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Instacart are thinking very well about their business operations well but I still am apprehensive on their unit economics. The numbers given are $5.99 for a si
by Dwolb 11y ago
Instacart are thinking very well about their business operations well but I still am apprehensive on their unit economics.
The numbers given are $5.99 for a single delivery fee or $149 for an annual subscription. In Atlanta they're making $6.96 per order and in Chicago they're making $4.29.
Let's say a shopper makes $15/hr and can pick 5 orders per hour with an average basket size of $100. The delivery driver also makes $15/hr and can deliver all 5 orders with the basket size of $100.
Total labor cost is $30, or $6 per delivery and total revenue is 5*$5.99 or $29.95 for a slightly negative gross profit.
So then is it reasonable to pick and checkout more than 5 orders per hour or 1 every 12 minutes in a random, non-optimized grocery store layout in the US? Is it reasonable that a grocery store would pay out 6% off topline revenue to Instacart when grocery industry profits are already in the single digits? Could it be the average order revenue is substantially higher than $5.99 if annual subscribers use their service fewer than once every two weeks? Or is their cost basis truly lower than fully burdened employee costs of $15/hr?
It just seems like the economics are pretty sensitive to operational metrics so it'd be great to get an official view into the business.
- cehrnrooth 11y agoLocation density of the deliveries has got to have a massive impact on their effectiveness. I'm highly skeptical of their ability gather groceries and deliver to 5 separate locations within 1 hour. Even in a dense area where it's 5 minutes between each location (plus parking, plus entry / exit and delivery) that's 25 minutes minimum. The longer the time, the lower the $/Hr. The further away the locations are, the higher the transportation costs are for the driver, further cutting into their actual take home pay (not including, miles, depreciation, insurance, etc...). Instead of making deliveries after the order (and trying to bundle orders and deliveries), I would think a dispatch model where one set of workers go out in the morning and make the orders and deliver to a central location. Then have a second shift make deliveries, but that would make it difficult to maintain the independent contract status of their workers.
- Dwolb 11y agoAgrees on the location density point - the route for the driver has got to be near perfect for their model to work. The dispatch system is an interesting thought. I wonder if it fully aligns with their delivery time promise. I think the dispatch system points to another 'lever' however - certain recurring orders can be lazily filled. i.e. when the shopper has no rush orders he/she can fill her free time filling orders which are upcoming, but not immediate
- corkill 11y agoIn the cart tipping is the default so I assume that may reduce their costs and from the below quora thread sounds like what shoppers rely on. https://www.quora.com/What-is-tipping-etiquette-for-delivery-services-like-Instacart-Google-Shopping-Express-and-eBay-Now https://www.quora.com/What-is-tipping-etiquette-for-delivery...