Instacart + Whole Foods Market = Digital #Winner

Instacart paired a digital solution with the existing supermarket model. They rely on speed and accuracy to deliver (no pun intended) on their customer promise. By rethinking the way we shop, Instacart has been able to disrupt the traditional shopping model. By decoupling the process of shopping and receiving groceries, Instacart (and WFM) has added opportunity to create value, while still capturing value.

Instacart is a revolutionary approach to today’s shopping experience. Founded in 2012, Instacart offers home delivery service of groceries.   Using their website or App, customers make a digital shopping list and enter payment and delivery information. A few hours later, an Instacart delivery contractor will be at their door. Depending on the store, the customer pays the exact cost of the product (no adjusted price markup), a small, variable delivery fee and optional tip. Convenient, affordable, and fully customizable food shopping, accomplished from your couch, desk, or commute.

In 2014, Instacart announced a partnership with Whole Foods Market (WFM). For Instacart, this added a new customer base with different willingness to pay, but allowed them to maintain much of their operational model.   For WFM, this was seen by many as a crucial investment in technology.

 

Target Customer:

  • Working Families: According to the Bureau of Labor Statistics, the share of all families that had a husband and wife in the labor force increased from 34 percent in 1975 to 47.7 percent by 2014. Further, both parents are employed in 60.2 percent of all married-couple families with children. The overload of responsibilities (both at work and at home) has increased tremendously. There is too much to accomplish, and not enough time to do it.

Instacart paired a digital solution with the existing supermarket model.  They rely on speed and accuracy to deliver (no pun intended) on their customer promise. By rethinking the way we shop, Instacart has been able to disrupt the traditional shopping model. By decoupling the process of shopping and receiving groceries, Instacart (and WFM) has added opportunity to create value, while still capturing value.

As their business model adapts and they streamline their in-store operations and delivery methods, Instacart will continue to create value for customers. They have been able to apply the desirable features of the “On demand” economy to a very traditional marketplace.   While Instacart offers alternatives to shoppers with not enough time, this is a strategic play by Whole Foods.   With this partnership, WFM ensures that Instacart doesn’t completely disrupt their model (since WFM sources Instacart directly).   It also allows WFM to access attractive customers who don’t want to shop, or don’t care about in-store amenities. But industry experts wonder whether WFM can fend off other disruptors who are attempting to disintermediate supermarkets.   Services like AmazonFresh and Peapod use their own warehouses to source orders, cutting out the supermarket altogether.

Instacart’s business model has evolved.   Originally, they had the same employee shop and deliver. Now, they have two individuals who play a key role in the value chain for each customer- the personal shopper, and the deliveryman(woman).   The personal shopper has a unique skill set, and the reputation of Instacart rests on their ability to get you exactly what you want.

Instacart has built into their structure continued engagement between the customer and the personal shopper. A customer builds their shopping list, adds comments, and selects acceptable substitutes- all without going to the store or talking to another individual. The ability to make this work entirely depends on a robust customer facing digital platform.   By building a user-friendly website, Instacart has given customers confidence in trusting someone else with buying their daily groceries.   This “picking power” is normally a very personal thing.   Traditional shoppers lean over the butcher’s counter to inspect their meat, and buy bananas at peak ripeness. We maintain our own quality standards for the goods that we buy with our hard earned money, during our hard-to-come-by free time. Is relaying a detailed shopping list to a stranger using the internet a good substitute?

The other value creation is the actual delivery of groceries. By eliminating the round trip to the supermarket, time spent parking, time spent searching for items, and waiting in line to pay (not to mention the frustrations of shopping with small children in tow), Instacart is a real winner.  Storage and tracking of goods is imperative, but the real operational challenge (and where the company will have opportunities to innovate in the future) is in delivery execution. Efficient route choices and optimal delivery patterns will be crucial. In the future of grocery delivery, there will be opportunity to leverage digitally driven, shared economy methods (i.e., Uber, Rideshare platforms, and backloading).

 

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Student comments on Instacart + Whole Foods Market = Digital #Winner

  1. Since Instacart appeared on the scene, I have wondered why Whole Foods would agree to partner because part of Whole Foods’ value proposition is their in-market sensory experience – it’s fun to shop there (even though many items are expensive!). Going to Market Basket is an entirely different experience than going to Whole Foods, and I wonder whether Instacart might aim to target some retailers that aren’t that pleasant to shop at in the first place. Then they would capture those who don’t have time to go to the store, and those that would rather not set foot in the store.

    Your point on Instacart’s target demographics (Techy Bostonians and Working Families) explains why Whole Foods might not see this as a threat, but at the same time, if we take this model to its end-conclusion (assuming everyone will ultimately want their groceries home delivered in the utopia of the future), Whole Foods will simply become a warehouse. While convenient, I think something valuable will be lost – the enjoyment of seeing the many varieties of lettuce and kale, and the ripeness of the bananas!

    Furthermore, I imagine most shoppers make impulse buys, in addition to their shopping list, when going into the actual store. Does Whole Foods lose this if too many people turn to Instacart? Will their $35 average shopping basket decrease?

    1. My first reaction to this post was also the average basket size… So many of my grocery purchases are based on browsing aisles, and finding inspiration there. This argument is similar to the one people make about e-books replacing bookstores and libraries: though there is a lot of adoption, there’s nothing that quite replaced scanning a row of books to find something new, and glancing through the first few pages before you take the plunge to purchase. I wonder if Instacart and other food delivery apps could find ways around this, perhaps with a ‘recipe suggestion’ algorithm? For example, if you put kale and dates if your basket, it might suggest you make a date and kale salad with almonds and goat cheese, and perhaps even offer you a $0.50 discount on those items.

  2. I love Instacart and used it often to save time and effort getting to the store and stay warm in our lovely Boston winter last year. I wonder if the Instacart search results take into account slotting fees paid by food or goods producers to grocery stores. Given that it’s where, I believe, most stores make the majority of their profits, adjusting those results and sharing in those fees (or charging producers their own fees) could be an interesting revenue source for Instacart, if they are not already doing so.

  3. I also love Instacart, especially the user-friendly interface of their website and their (mostly short) delivery times. I do see two significant areas for improvement, however. One is specific to the grocery home delivery apps and services, and the other is a more general comment on crowd-sourcing service apps (e.g., Uber, Handy, etc.). First, it is frustrating that many grocery items for Whole Foods on Instacart do not have images. If Instacart were to fix this and add photos for every single item, and have a fast way to update seasonal items as well as bakery items, I think more of the WFM value proposition could be brought to bear. Instacart fails to create additional value by not including images for all items it shows, and by not having every item in the store. Second, I have yet to see how successful the Instacart rating system is. I just received an order tonight with an incorrect item, and the “Customer Happiness” team sent me an automated message saying someone would get back to me. I also have received orders with bad-looking produce, that I never would have chosen for myself. These incidences have occurred over the span of a few months, even a year, so I am skeptical about quality control. The same applies to my experiences in Lyft and Uber – overall they are good, but there are still some “bad apples” (pun intended).

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