In a time when grocery shopping can be incredibly dangerous for people, there is perhaps no more compelling value proposition than Instacart’s – a grocery delivery platform making grocery ordering and delivery easier for customers.
Instacart was well-positioned during this crisis and is experiencing exceptionally high growth during this COVID-19 outbreak. In fact, due to significantly increased demand, on April 23, 2020, Instacart announced that it is adding 250,000 shoppers to satisfy higher demand and give customers the quick turnaround times that they are used to.
However, despite this, Instacart has face significant challenges and backlash in many areas, including employee satisfaction and customer delivery times. This blog post will explore Instacart’s growth, challenges, and whether its success is sustainable long-term.
Instacart’s growth has been remarkable during this period. In March, it had 200,000 existing shoppers and announced plans to hire 300,000, moving the total to 500,000 shoppers. It has already accomplished that goal, and with the plans above of hiring an additional 250,000, that represents moving its shopper total to 750,000 shoppers.
Naturally, this growth in the supply side (shoppers) is driven largely by the impact of COVID-19 on the demand side – users ordering grocery delivery. People are trying to responsibly stay home, so as to slow the growth of COVID-19. Staying away from potentially crowded areas like grocery shopping can help with that, so naturally they are turning to Instacart.
How the value proposition has evolved
Initially, without the impact of COVID-19, Instacart’s value proposition was already compelling. For a small fee (usually less than $10 and slightly marked up grocery prices), customers save time by ordering groceries on the Instacart app and having them delivered on the same day, even within an hour. Users could also pay a monthly subscription price to waive the delivery fees.
Now, on top of that value proposition, users gain the value of staying home to slow the spread of COVID-19 for the public and to reduce their own risk of getting the virus. That makes for a very compelling value proposition for users. They:
- Save hours of time
- Gain convenience by not going to store
- Reduce their own risk of getting COVID-19
- Help their communities slow the spread of COVID-19 by staying home
All of this comes at the cost of less than $10, plus whatever tip they decide to provide the shopper.
It is easy to see why Instacart has experienced such explosive growth during this time period.
However, it has also faced several challenges that threaten its growth.
Many Instacart workers have been frustrated with Instacart’s job providing adequate protective equipment for its shoppers. Some have received protective gear but have posted videos with flimsy masks, while others haven’t received gear at all. Additionally, some shoppers have went on strike, demanding better gear and other things like default minimum tips (addressed below).
Last month, some Instacart shoppers went on strike, demanding the company provide personal protective equipment, add hazard pay of $5 per order, change the default tip minimum, extend the sick pay policy to those who have pre-existing conditions and more.
Instacart employees have suggested that they are doing their part to help. The Washington Post reported that “Instacart spokeswoman Natalia Montalvo said the company has been working to implement new policies, distribute protective equipment and give out bonuses.”
While this has caused some bad press, it apparently has not stopped Instacart’s rapid growth.
In addition to employee frustration around safety issues, they have also been upset with tipping. Especially because shopping has become more dangerous, they believe they should receive higher tips (and I agree). Accordingly, they have protested for Instacart to change its default minimum tip. In fact, it appears that users have responded to this as well, with Instacart reporting that tipping has increased by 30% in this period. This is likely a reflection of the customer’s appreciation for the shoppers risking their health by going in public.
User Wait Times
Naturally, due to the higher demand, Instacart has had difficulty maintaining the short wait times that help make it so popular. While delivery times before the crisis could be as short as within one hour, some customers have had to wait between one and two weeks during the crisis to get a delivery window.
To combat this, Instacart has added flexible timing and other features where customers can select a window within a few days, and Instacart can assign the specific window.
I think Instacart is unlikely to be able to completely match its quality from before the crisis. Demand is growing too quickly, and even with accelerated shopper hiring, I am uncertain they can match it perfectly. However, I do not believe this will materially impact Instacart’s growth in this period. The value proposition is still strong, and customers can combat it by ordering more per order.
Is the growth sustainable?
Factoring in all of the above analysis, I believe that Instacart’s success will be sustainable long-term, though the growth will slow. I think this for a few reasons:
First, its significant growth in user acquisition allows it to further defend itself against competitors like Amazon. While it is easy for customers to multi-home with both Instacart and Amazon, this burst of popularity and momentum has helped Instacart rapidly grow its customer base. This will help it better defend against competition like Amazon.
Second, this period allows users to build habits of buying groceries online. Users who were hesitant to sign up before can now appreciate the value proposition of the convenience and saved time. When users go back to work, they will likely be in the habit of ordering online and continue doing so.
Finally, I believe that this period has allowed users to appreciate the value proposition of saved time and greater convenience on groceries, which will remain the same far beyond this crisis.
Therefore, I think Instacart’s success will be sustainable in the long-term, albeit at a slower rate than it is growing during this crisis.