having no inventory means no warehouse, thus reducing supply chain costs. Offering more choices to pick from different chains gives more flexibility to customers. Better product mix attracts more customers and it would be even better if Instacart could provide product offerings at discounted costs. To increase its profits, Instacart have to serve to masses, in volumes and must have an efficient delivery network. Milk-runs/peddling must be incorporated.
I do think that this is an innovative mode of coordinating shoppers, retailers and consumers. It can make use of time of shoppers and achieve zero inventory through this business mode. The problem is that how to include more retailers to expand the market. Instacart needs to set up a monitoring system to get involved with the stock of retailer because this will guarantee that the shoppers will not waste time to find that the ordered goods are not available. Or Instacart can utilize a platform opened to both retailer and consumer through which the retailer can manage the goods available by themselves and the information can be delivered to the shoppers and consumers.
As for the barrier to entry, it is the ability of coordinating independent parts and seizing the resource that matters. During this process, alliances with chains and the habit of consumers can add more value into this business model.
In my opinion, volume plays a critical role in sustaining this model. In that regard, it might be a good idea to rope in other retailers onto the platform. With reference to other players entering the market, though Instacart’s low prices could possibly serve as an entry barrier, alliances with chains could possibly help other players gain a foothold in the market.
Getting access to a concentrated base of urban consumers is an open opportunity. If Instacart can provide deliveries for a large number of SKUs, possibly consolidating from multiple local retail stores, it gets to leverage the unregulated price points charged by retailers differentially. As most of the working professionals tend to order or get the items delivered in evenings, so any discount schemes incentivized by an effective coordination with retailers can help Instacart flatten the demand peaks, increasing the productivity of its on-ground shopper workforce.
In my opinion, Instacart’s no inventory solution will succeed in downtown Chicago. The reason are as follows: First, Instacart provide low price for personal shoppers. Once one shopper adopts this way of purchasing, he will be fully satisfied so his families and friends will use it, which brings high volume orders for Instacart. Second, no inventory solution won’t cause cost and that is a core competition of Instacart. As long as the agreements with grocery retail stores are maintained, orders will be guaranteed without risk. Since grocery retail stores will also gain benefits from Instacart’s order, they would like to reach such an agreement. What’s more, for the long term development, Instacart should seek more opportunity to enlarge its kinds of products. Thus, customer will have more choice and tend to rely more on its service.
No inventory solution, of course, is outstanding. The special business model of Instacart works under the specific context of Chicago. If Instacart wants to expand its business to other states it must to know this can indeed change the shopping behavior in that state. We cannot make sure that volume sales of Instacart actually benefit customers by offering lower price. Hence, before shoppers are allowed to select from items across chains in order to get even more benefits, Instacart needs to figure out how much customers really benefit from. Higher free shipping standard may work to higher the profit, but it’s not a sure thing that customers keep high loyalty with Instacart since they don’t have clear understanding of their benefits.
The no warehouse no inventory strategy will definitely cut down the holding cost and operation cost for Instacart. Hiring shoppers and delivering in 2 hours will succeed in Chicago if appropriate training to shoppers could be guaranteed because this kind of online shopping is efficient and fresh enough for daily need. However, Instacart needs to involve more chains to the platform in order to provide more options to customers, for some of the customers may have loyalty to some particular brands that only sold in a specific chain. In considering the temporary products stockout issue, Instacart could develop an inventory data sharing system with those chains, it could help both customers and shoppers to monitor the availability of required products.
It is a innovative action for Instacart to do grocery delivery in city. As people requirement reach higher, quick delivery definitely become a competitive advantage for a company. With no warehouses and delivery from existing grocery stores, company could save a bunch of cost and get a better satisfaction of customers. This service could be extended from Trader Joe’s to more stores which could increase the company’s profit.
However, we cannot treat all the same for different products. For some product which has a low margin, a warehouse may reach to economy scale but will definitely not a good idea to deliver straightly to customers. By make alliances with chains, different stakeholders could coordinate together and make the decision not only from one pot of the chain, in final reach a bigger profit pie.
Instacart is providing value for consumers by promising to deliver within 2 hours, unlike its competitors or early entrants who promise to deliver by the next day. The success of Instacart in Chicago would depend upon how do consumers perceive this differentiated value proposition of Instacart vis a vis the already existing players and how important is the minimum delivery time as a metric for consumers in Chicago over product costs? The barrier for entry in such a segment is quite low and hence Instacart should always look out for being innovative and delighting its customers. One such idea would be to collaborate with more and more organized retail chains and speciality stores to provide variety and meet the demand for a greater proportion of heterogeneous consumers. Another idea would be to collaborate with companies like Uber to share free capacity to deliver products.
Grocery delivery offered by Instacart is a good strategy, especially in big cities, like Chicago and San Francisco. These cities have prominent traffic congestion and parking issues and it’s very time consuming and inefficiently for consumers going to grocery stores by themselves in a regular manner. However, there are some problems with this new innovation. Firstly, customers cannot choose the latest shelf life and will accept whatever the staff pick for them. Secondly, Instacart currently only offers delivery of products from Trader Joe’s and if stock out of particular items happen, customers don’t have other choices only waiting. In order to cover a larger segment of a customer’s shopping list, Instacart needs to expand to cover other chains. Another benefit of this improvement is that customers have better view of prices between different retail stores and have more choices of products varieties. The barrier to entry for any other courier service is low.
I believe that Instacart’s delivery service will succeed in downtown Chicago. Given the high number of people without cars as well as the heavy traffic in Chicago, many people will be inclined to take advantage of Instacart’s services. However, I also believe that Instacart will need to expand its services to cover other chains apart from Trader Joe’s. In addition to the fact that Trader Joe’s may not supply everything a customer might need, I think that it is in Instacart’s best interest to have more than one supplier in order to promote competition amongst suppliers and decrease Trader Joe’s bargaining power. Having multiple suppliers will also give Instacart customers the possible opportunity to select from items across chains and allow Instacart to expand its current customer base. As for other courier service, I believe that alliances with chains would prove to be the largest barrier to entry to overcome. Amazon would be the primary concern in this case, as they already have a sizable logistics network that they can leverage.
I don’t know but it sounds to me as “Uber” of grocery shopping, carrying no inventory of itself and having people as personal shoppers to carry out the service. But unlike Uber, for which forecasting is not as difficult as it is not dependent on anyone else( in this case retail shops) for providing the service, instacart needs a better forecast
Having said that, Companies like these compete on price and fill rate, time and cost and, I feel, can go either way
1. The kind of discounts it can provide and the cost comparison against other players which carry inventory. With no cash stuck in inventory, company can use it for some other purpose such as discounting.( it may get 1st mover advantage though)
2. Forecasting is a challenge as it will require a good coordination with in the chain, between suppliers and retail shops.
3. Shoppers are not monitored directly, ensuring quality control(wrong product, delay in service, fill rate etc.) is important
4. The entry barrier is not so high, as there is no major capital investment and the market is huge. The advantage definitely lies with the company which has deep pocket , power to negotiate, effective distribution channel etc- but it cannot prevent players to enter unless they start selling for free( like JIo did in India). Also, he retail shops would prefer to tie up with more number of companies for better market reach and power of negotiation
Also, it needs to strategically identify location and demand before deciding which city to target. it will need more number of retail shops and customers all consolidated in one area, preferably a high density area for higher number of orders.
It would also need to show the advantage of paying extra for the service, if customers are not convinced or any strong competitor is not doing so
Instacart has chosen the right cities to enter and its customer base should continue growing because the cost and time spent in shopping by residents of these cities outweigh the $3.99 charged by Instacart for delivery. However, Instacart will have to expand to shopping in other chain stores to meet the entire demand of its customers. For example, if a customer does not get all the items on the shopping list and must go to a store to get these items, he/she may feel they have not received any value and may decide not to patronize Instacart anymore.
I believe Instacart has some alliance with the chains it patronizes and so should coordinate with the chains to get real time inventory of the SKUs, so they can inform the customers immediately of the availability of the items they want. I believe with a solid coordination with the chains Instacart will continue to play the role as the courier for the chains and thus can succeed without carrying any inventory.
The price charged by Instacart will be hard to match and the alliance with the chains will be difficult to attain by other courier services as the chains will not want to share their inventory levels with everyone due to the risk of getting into the hands of competition.
Considering the high concentration of households, high income levels, and the inclement weather at Chicago, it is likely that the city generates a high volume of spatially close orders. Hence, Chicago is a strategic choice for Instacart’s delivery service. Instacart’s unique value proposition is that it supplies the grocery items to its customers within two hours. Any compromise on the variety or the delivery time to the customers would hurt its sales. Hence, it is important that the company expands to other chains to ensure that it covers a large segment of customer’s shopping preferences, thereby delivering value to its customers. Any flexibility in ordering or discounts for the customers would result in additional sales for Instacart. However, in order to maintain an agile tracking of the inventory across different stores, Instacart needs to ensure that it has visibility into the inventory of each store. Transparency in the inventory of the stores and alliances with the chains would be a huge barrier to entry for any other courier service.
I think instacart has the ability to succeed in Chicago, as more people have less desire to go to the grocery store these days especially if they can have groceries delivered to them in two hours. In the long term, they will need to expand outside of Trader Joe’s as that is a niche grocery store and never fully has everything a shopper typically wants. However, there will need to be a balance of the multitude of stores costumers are allowed to order from and the distance of stores in order to not sacrifice delivery time. In general the barrier of entry is low for competitors, since this is solely a platform for consumers and stores to access services. The main problem area to watch will be the employees that instacart has. As with uber and any other service such as that, the main complaint seems to be that the pay is not sufficient and most see it as a short term job or have low loyalty to the job. As instacart scales they will have to manage their labor and ensure they are offering sufficient reasons to get employees to sign on and stay committed to the job, so customer’s orders are able to be met in the required delivery time.
I think that this company definitely has room to grow in cretin geographical regions. Part of the reason that i think it is currently succeeding is the fact that you only can get stuff from one place. This means that one person can pick up orders at Trader Joes for more then just one person and therefore can deliver to multiple people capitalizing on economies of scale. If they allowed you to order one item from one company and another from say a Walmart then they would need to have enough orders pooled at two locations. This would mean you would be getting milk from one and bread from another this will cause issues and probably force them to increase their delivery price and therefore eat into their bottom line. I think an interesting concept would be to charge a delivery cost per store you want to have stuff picked up from and therefore deincentive’s someone from picking different items from different stores.
Instacart’s delivery service does not require a lot of space to approach its order quantity, because the company’s goods come from various retail stores, so he does not need a lot of space to store the goods. Instead, the company only needs to increase its logistics Capacity to be able to deliver goods from retailers to customers in a timely manner during peak orders. Companies should expand their reach, not only for Trader Joe, but when their business expands to other retailers and more products, their market share will increase and customers ‘shop experience will depend on the company’s distribution service, so Instacart will have more room for development. In fact, shoppers should not be allowed to select items from the chain to get more offers from such services, as this will seriously damage the interests of The retailer, and the retailer will re-evaluate the delivery of Instacart when the retailer itself is threatened. And it would even reduce the scope of their services, s Since Instacart’s own interests will also shrinkage. Since Instacart does not have a warehouse and various distribution centers, it is not comparable to other courier services companies, which is a barrier to other courier services. Instacart’s alliance with the chain is a better option, The service can’t be carried out when the price drops to Instacart’s unprofitable, but it can be profitable at the right price when it is tied to the retailer which is a long-term strategy.
As long as the company can keep its costs under control and maintains a cost structure that allows for a decent profit margin, then the company should be able to survive. I’m sure the owners did their due diligence when they created their business plan and laid out their cost structure and planned revenues and profits for their first years of operations. Chicago and San Francisco aren’t cheap cities, but I would assume navigating grocery stores in the areas could be a hassle, so I definitely see the market for this type of service. As long as the company keeps its costs structures low, it could definitely expand to new markets and or grocery chains. It would I assume have to ensure that its delivery drivers stay classified as independent contractors and not employees, again to keep their cost structure low.
Instacart’s service can succeed as long as they create a value for the customers like partnering with other chains and providing variety of products. With companies like Walmart entering the delivery sector it is very important for Instacart to remain unique in the market and if they don’t offer variety of products and remain cost effective they could loose out to Walmart. They should partner with local grocery stores and try to provide localized items to maximize the profit. They should also allow the shoppers with the flexibility to buy goods from various place to reduce the total cost of the supply chain. The coordination in the supply chain helps increase the overall profit of the supply chain.
Instacart definite need to implement its services in the big city like Chicago because of its high space utilization. And Instacart can club their delivery with an additional service of buying the cheapest lot available in the market and taking a cut out of the total money the customer saves. What’s more, Instacart has a set of city options to guarantee zero inventory, which may reduce the profits of the company. I think Instacart can also offer a diversified two-hour delivery service because thus kind of service usually chosen when people are in a hurry situation. Therefore, it can launch some services like send your personal stuff in two hours. Finally, Instacart could consider to build some warehouse fro some common commodity to improve its efficiency.
With Zero Inventory strategy, Instacart can be compared to Old Alibaba, a platform helping the B2B business to grow, without having its own warehouse. With similar strategy the Instacart would be able to cater to ever growing demand of the consumers. Keeping in mind the congestion in major cities of US, consumer would be happy if groceries get delivered at their footsteps without any hustle. The foremost important thing for Instacart to succeed with this plan is to maintain efficient coordination between retailers, such that whatever inventory retailers has, must be reflected on Instacart portal efficiently. In order to expand and capture the market, it is crucial for Instacart to cover other chains of retailer. In order to increase the CSI, the consumer can be given the option to choose different items from different stores, but question can be raised that how Instacart would be able to manage their logistics with the help of third party. How they are going to compensate the independent personals?
The locations chosen by Instacart are ideal for such a delivery system. The young professionals in these cities who do not wish to invest time in grocery shopping or getting stuck in traffic would appreciate such a system with minimal delivery charges. This system should be further modified to include more retails to give their customers variety of options to choose from or make available cheapest products. However, doing this will increase the cost associated and the two hour time window might not be feasible. To avoid this, there could be an option to chose from retail stores within a particular area similar to Uber eats. Instacart will also face tough competition from other such services like Amazon fresh, Brandless, Freshdirect, Google express etc
That was back in 2013 that Instakart faced such challenges in e-Grocery industry, however the industry has evolved itself into a more resilient sector to supply chain disruptions, thanks to the technology facilitating decision making both at the seller and consumer’s end. Taking an example from Indian E-retailer players such as Big Basket, Grofers, Local Baniya, the inventory holding models have changed now. Grofers has a fleet of on ground shoppers, to collect the items from local mom & pop stores as per customer orders, and fulfilled within a 4-hour window. Though started on lines of similar business model, Big-Basket now keeps inventory at its consolidation warehouses, sourced directly from the manufacturers. Though the implications in such inventory management is quite high, however it can provide a cost advantage over local sourcing, and improved service levels.
To answer the first question, I think this system works best in downtown Chicago and San Francisco where such services eliminate the hassles of congestion, traffic, parking and most importantly time for shoppers. It is also not surprising that shoppers are able to shop for items at prices below the prices at the retail outlets. This is because such a logistics system eliminates overhead, maintenance and holding costs associated with the placing the product on the shelf. I feel the barrier to entry in this system would be creating alliances with other chains. Brick and mortar stores may slowly become redundant in such prime locations due to such a service provider which in turn reduces their bargaining power with these service providers. What I mean is that, Instacart may be a possible threat to these physical stores just as in the case of e-commerce platforms such as Amazon. Hence their biggest barrier is forming alliances.
Customers claim that online prices are lower compared to store prices, might attract their competitor’s customers to switch to Instacart. In fact, Instacart customers who purchase in-person at the store will switch to the online mode to exploit the reduced-price scenarios. This gives Instacart an excellent opportunity to make profits. They can maximize their profits by further reducing the prices of very essential products like Milk, banana, apples, cereals etc. and increase prices of other products which go into shopping bags of customers along with these essential products. This will be extremely successful in Chicago Downtown as the customer density is high. This essentially means one person who delivers these orders who could cover more destinations in just a single trip from the retail store.
The company can cover a larger segment of a customer’s shopping list if they if they offer delivery of products other than Trader Joe’s as well. Also, Shoppers shall be allowed to select from items across chains in order to get even more benefits from such a service.
In Chicago Downtown, the customers are located very close to each other and establishing such a delivery system would definitely improve their profits multi-fold. To increase variety in the products it delivers, it has to order from many other stores. This would improve pricing of the products as well.
They have to strategically price their products to maximize their profits and at the same time, attract more customers towards online shopping. As far as I am concerned, the barrier for any other courier service that enters this market would be both low prices charged by Instacart and its possible alliances with chains.
Instacart’s delivery resembles the already successful business model of Big Basket and Grofers who have changed the way consumers do their grocery shopping in urban India. While the profitability of such a business is questionable in remote location, a city like Chicago is the perfect place to test this business model. Downtown Chicago is dotted with grocery stores that cater to different market segments with well defined neighborhoods and store accessibility within 0.5 mile radius of any location.
While considering the grocery store chain to partner with, Instacart should consider certain factors that will determine the market that they will be able to capture. A chain like Trader Joes maintains stock of farmer-friendly produce and products but does not stock up on popular mass brands manufactured by FMCG giants such as P&G or Unilever. If Instacart were to partner with other chains, they will be able to expand their product range in turn pleasing their customers. But this might imply that they may not get the same discount and price advantage that they are currently getting. They need to perform a financial analysis to see how much they might lose out if they partnered with other chains and then come to a conclusion. I think the bigger barrier to entry for other chains will be alliances with other chains. This is because if Instacart were to expand their supplier base, the new entry will find it to difficult to gain same network initially, though they can sell at discounted price initially to gain market share and then be better placed to ask for discounts from chains.
Having no inventory saves the huge costs involved with establishing and maintaining a warehouse such as labour, space, holding costs etc. For this model to be successful, Instacart must have a robust transportation system that ensures delivery to customers in the least possible time. The company must definitely focus on expanding its product selection to various other stores too, as this helps them gain a larger customer base to achieve economy of scale by increasing the SKUs. Instacart can also gain first-mover’s advantage if they are efficient enough to expand to huge other cities before competitors like Amazon creep up with a similar model with more advantages and expertise under their belt.