10 ms·

They have tens of thousands of customers, yet are worth multiple billions of dollars (valued at $2bn in 2015.) That's just incredible. Let's say they have 100

by tyre 10y ago

They have tens of thousands of customers, yet are worth multiple billions of dollars (valued at $2bn in 2015.) That's just incredible. Let's say they have 100k customers who each use the service every week. That's 5.2m orders per year. Let's say $100 per order, to be generous. At a 10% service fee, that's $50m for a two-year-old 40x revenue multiple. Before paying their contracted workforce. This does not make sense. EDIT What I'm really getting at is that these are optimistic numbers, in the wealthiest country in the world, that just elected a populist president (partially) due to economic insecurity. What is the market for +10% on groceries and basic necessities? EDIT2 It may be tens of thousands of contractors, not customers (thanks @trevyn!) This is confusing, since I'm not sure what verb to use for the end user on Instacart. ("I am _______ on Instacart" (consuming, shopping, grocing?)) Regardless, my number could be an order of magnitude off. I stand by the conclusion.

hnarn 10y ago
It makes a lot of sense if you know how perverse financial markets are. The difference between those millions and those billions is the perceived potential of the company. All you need is some investment banker becoming convinced that noone wants to visit physical stores anymore, and suddenly money starts pouring into companies supporting that view of the future, almost regardless of whether they are actually profitable or are creating any real value.
- deleted 10y ago
  [deleted]
- thehardsphere 10y ago
  Right, so the question becomes "Why do enough people perceive the potential of Instacart to be billions when a back of the envelope calculation by a guy on Hacker News suggests that's not the case?" Presumably said investment bankers are capable of doing the same math as Hacker News readers, so why did they still fork the money over when they have many other crazy bets to choose from?
  - MegaButts 10y ago
    Here's a secret: most investors lose money.
    - thehardsphere 10y ago
      Well, sure. They usually know they're going to lose money going in, and they can pick all sorts of things to lose their money on. That doesn't explain why the picked this one particular thing to lose money on.
      - MegaButts 10y ago
        Of course I can't find the source for it now, but during Instacart's last fundraising round they did some really weird stuff. For starters, the investors were only allowed to view their financials in a printed book in a room, and were not allowed to take pictures or write anything down to mull it over and make a decision. Apart from that, you have to understand that there are a lot of investors, and if you can convince just a few of them that the upside is huge then you've got funding. It's not hard to get traction in a space like delivery where everybody knows it's something people want. But the problem is they get traction by operating at a loss, so when they try to run profitably they inevitably fail as people bawk at the prices.
        grandalf 10y ago
        > But the problem is they get traction by operating at a loss, so when they try to run profitably they inevitably fail as people bawk at the prices. Well, in a competitive environment like Uber vs Lyft, both companies subsidize the service to the benefit of the customers (and employees) in an attempt to maximize market share. There is a lot to gain by becoming the market leader in a service like ride sharing or grocery shopping. The market is very big and it's a basic need that most people have. If anything, I think there is too much expectation by investors that a success in a non-ridesharing market will generate earlier-stage financials that look like Uber's. With Instacart, the value add is such a no brainer. Imagine if everyone had to go to a shop, park, and walk around picking out mail that had been addressed to them. It would be hugely inefficient. This is why the postal service delivers mail to everyone's home. The service is considered so essential to the functioning of society that it's viewed as a legitimate state-run monopoly and aggressively subsidized. Most people spend significantly more time grocery shopping than they do picking up letters and parcels. This is a significant amount of leisure time wasted. Instacart can also easily swoop in and source certain high-margin goods on its own, or offer price comparison or even auction-style services where merchants bid on the virtual cart and it is fulfilled by the merchant offering the lowest price. All these are obvious next steps for Instacart, which wisely sees Grocery stores as a relic of the past ready to be replaced by something better. Grocers are market makers who specialize in understanding demand patterns. This is what makes a grocer successful, but grocers must spend lots of money simply to help alleviate the drudgery of being at the store shopping for one's self. One place near where I live features an elaborate player piano, hot bar, oyster bar, and wine bar! Most customers don't buy the oysters or a glass of wine, but having those side-acts makes being at the store pushing a cart through aisles feel less like demeaning, robotic drudgery. Instacart has found a better way. You take out the app, easily search for products, see recently/frequently purchased products, set up a delivery time, and you're done. It all arrives as if by magic. Maybe someday the shopping will be done by actual robots and the delivery by drone. But even in that world, the market-maker wisdom of local grocers will be just as relevant as it is today, and the high quality shopping experience of the Instacart app will be at least as useful.
biot 10y ago
It's basically Webvan 3.0. https://en.wikipedia.org/wiki/Webvan https://en.wikipedia.org/wiki/Webvan
- pshposh 10y ago
  I was thinking of Kozmo.com which funnily enough also went defunct in 2001. https://en.wikipedia.org/wiki/Kozmo.com https://en.wikipedia.org/wiki/Kozmo.com Although they did more than just food.
  - et-al 10y ago
    Kozmo was more of a courier company, closer to today's Postmates.
  - bluejekyll 10y ago
    I loved Kozmo. I used them at least once a week; I still miss them.
    - pshposh 10y ago
      What kinds of things did you use them for and what was the cost? If you don't mind me asking.
      - bluejekyll 10y ago
        Literally anything... In San Francisco, if I remember correctly, they delivered within like 20 minutes. It was basically an online convenience store. At the time I was working really strenuous hours at a startup (that sadly followed Kozmo), so getting basic things that you'd normally run to a corner store for. Batteries, junk food, movies... if a bike messenger could carry it, they delivered it. It was awesome... funnily though, I don't use any of the other delivery services now; can't explain that.
      - foxhound6 10y ago
        I used to work for Kozmo.com way back when. If you have any questions, I'd be happy to field them as best I can.
trevyn 10y ago
Tens of thousands of shoppers, not customers.
- tyre 10y ago
  I think you might be right, but this is confusing since an instacart user is also a shopper? Not sure what the right language is, but I'll revise my post :+1:
  - nostrademons 10y ago
    Instacart's shoppers are its employees.
draw_down 10y ago
Source?
grandalf 10y ago
Say the average wage is $10/hour. If it takes one hour to go and do that shopping, I break even by paying someone else that $10, if I value my leisure time as equivalent to my wage. More likely, most Instacart customers earn much more than $10/hour. For someone with a busy work schedule, there might be 2 hours of leisure time available per day during the week. This means that by using Instacart I increase my after-work leisure time by 10-20% per week. If you consider that grocery stores are more crowded during the weekend, and assume 10 hours per day of leisure time, someone who places one order per week likely increases weekend leisure time by 10%. Since stores close early on Sunday, having Instacart do the shopping on Monday instead can make a weekend getaway possible that would otherwise have had to end in time for that Sunday shopping trip. I'm sure some people prefer to wander through the store filling up a cart, searching for difficult-to-find items and waiting behind several people for the checkout clerk to finish bagging all their orders. I do not. I've also found that Instacart sorts items by price, so it's easy to fill the virtual cart without falling victim to all the end-cap advertising and impulse purchase scams that the stores have going. When I go to a physical store I frequently end up buying things I didn't really intend to, but with Instacart, I only end up with the things I actually wanted.
- CamelCaseName 10y ago
  When I go to a physical store I frequently end up buying things I didn't really intend to, but with Instacart, I only end up with the things I actually wanted. Specifically what products do you end up buying? I have always wanted some insight as to who buys these items near the register and why, as I rarely see anyone pick them up.
  - jjfine 10y ago
    They're not necessarily talking about just those items. The entire store is designed so you buy things you weren't intending to buy. You never said/thought: "Ooh look ice cream's on sale..." and failed to resist?
    - 0xcde4c3db 10y ago
l33r 10y ago
I use Instacart because I don't own a car and convenience. When I'm making $60 an hour overtime during the weekend for a 12-14 hour shift, you bet I'm going to be using Instacart for a nominal 10% markup for groceries from Costco.
- muzz 10y ago
  And you don't need to be a member of Costco to use it via Instacart
panabee 10y ago
Thank you for a sensible analysis. However, if you're off by an order of magnitude, 4x revenue for a fast-growing startup in a $582B industry seems reasonable [1]. The key data point is number of customers. What's a reasonable ratio for customers to contractors/shoppers? Perhaps we could estimate the number of customers from the number of contractors/shoppers. (Of course, "tens of thousands" may be a lifetime value, not currently active ones.) [1] https://www.statista.com/statistics/197626/annual-supermarket-and-other-grocery-store-sales-in-the-us-since-1992/ https://www.statista.com/statistics/197626/annual-supermarke...
mathattack 10y ago
I applaud your willingness to edit. I am bearish on Instacart, but acknowledge that you shouldn't value them based on current cash flows. It's half a bet on massive growth combined with eventual profitability, and half a bet on some massive non-linear outcome. (For example: search -> ads, or books -> hosting)
- grandalf 10y ago
  Imagine if people routinely traveled to a shop and spent 20-30 minutes collecting mail addressed to them, then traveled home. If mail happened regularly enough, this would be a very inefficient arrangement. Why is grocery shopping any different? Most people buy pretty much the same stuff on a routine basis. Items have varying shelf-life, making parcel shipment practical for only a subset of items (not to mention the hassle of dealing with all the boxes). Local grocery retailers are essentially market makers for the items they carry. They also provide parking, merchant processing, and a variety of other services (like store brand items, made-fresh refrigerated items, etc.) Unless you are a chef looking for inspiration or insist on getting the absolute best looking tomato in the whole store, for most people, the time spent trudging through the aisles is mostly wasted. In other words, the lack of delivery imposes a significant transaction cost upon obtaining groceries. Thanks to Instacart, I buy a lot more groceries than I used to, which means I spend less money at restaurants. Instacart turns grocery stores into a bigger competitor for restaurants. Unlike Seamless where you pay close to $5 for delivery of a single meal, with Instacart you can order food for a whole week and pay not much more to have it delivered. Instacart makes keeping the fridge in stock with just the right items significantly easier and removes the immense hassle of manual shopping/transport.
closeparen 10y ago
>What is the market for +10% on groceries and basic necessities? People who live in the suburbs without cars. Cities are successfully discouraging car ownership by making parking scarce near downtown offices and even the suburban transit stations that lead to downtown offices. At the same time, cities aren't permitting the construction of dense, walkable neighborhoods, at least not fast enough to make them affordable. So you have a large and growing segment of the population with: - A built environment where distances are scaled for driving. - A hard time justifying car ownership, since it isn't useful for commuting. - Neighborhoods which are now becoming crowded enough that parking is a hassle, but haven't become dense enough to have useful businesses within a convenient walk. (When they reach this point, they may cease to be affordable). "Outsourced driving" is immensely popular in such environments. Instead of Target and Walmart and BestBuy, you use Amazon Prime for most purchases. Instead of driving the SUV to the supermarket every week, you use Amazon Fresh, or (in the case of Instacart) pay someone else to do it or you. Instead of going out to eat or picking up takeout, you order from UberEats/Grubhub/whatever. Each use case for personal car ownership can potentially be replaced with a fleet of service workers from further outside the city, and each permanent parking space can be replaced with one of them double-parking for 30 seconds every few hours. How do the economics work? - Labor + car operating costs for some contractors < value of the land the people they serve would otherwise park on. - Delivery fees and markup on everything you buy < parking, gas, insurance, maintenance, and depreciation (by a couple hundred bucks maybe) < rent premium to live in similar apartment in a walkable area (by $1000+/mo) < psychological cost of the tradeoffs you'd have to make, like roommates, to live in high density on a middle-class income. Whether that's $2bn, I don't know. But I think selling car-based services to the carfree will be a winning proposition as long as NIMBYs and anti-car activists remain simultaneously empowered.
- flukus 10y ago
  That sounds like a small market that's destined to shrink.
  - closeparen 10y ago
    In the very long run, maybe. I don't see NIMBYs losing steam and I don't see the migration into major metros slowing down either. Maybe when the self-driving car comes?
WhitneyLand 10y ago
Regardless of how you calculate the valuation this is bad for business. People don't like companies being disingenuous, and not realizing that treating employees fairly is actually an important part of building a healthy company (putting aside it's the right thing to do). If they really needed to do this then don't play games. Just explain that revenue growth can make or break a company at this stage so we need to take these actions. Just being honest about the realities of business and your choices go a long way. This week Uber and Instacart have damaged their brand due to nothing other than poor leadership.
- grandalf 10y ago
  I agree that companies like Uber and Instacart should be doing a lot more to foster employee loyalty. Who knows, maybe the future of these semi-infrastructure businesses is actually as co-ops, with workers earning a stake that can be worth more in the long term. I'd like to see one of these companies create a special class of stock and award one unit for every dollar of business each employee participates in.
  - abraae 10y ago
    I'd guess that none of them want that to happen, and it would only be a new entrant who would ever be so disruptive. I hope you're right though, that could be a truly superior business model. You can't underestimate the power of a radically engaged workforce.
    - grandalf 10y ago
      True, I think Uber and Lyft are very unlikely to do it. As a consequence, drivers are extremely disloyal and many have two phones, one running each app and they pick on a ride by ride basis which app to use. I think it's getting easier and easier for a new entrant to disrupt the market by offering a platform that better incentivizes driver loyalty. It's not necessary to force drivers to switch, only to put the new app on one of the phones they are already using.
solatic 10y ago
It makes sense when you take into consideration investors' expectation for exponential growth. The company's valuation is based on that expectation. If the company stops growing, expect the valuation to pop like a bubble.
ChuckMcM 10y ago
Just two dots to connect, instacart removes one of the reasons to drive, millenials don't like to drive[1]. [1] https://www.washingtonpost.com/news/wonk/wp/2014/10/14/the-many-reasons-millennials-are-shunning-cars/ https://www.washingtonpost.com/news/wonk/wp/2014/10/14/the-m... http://time.com/money/4185441/millennials-drivers-licenses-gen-x/ http://time.com/money/4185441/millennials-drivers-licenses-g... Etc.
vegabook 10y ago
All you see is the capital angle? You're hijacking the comments with your company valuation thing instead of thinking about the workers for once as is the whole point of the article.
- linkregister 10y ago
  The parent poster can't control who up votes his comment. Thinking about the capital angle doesn't mean someone doesn't think about the workers. Also, what happens to the workers/shoppers once Instacart runs out of funding?
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timcederman 10y ago
Have kids - you'll then discover how amazing and worth it delivery services are.
hkmurakami 10y ago
I have a good friend who lives a15 minute drive from a supermarket, but has a draining job. He makes good money. He Instacarts everything since he doesn't have the energy or time to do that one extra chore. He certainly doesn't mind the 10% surcharge. That probably not a sustainable market but there are certainly cases where paying 10% makes sense.
mattmanser 10y ago
Well, you can look over the pond to find out why. In the UK, which is much less car focused, we've had a successful instacart equivalent, Ocado, for a decade. They're presently turning over about £1 billion per year ($1.25 billion) [1]. Market cap on today's market is £1.5 billion ($1.85 billion)[2]. Now all the major supermarkets home deliver and have for 5+ years. There's been a massive shift in the big chains' store building, they now build small "express" stores in town centres and near offices allowing people to pick up minor things without having to do a full shop. As far as I know, no-one's building large stores at the moment. And the American market is potentially worth more a lot more than the UK one. [1] http://www.bbc.co.uk/news/business-31108569 http://www.bbc.co.uk/news/business-31108569 [2] https://uk.finance.yahoo.com/quote/OCDO.L?ltr=1 https://uk.finance.yahoo.com/quote/OCDO.L?ltr=1 EDIT: Other interesting note, in the UK, the markup for delivery is free or a fairly nominal charge (£5/$6), but only if you pick a slot in a few days. If you want it sooner, or in a prime-time slot, you have to pay more for those delivery slots. The supermarkets are building the costs into the prices. Also, here gas costs a lot more and it's almost cheaper to pay £5 than it is to drive to the supermarket. EDIT2: I should add the small stores have a regulatory reason they're small, UK law means only stores under a particular size can be open more than 7 hours on Sundays.
- qqg3 10y ago
  What you might not know? Ocado has built the backend for a lot of those major supermarkets offering online shopping. Another revenue stream for them as they are shopping the technology abroad too
  - martinald 10y ago
    That's not really true. They do it for Morrisons but noone else. They haven't been able to sell the technology abroad yet, and the CEO commented in their last annual report how this was a big disappointment. To be honest though, the technology is superb. Compared to Tesco, Asda or Sainsburys, deliveries are always bang on time and I have only out of dozens of order had one item that was out of stock, which is much better than the competition who always have to substitute random items in.
- 10y ago
ghaff 10y ago
>What is the market for +10% on groceries and basic necessities? Lots of people are willing to pay for delivery even if they own cars though it's not necessarily a huge market. In general, in the US, people haven't really embraced online grocery shopping unless hopping in a car and driving to the store is inconvenient for some reason. Personally, I used Peapod for a period when I was on crutches but it wasn't great. (Frequently didn't deliver everything, etc.) I'd probably use Instacart now and then today but it's not available where I live. Friends who live in a city but aren't easy walking distance from a good grocery store and don't own a car use it all the time.

by tyre 10y ago

hnarn 10y ago

It makes a lot of sense if you know how perverse financial markets are. The difference between those millions and those billions is the perceived potential of the company. All you need is some investment banker becoming convinced that noone wants to visit physical stores anymore, and suddenly money starts pouring into companies supporting that view of the future, almost regardless of whether they are actually profitable or are creating any real value.

deleted 10y ago
[deleted]
thehardsphere 10y ago
Right, so the question becomes "Why do enough people perceive the potential of Instacart to be billions when a back of the envelope calculation by a guy on Hacker News suggests that's not the case?" Presumably said investment bankers are capable of doing the same math as Hacker News readers, so why did they still fork the money over when they have many other crazy bets to choose from?
- MegaButts 10y ago
  Here's a secret: most investors lose money.
  - thehardsphere 10y ago
    Well, sure. They usually know they're going to lose money going in, and they can pick all sorts of things to lose their money on. That doesn't explain why the picked this one particular thing to lose money on.
    - MegaButts 10y ago
      Of course I can't find the source for it now, but during Instacart's last fundraising round they did some really weird stuff. For starters, the investors were only allowed to view their financials in a printed book in a room, and were not allowed to take pictures or write anything down to mull it over and make a decision. Apart from that, you have to understand that there are a lot of investors, and if you can convince just a few of them that the upside is huge then you've got funding. It's not hard to get traction in a space like delivery where everybody knows it's something people want. But the problem is they get traction by operating at a loss, so when they try to run profitably they inevitably fail as people bawk at the prices.
      - grandalf 10y ago
        > But the problem is they get traction by operating at a loss, so when they try to run profitably they inevitably fail as people bawk at the prices. Well, in a competitive environment like Uber vs Lyft, both companies subsidize the service to the benefit of the customers (and employees) in an attempt to maximize market share. There is a lot to gain by becoming the market leader in a service like ride sharing or grocery shopping. The market is very big and it's a basic need that most people have. If anything, I think there is too much expectation by investors that a success in a non-ridesharing market will generate earlier-stage financials that look like Uber's. With Instacart, the value add is such a no brainer. Imagine if everyone had to go to a shop, park, and walk around picking out mail that had been addressed to them. It would be hugely inefficient. This is why the postal service delivers mail to everyone's home. The service is considered so essential to the functioning of society that it's viewed as a legitimate state-run monopoly and aggressively subsidized. Most people spend significantly more time grocery shopping than they do picking up letters and parcels. This is a significant amount of leisure time wasted. Instacart can also easily swoop in and source certain high-margin goods on its own, or offer price comparison or even auction-style services where merchants bid on the virtual cart and it is fulfilled by the merchant offering the lowest price. All these are obvious next steps for Instacart, which wisely sees Grocery stores as a relic of the past ready to be replaced by something better. Grocers are market makers who specialize in understanding demand patterns. This is what makes a grocer successful, but grocers must spend lots of money simply to help alleviate the drudgery of being at the store shopping for one's self. One place near where I live features an elaborate player piano, hot bar, oyster bar, and wine bar! Most customers don't buy the oysters or a glass of wine, but having those side-acts makes being at the store pushing a cart through aisles feel less like demeaning, robotic drudgery. Instacart has found a better way. You take out the app, easily search for products, see recently/frequently purchased products, set up a delivery time, and you're done. It all arrives as if by magic. Maybe someday the shopping will be done by actual robots and the delivery by drone. But even in that world, the market-maker wisdom of local grocers will be just as relevant as it is today, and the high quality shopping experience of the Instacart app will be at least as useful.

biot 10y ago

It's basically Webvan 3.0. https://en.wikipedia.org/wiki/Webvan https://en.wikipedia.org/wiki/Webvan

pshposh 10y ago
I was thinking of Kozmo.com which funnily enough also went defunct in 2001. https://en.wikipedia.org/wiki/Kozmo.com https://en.wikipedia.org/wiki/Kozmo.com Although they did more than just food.
- et-al 10y ago
  Kozmo was more of a courier company, closer to today's Postmates.
- bluejekyll 10y ago
  I loved Kozmo. I used them at least once a week; I still miss them.
  - pshposh 10y ago
    What kinds of things did you use them for and what was the cost? If you don't mind me asking.
    - bluejekyll 10y ago
      Literally anything... In San Francisco, if I remember correctly, they delivered within like 20 minutes. It was basically an online convenience store. At the time I was working really strenuous hours at a startup (that sadly followed Kozmo), so getting basic things that you'd normally run to a corner store for. Batteries, junk food, movies... if a bike messenger could carry it, they delivered it. It was awesome... funnily though, I don't use any of the other delivery services now; can't explain that.
    - foxhound6 10y ago
      I used to work for Kozmo.com way back when. If you have any questions, I'd be happy to field them as best I can.

trevyn 10y ago

Tens of thousands of shoppers, not customers.

tyre 10y ago
I think you might be right, but this is confusing since an instacart user is also a shopper? Not sure what the right language is, but I'll revise my post :+1:
- nostrademons 10y ago
  Instacart's shoppers are its employees.

draw_down 10y ago

Source?

grandalf 10y ago

Say the average wage is $10/hour. If it takes one hour to go and do that shopping, I break even by paying someone else that $10, if I value my leisure time as equivalent to my wage. More likely, most Instacart customers earn much more than $10/hour. For someone with a busy work schedule, there might be 2 hours of leisure time available per day during the week. This means that by using Instacart I increase my after-work leisure time by 10-20% per week. If you consider that grocery stores are more crowded during the weekend, and assume 10 hours per day of leisure time, someone who places one order per week likely increases weekend leisure time by 10%. Since stores close early on Sunday, having Instacart do the shopping on Monday instead can make a weekend getaway possible that would otherwise have had to end in time for that Sunday shopping trip. I'm sure some people prefer to wander through the store filling up a cart, searching for difficult-to-find items and waiting behind several people for the checkout clerk to finish bagging all their orders. I do not. I've also found that Instacart sorts items by price, so it's easy to fill the virtual cart without falling victim to all the end-cap advertising and impulse purchase scams that the stores have going. When I go to a physical store I frequently end up buying things I didn't really intend to, but with Instacart, I only end up with the things I actually wanted.

CamelCaseName 10y ago
When I go to a physical store I frequently end up buying things I didn't really intend to, but with Instacart, I only end up with the things I actually wanted. Specifically what products do you end up buying? I have always wanted some insight as to who buys these items near the register and why, as I rarely see anyone pick them up.
- jjfine 10y ago
  They're not necessarily talking about just those items. The entire store is designed so you buy things you weren't intending to buy. You never said/thought: "Ooh look ice cream's on sale..." and failed to resist?
  - 0xcde4c3db 10y ago

l33r 10y ago

I use Instacart because I don't own a car and convenience. When I'm making $60 an hour overtime during the weekend for a 12-14 hour shift, you bet I'm going to be using Instacart for a nominal 10% markup for groceries from Costco.

muzz 10y ago
And you don't need to be a member of Costco to use it via Instacart

panabee 10y ago

Thank you for a sensible analysis. However, if you're off by an order of magnitude, 4x revenue for a fast-growing startup in a $582B industry seems reasonable [1]. The key data point is number of customers. What's a reasonable ratio for customers to contractors/shoppers? Perhaps we could estimate the number of customers from the number of contractors/shoppers. (Of course, "tens of thousands" may be a lifetime value, not currently active ones.) [1] https://www.statista.com/statistics/197626/annual-supermarket-and-other-grocery-store-sales-in-the-us-since-1992/ https://www.statista.com/statistics/197626/annual-supermarke...

mathattack 10y ago

I applaud your willingness to edit. I am bearish on Instacart, but acknowledge that you shouldn't value them based on current cash flows. It's half a bet on massive growth combined with eventual profitability, and half a bet on some massive non-linear outcome. (For example: search -> ads, or books -> hosting)

grandalf 10y ago
Imagine if people routinely traveled to a shop and spent 20-30 minutes collecting mail addressed to them, then traveled home. If mail happened regularly enough, this would be a very inefficient arrangement. Why is grocery shopping any different? Most people buy pretty much the same stuff on a routine basis. Items have varying shelf-life, making parcel shipment practical for only a subset of items (not to mention the hassle of dealing with all the boxes). Local grocery retailers are essentially market makers for the items they carry. They also provide parking, merchant processing, and a variety of other services (like store brand items, made-fresh refrigerated items, etc.) Unless you are a chef looking for inspiration or insist on getting the absolute best looking tomato in the whole store, for most people, the time spent trudging through the aisles is mostly wasted. In other words, the lack of delivery imposes a significant transaction cost upon obtaining groceries. Thanks to Instacart, I buy a lot more groceries than I used to, which means I spend less money at restaurants. Instacart turns grocery stores into a bigger competitor for restaurants. Unlike Seamless where you pay close to $5 for delivery of a single meal, with Instacart you can order food for a whole week and pay not much more to have it delivered. Instacart makes keeping the fridge in stock with just the right items significantly easier and removes the immense hassle of manual shopping/transport.

closeparen 10y ago

>What is the market for +10% on groceries and basic necessities? People who live in the suburbs without cars. Cities are successfully discouraging car ownership by making parking scarce near downtown offices and even the suburban transit stations that lead to downtown offices. At the same time, cities aren't permitting the construction of dense, walkable neighborhoods, at least not fast enough to make them affordable. So you have a large and growing segment of the population with: - A built environment where distances are scaled for driving. - A hard time justifying car ownership, since it isn't useful for commuting. - Neighborhoods which are now becoming crowded enough that parking is a hassle, but haven't become dense enough to have useful businesses within a convenient walk. (When they reach this point, they may cease to be affordable). "Outsourced driving" is immensely popular in such environments. Instead of Target and Walmart and BestBuy, you use Amazon Prime for most purchases. Instead of driving the SUV to the supermarket every week, you use Amazon Fresh, or (in the case of Instacart) pay someone else to do it or you. Instead of going out to eat or picking up takeout, you order from UberEats/Grubhub/whatever. Each use case for personal car ownership can potentially be replaced with a fleet of service workers from further outside the city, and each permanent parking space can be replaced with one of them double-parking for 30 seconds every few hours. How do the economics work? - Labor + car operating costs for some contractors < value of the land the people they serve would otherwise park on. - Delivery fees and markup on everything you buy < parking, gas, insurance, maintenance, and depreciation (by a couple hundred bucks maybe) < rent premium to live in similar apartment in a walkable area (by $1000+/mo) < psychological cost of the tradeoffs you'd have to make, like roommates, to live in high density on a middle-class income. Whether that's $2bn, I don't know. But I think selling car-based services to the carfree will be a winning proposition as long as NIMBYs and anti-car activists remain simultaneously empowered.

flukus 10y ago
That sounds like a small market that's destined to shrink.
- closeparen 10y ago
  In the very long run, maybe. I don't see NIMBYs losing steam and I don't see the migration into major metros slowing down either. Maybe when the self-driving car comes?

WhitneyLand 10y ago

Regardless of how you calculate the valuation this is bad for business. People don't like companies being disingenuous, and not realizing that treating employees fairly is actually an important part of building a healthy company (putting aside it's the right thing to do). If they really needed to do this then don't play games. Just explain that revenue growth can make or break a company at this stage so we need to take these actions. Just being honest about the realities of business and your choices go a long way. This week Uber and Instacart have damaged their brand due to nothing other than poor leadership.

grandalf 10y ago
I agree that companies like Uber and Instacart should be doing a lot more to foster employee loyalty. Who knows, maybe the future of these semi-infrastructure businesses is actually as co-ops, with workers earning a stake that can be worth more in the long term. I'd like to see one of these companies create a special class of stock and award one unit for every dollar of business each employee participates in.
- abraae 10y ago
  I'd guess that none of them want that to happen, and it would only be a new entrant who would ever be so disruptive. I hope you're right though, that could be a truly superior business model. You can't underestimate the power of a radically engaged workforce.
  - grandalf 10y ago
    True, I think Uber and Lyft are very unlikely to do it. As a consequence, drivers are extremely disloyal and many have two phones, one running each app and they pick on a ride by ride basis which app to use. I think it's getting easier and easier for a new entrant to disrupt the market by offering a platform that better incentivizes driver loyalty. It's not necessary to force drivers to switch, only to put the new app on one of the phones they are already using.

solatic 10y ago

It makes sense when you take into consideration investors' expectation for exponential growth. The company's valuation is based on that expectation. If the company stops growing, expect the valuation to pop like a bubble.

ChuckMcM 10y ago

Just two dots to connect, instacart removes one of the reasons to drive, millenials don't like to drive[1]. [1] https://www.washingtonpost.com/news/wonk/wp/2014/10/14/the-many-reasons-millennials-are-shunning-cars/ https://www.washingtonpost.com/news/wonk/wp/2014/10/14/the-m... http://time.com/money/4185441/millennials-drivers-licenses-gen-x/ http://time.com/money/4185441/millennials-drivers-licenses-g... Etc.

vegabook 10y ago

All you see is the capital angle? You're hijacking the comments with your company valuation thing instead of thinking about the workers for once as is the whole point of the article.

linkregister 10y ago
The parent poster can't control who up votes his comment. Thinking about the capital angle doesn't mean someone doesn't think about the workers. Also, what happens to the workers/shoppers once Instacart runs out of funding?
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timcederman 10y ago

Have kids - you'll then discover how amazing and worth it delivery services are.

hkmurakami 10y ago

I have a good friend who lives a15 minute drive from a supermarket, but has a draining job. He makes good money. He Instacarts everything since he doesn't have the energy or time to do that one extra chore. He certainly doesn't mind the 10% surcharge. That probably not a sustainable market but there are certainly cases where paying 10% makes sense.

mattmanser 10y ago

Well, you can look over the pond to find out why. In the UK, which is much less car focused, we've had a successful instacart equivalent, Ocado, for a decade. They're presently turning over about £1 billion per year ($1.25 billion) [1]. Market cap on today's market is £1.5 billion ($1.85 billion)[2]. Now all the major supermarkets home deliver and have for 5+ years. There's been a massive shift in the big chains' store building, they now build small "express" stores in town centres and near offices allowing people to pick up minor things without having to do a full shop. As far as I know, no-one's building large stores at the moment. And the American market is potentially worth more a lot more than the UK one. [1] http://www.bbc.co.uk/news/business-31108569 http://www.bbc.co.uk/news/business-31108569 [2] https://uk.finance.yahoo.com/quote/OCDO.L?ltr=1 https://uk.finance.yahoo.com/quote/OCDO.L?ltr=1 EDIT: Other interesting note, in the UK, the markup for delivery is free or a fairly nominal charge (£5/$6), but only if you pick a slot in a few days. If you want it sooner, or in a prime-time slot, you have to pay more for those delivery slots. The supermarkets are building the costs into the prices. Also, here gas costs a lot more and it's almost cheaper to pay £5 than it is to drive to the supermarket. EDIT2: I should add the small stores have a regulatory reason they're small, UK law means only stores under a particular size can be open more than 7 hours on Sundays.

qqg3 10y ago
What you might not know? Ocado has built the backend for a lot of those major supermarkets offering online shopping. Another revenue stream for them as they are shopping the technology abroad too
- martinald 10y ago
  That's not really true. They do it for Morrisons but noone else. They haven't been able to sell the technology abroad yet, and the CEO commented in their last annual report how this was a big disappointment. To be honest though, the technology is superb. Compared to Tesco, Asda or Sainsburys, deliveries are always bang on time and I have only out of dozens of order had one item that was out of stock, which is much better than the competition who always have to substitute random items in.
10y ago

ghaff 10y ago

>What is the market for +10% on groceries and basic necessities? Lots of people are willing to pay for delivery even if they own cars though it's not necessarily a huge market. In general, in the US, people haven't really embraced online grocery shopping unless hopping in a car and driving to the store is inconvenient for some reason. Personally, I used Peapod for a period when I was on crutches but it wasn't great. (Frequently didn't deliver everything, etc.) I'd probably use Instacart now and then today but it's not available where I live. Friends who live in a city but aren't easy walking distance from a good grocery store and don't own a car use it all the time.