Instacart Tries to Hang on to Whole Foods as Amazon Swoops In
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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.
Amazon-level supply chain management and logistics as a service/consultancy.
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.
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.
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.
Could be that Instacart does the same thing. Providing value and supply chain for smaller stores.
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.
Second, most of that cash on hand comes from the last 18 months or so, when Amazon started doing some profit-taking - maybe for the sorts of Whole Foods acquisitions they're doing. It's quite clear that Amazon can make profits - thus far they've just been pouring them back into growth and R&D. See the first chart in https://www.recode.net/2017/4/27/15451726/amazon-q1-2017-ear...
Third, don't be so rude.
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.
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?
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.
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.
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.
I'm sure they care about it, but I wouldn't be surprised if they view the Instacart business as tangential. No offense to the fine people at Instacart! I love the service, am a big fan and customer, but objectively I think the business is going to change. Self-driving cars, drones, etc. -- last-mile delivery is going to change in the next 5-10 years.
What I find more interesting about this acquisition: real estate. Amazon just acquired 450 or so locations in high-density areas that are likely in the sweet spot of their target customers.
They are trying out some revolutionary concepts at Amazon Go. I'd say Amazon feels ready to move on changing the user experience in-store, as opposed to "old-school" delivery.
Heck, it's even confusing why they separate normal Amazon shopping. If I add an item to my normal cart that is also available on Prime Now (or Fresh), why wouldn't they tell me?
Maybe not so odd. Some states (Colorado, at least) have laws preventing grocery stores from selling alcohol, or severely limiting what they can sell. I could see offering it through Fresh complicating things.
I sympathize with anyone trying to sell alcohol in the United States. They have to deal with 50 different liquor law regimes in order to sell nationwide, and probably federal laws as well if the alcohol is imported.
Fresh, on the other hand, explicitly offers products from local restaurants, bakeries, etc. If anything, I would expect Fresh to be the one that could deliver alcohol.
Is this really the case? I was under the impression that the e-commerce giant is great at last mile delivery.
http://www.cnbc.com/2017/04/21/robots-are-now-deliving-food-...
That isn't to say that Instacart is better. They're nowhere near a sustainable business under their current business model.
Since >75% of the costs of parcel delivery are due to the last mile, and because parcel delivery margins are so low, we can use parcel delivery prices as a rough proxy for last mile delivery costs.
Last mile delivery is only viable at scale due to delivery density. USPS has extremely cheap parcel delivery because they have a government enforced monopoly on letter delivery, ensuring they basically visit every house every day no matter what. The UPS/DHL/FedEX crowd can do 1 day delivery at reasonable-ish prices due to their scale for all parcels. But Amazon and Instacart are cutting delivery windows down to 1 hr, and that absolutely destroys your delivery density...on the order of 10-15x.
For the PrimeNow/Instacart business model to make sense, they need costs that are comparable to the current large parcel carriers...meaning they would need to scale their businesses to 10-15x the size of the large parcel carriers to get their prices in the range where their businesses are viable. Amazon is closer than instacart, but that is like saying a car is more likely to get you to the moon than a bicycle.
This is of course, is the opposite of the grocery delivery model that do work: A constant weekly delivery(you can change items of course), at a fixed day/time(according to delivery times to your area), in a returnable passive cooler box before 8:00 am. You don't have to be receive.
That way, after a bit of scaling, you can get to a good delivery density.
But of course, that's a different offer than 1-hour delivery. But is it not appealing enough ? or is the problem that other, stronger retailers can relatively easy copy it ?
Because if it's the latter, Walmart did already win(almost), at least on the logistical front, and that would explain why Amazon focuses on buying a niche company with a main skill of having unique products, and rich customers.
I had this when I lived in Denver, and really missed it when I moved. It was basically the milk man, but they delivered milk, juice, eggs, bread, etc... They would also take the empty milk jugs and recycle them.
I had a set standing order and could drop a form in my cooler for minor changes/skip the week.
https://www.theguardian.com/money/2015/may/02/online-shoppin...
The UK is, overall, denser than the US, but there is plenty of the US as dense as the least dense areas of the UK which get these services. Plus, you have cheaper petrol and cars. What would stop this model being used in the US?
But it is important to note that delivery in general isn't impossible to make viable, but rather the specific type of delivery that Prime Now and Instacart are offering...where you order and get it an hour later. There are plenty of ideas out there that could work quite well, but Amazon and Instacart have already hooked their customers on a higher service standard that will never pay off for them, and if they want to change it to make it viable they are gonna have to piss off a lot of customers.
Yep - this is what really differentiates Amazon at a philosophical level from say Google. Google doesn't like dealing with people or the messy real world. Amazon rolled up their sleeves and got stuck in, saw that there was opportunity in doing something difficult rather than working around it. Amazon Logistics is a seriously impressive operation.
From the customer point of view, Costco is pretty much the definition of competing on nothing but price: a race to the bottom.
(I know, yes, they pay employees [relatively] well.)
Also, their model is pretty good as far as membership goes -- if you spend enough at Costco, your membership is free, because you get cash back. And a little known fact, even if you don't spend enough to pay for your membership, if you ask them, they will increase your cash back reward to make up for it anyway.
Luxury goods, Veblen goods, and virtue / honest signalling, generally, avoid rampant RttB effects -- Whole Foods itself would be an example, Apple another.
Untrammeled competition on the mass market of complex goods almost always tends toward RttB. It seems that there's an exceedingly strong and pervasive Gresham's Law dynamic across multiple domains, which I've been looking into.
What keeps this from becoming total seems to be a mix of factors. Apple, for example, as a small fraction of either mobile (15%) or desktop (5%) markets, by unit sales, but has profit margins at a level which make it the most highly-valued joint-stock corporation in the world. It achieves this through a focus on some elements of product quality -- I wouldn't call Apple hacker-friendly, in the same way Linux or FreeBSD are (despite similarities), but it's been far more user friendly than Microsoft in many regards, if you're willing to pay a premium.
And a certain portion of the market gets that.
(The dynamic in the case of mobile is similar: more expensive than Android, not hacker-friendly, but vastly less aggrevating to use for the somewhat-discerning user.)
Essentially, if you're going to move off the bottom, you may be able to, but you're going to be limited to a certain niche.
If there are very large scaling efficiencies to size, even that becomes a challenge.
You'll find similar stories across various products and services. Generally, the smaller the market (in terms of total buyers), and more discerning, the more likely a higher-quality product can survive. With market size (and non-discerning customers) comes worse product.
But you and I and everyone else who decides not the shop there; we don't make a dent. You cannot vote with your dollars. There are still way too many people who don't care or who follow the advertising. It's the reason why Uber will be around for decades.
Public Relations/Propaganda/Marketing is amazing. McDonalds convinced millions of Americans the girl who sued for spilling coffee on herself had fought and won a frivolous lawsuit when the reality was far from the truth:
Anecdotally all the ex-Amazon folks I know have horror stories of their own... Having said that as a customer I LOVE Amazon, I have de-Googled my life as much as possible, but Amazon is addiction and my (not so) secret shame...
Fun fact - Brian Valentine, a well revered engineering director in Windows up until ~2010 went over to Amazon and basically rebuilt the exact same Windows software team there - employees, structure, and all. The same team that gave you Vista gave you Alexa and basically every other Kindle product (that's not meant to be a knock against vista or that team)
Also, I disagree that Uber will be around for decades, but it's primarily because of their finances.