The On-Demand Economy
Founded in 2012 by Apoorva Mehta, Instacart benefited from mobile technology to instantly connect customers with shoppers via a simple tapping-to-order process. Mobile technology has enabled the creation of a so-called ‘on-demand economy’ i.e. an economic activity that fulfills consumer demand by offering immediate access and convenient delivery of goods or services . Is new technology transforming what Instacart could do and how it could efficiently operate for it to succeed? Or will it succumb to the same fate as that of its now-bust dot-com predecessors Webvan and Kozmo ?
Creating and Capturing Value
Nowadays, the key for a company to succeed is ‘to rethink its business model, identifying new opportunities for creating and capturing value’, and to deliver on that promise by building a robust yet agile operating value.
At its core, Instacart started by creating and capturing value through the use of technology for the delivery of groceries in exchange for a markup and a delivery fee. However, in order to create a long-lasting competitive advantage, Instacart needed to further create value in the value-chain i.e. customers, retailers and Consumer Good Products, whilst appropriating itself some of this added value.
Instagram’s Operating Model
Instacart’s platform enables a user to select a store, groceries and a delivery time for the item delivered. Once the user pays (delivery fee or monthly/yearly subscription), a shopper receives the order on his or her phone, selects the items and delivers it to the customer or to a driver who will complete the delivery. Mobile technology is the main differentiator to Webvan and Kozmo’s capital-intensive operating model. Shoppers can now be stationed at select stores, thus avoiding the need for Instacart to invest in infrastructure such as physical store.
Creating Value in the Supply Chain
By leveraging its technology and adapting its operating model, Instacart was able to develop new revenue streams and reduce its cost. By partnering with retailers – promising and delivering greater sales volume – Instacart has managed to add a new stream of revenue, based on sales generated through the Instacart platform. Further to the additional business, Instacart provides its partners access to enterprise-level software. This technology offers retailers sales analytics, merchandising and inventory analytics, enabling the partner-retailer to better understand its customers and to generate higher sales  . With certain retailers such as Wholefoods, Instacart has integrated its platform to the retailer’s system, cementing its place in the supply chain and making that supply chain work more smoothly. Moreover, the partnership provides Instacart with access to special checkouts and a map of stores, rendering item collection more efficient and saving cost as the shopper increases the items shopper minute .
Instacart has also increased its revenue by working directly with Consumer Packaged Groups companies. Mobile technology and data analytics enables Instacart to offer CPGs targeted marketing through instant coupons. These coupons are targeted to the customer and redeemed more efficiently than offline coupon. According to Mehta, 80% of American consumers use coupons and CPGs spend a total of $320 billion in marketing every year. Instacart expects that CPG revenue will constitute 50% of Instacart’s revenue in the next couple of years, as opposed to a mere 15% today .
Technology enables scale; as orders per hour increase, orders are batched together, the number of delivery per hour increases, increasing the unit revenue, whilst keeping its cost constant i.e. per hour wages of the shopper and driver. By leveraging technology, Instacart is able to facilitate the complex logistics of small orders, whilst lowering the costs of the personal service. Furthermore, Instacart uses predictive technology to calculate how long it takes for an order to be fulfilled, thus enabling a supervision of the efficiency of its team, whilst allowing for a better allocation of resources.
Challenges and Opportunities Ahead
Instacart faces pressures from its competitive landscape, Silicon’s Valley shifting investment climate and regulatory threat. Nevertheless, these threats can be turned into opportunities. For example, the regulatory threat has already forced Instacart to adapt, as it turned its shoppers from contractors to part-time employees. The opportunity created is that Instacart is able to train its shoppers and supervise them in its pursuit of higher shopper utilization and overall performance.
What keeps me optimistic for Instacart is that in partnering with retailers and CPGs, whilst delivering a superior service for its customers, it has built trust. Trust is an essential component to unlock the many opportunities that technology brings and it will be up to Instacart to continue leveraging trust and value creation as it builds partnerships with retailers, CPG, whilst servicing its customers.