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Even assuming that Amazon breaks the Instacart contract I'm not seeing the downside for them. Every single grocer should be more eager than ever to partner now

by IBM 9y ago

Even assuming that Amazon breaks the Instacart contract I'm not seeing the downside for them. Every single grocer should be more eager than ever to partner now that Amazon has shaken them to their core. It makes more sense for everyone to outsource delivery to Instacart than to have every grocery chain or retailer try to recreate it on their own. The scale of all the non-Amazon grocers should keep costs down.

lefstathiou 9y ago
I read the headline and immediately thought "Instacart is f*" then I read your response and thought "hmm that's a good point actually". HN community for the win. Thank you.
crabasa 9y ago
Every other retailer handing their destiny to Instacart and becoming undifferentiated warehouses of goods makes tons of sense for Instacart, but little sense for the retailers. Sure, a bunch of small/desperate retailers will do this in the short term, but the small handful that will still be around in 5-10 years know that owning the direct relationship with the customer is non-negotiable.
- ativzzz 9y ago
  What direct relationship do groceries have with customers? Only those small local ones do. There is no relationship. I buy the best food at the cheapest cost. That's it.
  - jklein11 9y ago
    How do you determine what the best food is or the cheapest cost for that matter? Do you comparison shop at different supermarkets to figure out what the highest quality food is for the lowest price? If you are like me you did that one or two times when you moved to a new area, but then stick to buying everything from the same store which I thought had the best quality food for the best price in general. The relationship that I have with that grocery store keeps me from shopping around prices at other locations.
    - icebraining 9y ago
      I have to say, I don't know anyone that always goes to same grocery store. Maybe it's because almost everyone I know is working-class, often hand-to-mouth, or because our stores are usually within 30m walking distance, but we all know which products tend to be cheaper on each stores and make trips to each depending on our needs. Comparison shopping is vital if you want to have a decent variety of foodstuffs on a tight budget.
      - ghaff 9y ago
        I honestly don't really comparison shop in a meaningful way beyond a generalized Whole Foods tends to have high prices. Market Basket tends to have cheaper prices. But I definitely shop at different stores based on what I'm buying and what's convenient as well as farm stands etc.
    - tesseract 9y ago
      > [Does one] comparison shop at different supermarkets to figure out what the highest quality food is for the lowest price? No, of course not. That's what the weekly newspaper flyers are for. On the other hand if one is relatively well off, then the strategy you propose of picking a store that seems like an overall good value and sticking to it may make more sense than spending valuable time poring over grocery store flyers and making trips to multiple stores. This difference in behavior (combined with coupon clipping) is pretty much the quintessential example of how retailers can implement price discrimination - i.e. charging higher prices to those with a greater income or greater willingness to spend.
- toomuchtodo 9y ago
  Instacart should pivot to a delivery platform enabling other grocers, not running their own last mile operation. Amazon-level supply chain management and logistics as a service/consultancy.
  - maxerickson 9y ago
    Like Rosie? https://www.rosieapp.com/ https://www.rosieapp.com/
    - gogopuppygogo 9y ago
      Safeway uses Rosie in Sacramento and its a terrible experience. Often they show inventory that isn't in stock and as someone who cares about the way things look, the overall website looks like 1998 wants it's tables back. Amazon started doing grocery delivery in the Sacramento area this year and I haven't touched Safeway again since. With the Whole Foods purchase I cannot wait for them to completely change how I buy food.
  - pishpash 9y ago
    Then that doesn't make sense for Instacart. One or the other will lose.
    - stale2002 9y ago
      Not necessarily. Does grub hub as a platform mean that restaurants lose?
- gogopuppygogo 9y ago
  Your comment reminds me of wat Ingram Micro has done to build a gigantic business. They serve as a logistics and support system for a bunch of small retailers/service providers that add value at the local level. Could be that Instacart does the same thing. Providing value and supply chain for smaller stores.
ryankupyn 9y ago
That's a great point, and I think that Instacart will have a much easier time developing those partnerships now that Amazon has implicitly validated grocery-delivery as a major market. I think the real risk is that Amazon enters the market and quickly enters into a relentless price war that makes the ~20% premium compared to in-store prices that Instacart puts on every product untenable and sucks the entire market into an unprofitable quagmire from which other grocers will struggle to escape, because Amazon can afford to subsidize its grocery business for longer than its competitors can survive. IMO, the Instacart bull scenario is that they manage to survive Amazon's arrival and gradually take on a larger share of the consumer grocery market, turning their grocery partners into urban warehouse/distribution center operators with vestigial storefronts attached. The Instacart bear scenario is that the entire non-Amazon grocery market collapses in the same way bookstores did over the past 20 years, leaving behind only a few specialty stores that cover niches that Amazon finds unprofitable to enter, and that Instacart's potential partner base is too sparse and fragmented for them to survive.
- blazespin 9y ago
  Amazon can not afford to subsidize anything. What people don't get about amazon is that they are very poor. It's going to be interesting to see how they make this work. My guess is replacing instacart and keeping those profits will help balance the books. Young, Whole Foods customers like quality of WF and the time saving of home delivery.
  - ceejayoz 9y ago
    Amazon has $21 billion cash-on-hand. Hardly poor - that's 32 times what Instacart has taken in all their funding rounds. https://ycharts.com/companies/AMZN/cash_on_hand https://ycharts.com/companies/AMZN/cash_on_hand
    - blazespin 9y ago
      Geez, the quality of HN is really declining lately. Cash on hand is meaningless. Amazon operates at barely break even. They can't afford to subsidize anything.
hueving 9y ago
Has Amazon really shaken other grocer's to their cores though? Whole Foods served a completely different market than Kroger and the like. Unless Amazon plans to alter WF to sell affordable groceries as well, I'm failing to see why this move is so threatening to these other grocers. What am I missing?
- prklmn 9y ago
  You're not missing anything except the the value of the hype that goes with the deal. The analysts, the fund managers making buy decisions and so on are all in the Whole Foods demographic, so they love the deal and feel the same way as the author - it's all about the optics. I couldn't agree more with you about Kroger. Whole foods did $15b last year in sales, Kroger did $115b. If they managed to triple the volume of Whole Foods, they would still be a small competitor relative to Kroger.
- blazespin 9y ago
  Yeah, groceries are low margin long term business. It will take a decade or more, but the doom train is coming. I think the weird thing though is that should have been obvious already. Not sure why it took the acquisition to wake folks up.
- tyingq 9y ago
  >Unless Amazon plans to alter WF to sell affordable groceries as well... Not just affordable, but brands that customers in the larger segment would recognize. The high end products at Kroger, Safeway, etc, are often things not sold at WF.
tlogan 9y ago
After this acquisition I don't understand why any CEO of a grocery chains will sign up with Instacart or any other grocery delivery service. They are probably working like crazy how they can roll out their own grocery delivery service. Amazon is entering into grocery delivery service and the writing on the wall is that prices of grocery delivery will go down. Significantly down. Amazon will be definitely start doing grocery delivery with loss. But on the bright side, Instacart might end up being a good acquisition target - maybe Safeway? Costo? Walmart?
- solidsnack9000 9y ago
  > After this acquisition I don't understand why any CEO of a grocery chains will sign up with Instacart or any other grocery delivery service. They are probably working like crazy how they can roll out their own grocery delivery service. Many of them have tried and failed. Multi-state chains have to solve all the same problems that Instacart does with much less technical expertise. Grocery store chains are not actually aware of what they have in inventory, for example; managers just order stuff when they're almost out.
- zghst 9y ago
  I think Instacart has to provide more to retailers. At any moment intense competition could spring from TaskRabbit, Google, Postmates, Uber or Amazon. They aren’t providing a service that has a uniquely broad appeal or combining their niche offering with services for adjacent audiences. Walmart and Target are already trialing delivery with Uber and Lyft. Major alarm bells right now
prostoalex 9y ago
> I'm not seeing the downside for them The subset "Americans who use Instacart for Whole Foods deliveries" combined with the subset "Americans who subscribe to Amazon Fresh" might just add up to 100% of a subset "Americans who pay to have their groceries delivered". In other words, Amazon picked up the top end of the market, while Instacart is left with slim pickings. While their investor deck might feature millions of people worldwide ordering deliveries from their local grocery place, in reality most people (a) don't consider grocery shopping stressful, (b) prefer to pick their own produce based on personal requirements on ripeness/size/shapes/colors, (c) happen to drive by the grocery store anyways on their way from work or (d) are low-income and would rather not pay the delivery fees.
- free2rhyme214 9y ago
  This. Instacart is really just a luxury service for the middle/upper class. Those same customers have Amazon Prime and guess what Prime Fresh will offer soon? (Whole Foods)
  - ghaff 9y ago
    As of a few years ago, Peabody seems to have had revenues of about $500 million which I think was about 10% of the total online delivery market. Is there room to grow this pie? Sure. But this is a business that's been around since Webvan days and is still really a niche. For starters it's a good bet that your average Walmart customer will pay approximately zero premium for home delivery. More broadly it's just not something people have voted with their wallets for. The Silicon Valley developer who deeply resents and is stressed out by a trip to the supermarket is just not your average consumer.
    - lobster_johnson 9y ago
      Did you mean Peapod?
      - ghaff 9y ago
        Yes Peapod :-) I think I got autocorrected.

by IBM 9y ago

lefstathiou 9y ago

I read the headline and immediately thought "Instacart is f*" then I read your response and thought "hmm that's a good point actually". HN community for the win. Thank you.

crabasa 9y ago

Every other retailer handing their destiny to Instacart and becoming undifferentiated warehouses of goods makes tons of sense for Instacart, but little sense for the retailers. Sure, a bunch of small/desperate retailers will do this in the short term, but the small handful that will still be around in 5-10 years know that owning the direct relationship with the customer is non-negotiable.

ativzzz 9y ago
What direct relationship do groceries have with customers? Only those small local ones do. There is no relationship. I buy the best food at the cheapest cost. That's it.
- jklein11 9y ago
  How do you determine what the best food is or the cheapest cost for that matter? Do you comparison shop at different supermarkets to figure out what the highest quality food is for the lowest price? If you are like me you did that one or two times when you moved to a new area, but then stick to buying everything from the same store which I thought had the best quality food for the best price in general. The relationship that I have with that grocery store keeps me from shopping around prices at other locations.
  - icebraining 9y ago
    I have to say, I don't know anyone that always goes to same grocery store. Maybe it's because almost everyone I know is working-class, often hand-to-mouth, or because our stores are usually within 30m walking distance, but we all know which products tend to be cheaper on each stores and make trips to each depending on our needs. Comparison shopping is vital if you want to have a decent variety of foodstuffs on a tight budget.
    - ghaff 9y ago
      I honestly don't really comparison shop in a meaningful way beyond a generalized Whole Foods tends to have high prices. Market Basket tends to have cheaper prices. But I definitely shop at different stores based on what I'm buying and what's convenient as well as farm stands etc.
  - tesseract 9y ago
    > [Does one] comparison shop at different supermarkets to figure out what the highest quality food is for the lowest price? No, of course not. That's what the weekly newspaper flyers are for. On the other hand if one is relatively well off, then the strategy you propose of picking a store that seems like an overall good value and sticking to it may make more sense than spending valuable time poring over grocery store flyers and making trips to multiple stores. This difference in behavior (combined with coupon clipping) is pretty much the quintessential example of how retailers can implement price discrimination - i.e. charging higher prices to those with a greater income or greater willingness to spend.
toomuchtodo 9y ago
Instacart should pivot to a delivery platform enabling other grocers, not running their own last mile operation. Amazon-level supply chain management and logistics as a service/consultancy.
- maxerickson 9y ago
  Like Rosie? https://www.rosieapp.com/ https://www.rosieapp.com/
  - gogopuppygogo 9y ago
    Safeway uses Rosie in Sacramento and its a terrible experience. Often they show inventory that isn't in stock and as someone who cares about the way things look, the overall website looks like 1998 wants it's tables back. Amazon started doing grocery delivery in the Sacramento area this year and I haven't touched Safeway again since. With the Whole Foods purchase I cannot wait for them to completely change how I buy food.
- pishpash 9y ago
  Then that doesn't make sense for Instacart. One or the other will lose.
  - stale2002 9y ago
    Not necessarily. Does grub hub as a platform mean that restaurants lose?
gogopuppygogo 9y ago
Your comment reminds me of wat Ingram Micro has done to build a gigantic business. They serve as a logistics and support system for a bunch of small retailers/service providers that add value at the local level. Could be that Instacart does the same thing. Providing value and supply chain for smaller stores.

ryankupyn 9y ago

That's a great point, and I think that Instacart will have a much easier time developing those partnerships now that Amazon has implicitly validated grocery-delivery as a major market. I think the real risk is that Amazon enters the market and quickly enters into a relentless price war that makes the ~20% premium compared to in-store prices that Instacart puts on every product untenable and sucks the entire market into an unprofitable quagmire from which other grocers will struggle to escape, because Amazon can afford to subsidize its grocery business for longer than its competitors can survive. IMO, the Instacart bull scenario is that they manage to survive Amazon's arrival and gradually take on a larger share of the consumer grocery market, turning their grocery partners into urban warehouse/distribution center operators with vestigial storefronts attached. The Instacart bear scenario is that the entire non-Amazon grocery market collapses in the same way bookstores did over the past 20 years, leaving behind only a few specialty stores that cover niches that Amazon finds unprofitable to enter, and that Instacart's potential partner base is too sparse and fragmented for them to survive.

blazespin 9y ago
Amazon can not afford to subsidize anything. What people don't get about amazon is that they are very poor. It's going to be interesting to see how they make this work. My guess is replacing instacart and keeping those profits will help balance the books. Young, Whole Foods customers like quality of WF and the time saving of home delivery.
- ceejayoz 9y ago
  Amazon has $21 billion cash-on-hand. Hardly poor - that's 32 times what Instacart has taken in all their funding rounds. https://ycharts.com/companies/AMZN/cash_on_hand https://ycharts.com/companies/AMZN/cash_on_hand
  - blazespin 9y ago
    Geez, the quality of HN is really declining lately. Cash on hand is meaningless. Amazon operates at barely break even. They can't afford to subsidize anything.

hueving 9y ago

Has Amazon really shaken other grocer's to their cores though? Whole Foods served a completely different market than Kroger and the like. Unless Amazon plans to alter WF to sell affordable groceries as well, I'm failing to see why this move is so threatening to these other grocers. What am I missing?

prklmn 9y ago
You're not missing anything except the the value of the hype that goes with the deal. The analysts, the fund managers making buy decisions and so on are all in the Whole Foods demographic, so they love the deal and feel the same way as the author - it's all about the optics. I couldn't agree more with you about Kroger. Whole foods did $15b last year in sales, Kroger did $115b. If they managed to triple the volume of Whole Foods, they would still be a small competitor relative to Kroger.
blazespin 9y ago
Yeah, groceries are low margin long term business. It will take a decade or more, but the doom train is coming. I think the weird thing though is that should have been obvious already. Not sure why it took the acquisition to wake folks up.
tyingq 9y ago
>Unless Amazon plans to alter WF to sell affordable groceries as well... Not just affordable, but brands that customers in the larger segment would recognize. The high end products at Kroger, Safeway, etc, are often things not sold at WF.

tlogan 9y ago

After this acquisition I don't understand why any CEO of a grocery chains will sign up with Instacart or any other grocery delivery service. They are probably working like crazy how they can roll out their own grocery delivery service. Amazon is entering into grocery delivery service and the writing on the wall is that prices of grocery delivery will go down. Significantly down. Amazon will be definitely start doing grocery delivery with loss. But on the bright side, Instacart might end up being a good acquisition target - maybe Safeway? Costo? Walmart?

solidsnack9000 9y ago
> After this acquisition I don't understand why any CEO of a grocery chains will sign up with Instacart or any other grocery delivery service. They are probably working like crazy how they can roll out their own grocery delivery service. Many of them have tried and failed. Multi-state chains have to solve all the same problems that Instacart does with much less technical expertise. Grocery store chains are not actually aware of what they have in inventory, for example; managers just order stuff when they're almost out.
zghst 9y ago
I think Instacart has to provide more to retailers. At any moment intense competition could spring from TaskRabbit, Google, Postmates, Uber or Amazon. They aren’t providing a service that has a uniquely broad appeal or combining their niche offering with services for adjacent audiences. Walmart and Target are already trialing delivery with Uber and Lyft. Major alarm bells right now

prostoalex 9y ago

> I'm not seeing the downside for them The subset "Americans who use Instacart for Whole Foods deliveries" combined with the subset "Americans who subscribe to Amazon Fresh" might just add up to 100% of a subset "Americans who pay to have their groceries delivered". In other words, Amazon picked up the top end of the market, while Instacart is left with slim pickings. While their investor deck might feature millions of people worldwide ordering deliveries from their local grocery place, in reality most people (a) don't consider grocery shopping stressful, (b) prefer to pick their own produce based on personal requirements on ripeness/size/shapes/colors, (c) happen to drive by the grocery store anyways on their way from work or (d) are low-income and would rather not pay the delivery fees.

free2rhyme214 9y ago
This. Instacart is really just a luxury service for the middle/upper class. Those same customers have Amazon Prime and guess what Prime Fresh will offer soon? (Whole Foods)
- ghaff 9y ago
  As of a few years ago, Peabody seems to have had revenues of about $500 million which I think was about 10% of the total online delivery market. Is there room to grow this pie? Sure. But this is a business that's been around since Webvan days and is still really a niche. For starters it's a good bet that your average Walmart customer will pay approximately zero premium for home delivery. More broadly it's just not something people have voted with their wallets for. The Silicon Valley developer who deeply resents and is stressed out by a trip to the supermarket is just not your average consumer.
  - lobster_johnson 9y ago
    Did you mean Peapod?
    - ghaff 9y ago
      Yes Peapod :-) I think I got autocorrected.