“Instacart is building the best way for people anywhere in the world to shop for groceries, solving problems and creating a magical experience for our customers.” 1 Instacart, founded in 2012 by Amazon alum Apoorva Mehta, provides an on-demand grocery delivery service, collaborating with supermarkets and crowdsourcing personal shoppers to bring customers food from their favorite stores in as little as one hour. The company is able to deliver value to its three primary constituents – customers, stores, and personal shoppers – because of its strongly aligned business and operating models. As a result, Instacart is experiencing reported double digit revenue growth, rapid geographic expansion, and plenty of VC investment.
Every element of Instacart’s operating model is thoughtfully designed to drive toward implementing the business model and delivering on the company’s value proposition. In addition, it has allowed the company to disrupt the food shopping/delivery experience and scale rapidly. In two short years, Instacart has gained a foothold in 15 key urban markets across the U.S.
While its business model could support any type of brick and mortar retailers, Instacart kept its focus solely on the grocery industry. Mehta knew that most grocery store and food markets were not well-positioned to deliver this kind of on-demand service to its customers. Instacart spent three years refining processes and technology to streamline order fulfillment, building the company’s expertise and reputation. Only now is the company branching out to other retailers – including pilots with Target and alcohol vendors.
Facilities – Or Lack Thereof
Like most companies leveraging the shared economy, Instacart has little to no PPE (no warehouses, vehicles, or heavy equipment.) This has allowed the company to focus its capital expenditures on developing its processes, technology, and human capital. Its major competitors, AmazonFresh and FreshDirect, serve as distributors and must build/acquire costly infrastructure to support their operations.
Technology & Processes
The technology and processes are designed to maximize the customer experience. The website is simple to use, allowing customers to select their local market, search for items, and fill their cart. Before checkout, the customer can add notes about replacements should any of their items be out of stock. The customer then schedules their delivery timeframe, ranging from two hours to the next day depending on their schedule. Once the customer has completed the purchase, the order is then passed along to a personal shopper. Shoppers are usually dedicated to one store and utilize the Instacart shopper app to quickly locate all items in the order. Many stores have a designated cash register for Instacart’s use, allowing shoppers to avoid lines. Finally, the basket is delivered to the customer. In the past, the shopper delivered the product, but now Instacart is experimenting with dedicated shoppers and dedicated drivers.
The entire throughput time per order has been streamlined to less than 2 hours. According to Mehta, other process improvements are in the works.
Instacart has close to 500 full-time employees, but the bulk of their operations are carried out by their thousands of personal shoppers. Shoppers are typically underemployed individuals seeking flexible part-time work, such as students or mothers. They have the potential to earn $15-30 an hour through base salary and shopper tips. Initially, shoppers were considered independent contractors, not eligible to receive any benefits. However, as is the case with most companies leveraging the “shared economy,” many contractors felt a lack of loyalty to the company and turnover was high.
Instacart launched a pilot in Boston to experiment converting shoppers to part-time employees. This allowed greater oversight and hands-on training, resulting in higher levels of service, both in quality of selection and efficiency, and a markedly improved customer experience. In June 2015, the company announced that they would make this opportunity available for any employee and anticipated 75% would make the switch.
Quality and User Experience
As a customer myself, I can attest to the easy ordering, laser-fast delivery, outstanding customer service, and perfect selection. Shoppers call to verify replacements and text to let you know they are on the way. Mehta designed the entire operating model to optimize the customer experience.
What I find most interesting about Instacart is that its operating model constantly evolves to better support the business model. In addition, they have iterated their pricing model several times, as well. This is the case for many innovative startups, I would imagine, as they pioneer, test, measure, iterate, and improve various aspects of their operations strategy. However, most companies could benefit from this startup mentality of continuous improvement, flexibility, and adapting to new technology and competition.