Grocery Delivery Service Instacart (YC S12) Raises $44M | Hacker News Reader

Grocery Delivery Service Instacart (YC S12) Raises $44M

dealbook.nytimes.com

I love Instacart. I have two comments about this raise.

1. I hope they use some of it to hire more shoppers. It is increasingly common to log in at 10am and see no available delivery times until the next day.

2. "The company makes its money through the delivery fees." That is disingenuous. They appear to make significant margin on grocery items. It's fine - I'm willing to pay for it - but I think they consistently gloss over this fact.

That said, I've been a huge champion of them to my friends and family, and I'll continue to be. Congrats on the growth.

Yep, extremely disingenuous. One time they left the receipt in the bag and let me assure you that there are huge markups being taken...

I've noticed that the prices on their site are almost always lower (and sometimes considerably lower e.g. $2 / lbs less) than the actual price of the item at the store. I'm not sure if what I'm being charged is the price that is listed on the site or the actual price of the item. It could be if the item is less they keep the difference, but if the item is more they add on the charge.

I pretty much had thought that they didn't make money on delivery because on average drivers make $5 - $8 per shop/delivery. Free delivery with $x in groceries also confirms that they are making a margin on groceries, which I've heard is as much as 30% but I guess that depends on how often they update their prices and if there are sales going on at the stores they shop at.

I'm a pretty heavy Instacart user, and I'm convinced what they're making on markup eclipses what they make from delivery fees.

Not complaining, just wish the messaging didn't gloss over it as mentioned above.

This really confuses me. Why aren't the large supermarkets offering a delivery service in the US (at least last time I checked they weren't)? I can order groceries to be delivered the same of the next day from all the major supermarkets in the UK. I've done it for years and rarely had an issue.

Also, if any of the major supermarkets in the US step in and decide to offer this service won't Instacart's business be instantly obliterated?

Is there something I'm missing?

Edit: I guess someone accidentally down voted my perfectly valid question.

They do, but their interface really blows and the scheduling system can be troublesome because they have a limited number of drivers and sometimes you'd have to schedule delivery during a bad time. I've only used instacart a few times, but I could immediately tell it was way better than Safeway's delivery mechanism.

For starters, I could have a single watermelon delivered at 11pm for a party I had going on, but with Safeway, I could not do same day delivery and it would need to be delivered during working hours the following day because the other times were already booked. Safeway's delivery mechanism is probably good enough for large offices that need regular deliveries, but Instacart is good for all other times. I probably would just stick with a single delivery service for everything so I wouldn't waste my time using Safeway's service.

Instacart feels very similar to Google Shopping Express, and if you haven't tried out either service, you should definitely try one of them out. Google Shopping Express can't deliver perishables, but they do support Costco, so if you don't have a car and you need 50 rolls of paper towel, that's the best place to be.

Interesting. I wonder if that's really enough. When it comes to groceries the vast majority of people shop based on price. Instacart charges a markup on every item purchased. In this market people seem to value price over convenience especially when the convenience difference is small.

I don't agree with that sentiment. I think your pattern detector is only taking in account on how grocery shopping is currently done. When you introduce something new into the system, it may not adhere to the same rules. There are many cases when convenience will trump price. Say you need to buy items from 10 different stores. I would rather use a service that goes to 10 different stores for me, than have myself drive to each store to hunt down each item.

When I use amazon prime, I'm very aware that the prices are sometimes more expensive than a generic brand, but I am willing to pay the small price difference for the 2-day shipping convenience. A study was released on amazon prime shoppers that showed prime customers are less affected by price. The convenience of getting something with 2-day shipping, but with a higher price trumped a cheaper item but longer delivery times. People don't always go for the lowest cost item.

>> "Say you need to buy items from 10 different stores. I would rather use a service that goes to 10 different stores for me, than have myself drive to each store to hunt down each item."

I guess it depends how you shop! :) Supermarkets are there to give you the lowest prices and eliminate the need to go to more than 1 store. But I understand where you're coming from. I guess we'll have to wait and see how it works out.

Hah, I wish that were true. Supermarkets exist to make money, so they can't stock items that have low demand. If you cook ethnic foods, you'll typically need to visit several stores to buy all the ingredients for your meal.

Judging from flog's reply to my comment it's a cultural thing. In the UK the main supermarkets all have sections for ethnic foods (as the number of polish immigrants has increased for example the supermarkets have added polish food sections). Things in the US market seem to work differently.

It probably has to do with traveling distances which vary greatly depending on the area. I don't want my frozen stuff to thaw while sitting around waiting for the next driver or during transit. I don't want my stuff squashed so vehicles need to be bigger to handle multiple loads, which also sort of implies inefficiency while traveling without a load.

I could see it working extremely well in big compact cities since they already have many delivery services. However, in the spread out areas it wouldn't work so well without many drivers which increases costs and the price of goods.

Also, most people want to inspect their fruit and veggies before they buy them. The interfaces could take input on the state but that would just slow things down IMO while a human would have to sort them. Unless there are systems out there for ripeness detection. I might buy something for tonight's dinner, in which I want something ready, or I might be preparing for a weekend dinner and want something that still needs time.

I believe all of these issues can be overcome, but I don't see how all that labor, vehicles, and tech could be a marginal cost. Well, I can see the tech cost approaching zero/order since all it needs is the existing catalog/POS system with a simple web interface. Most people I know either shop on their way home from work, a trip they are already paying for, or wait for the weekend to go as a group.

We get delivery groceries from Stop & Shop (in NYC) and it's great - much cheaper than going to any of the stores around here. The website doesn't look too fancy, but functionally it's totally fine. I think Fairway and Freshdirect also serve the area, but Stop & Shop seemed the cheapest.

I've recently moved to SF from London. One of the first thing you'll notice is that the supermarkets are years behind London. They're far inbetween, light on some product groups, and lacking in services like quick delivery. I was surprised Tesco didn't hit it off here.

Good to hear the perspective of someone who's been in both markets.

They are, at least in some markets. Where I live (Boston), two of the largest grocery stores (Stop&Shop, RocheBrothers) both have delivery services where you order online. And I know there exists grocery delivery in Chicago, Seattle, and other major cities as well.

At least among my friends, Instacart seems to be more popular for Trader Joe's and Whole Foods.

Why Instacart over Amazon Fresh or Google Shopping Express?

I saw their product when it first launched but I didn't see a distinct advantage.

I think it's pretty obvious that Instacart's exit strategy is to make some great technology that either Amazon or Google will buy-out.

There is no way they will survive as a company long-term trying to compete against either of those two. It's a low-margin business with expensive, labor-intensive components that won't scale efficiently over time. They just need enough money to last long enough to convince Amazon or Google to buy them at a premium so that the investors make their 10x.

Not the best strategy in my opinion.

"I think it's pretty obvious that Instacart's exit strategy is to make some great technology that either Amazon or Google will buy-out."

I think they will make a play to open up their shop and delivery service via API to eventually allow stores to use them as a full end-to-end delivery service and sales channel.

The other play is to do what DoorDash is doing with focusing on the core logistics/driver infrastructure and route/scheduling optimization software. Doordash is generic enough to go beyond restaurant delivery and become an open alternative to last-mile courier services in the market today. It's basically Uber cargo but I think they could do so much more by making it an open service that any business could use to handle on-demand delivery to their end users. If Trader Joes wants to provide delivery, they just need to be able to ping DoorDash with an address and have a box ready when a driver arrives. This offloads the liability and capital costs associated with having your own drivers and delivery trucks, etc.

That's not our exit strategy. We're building a long term business here.

My reason is simple. I use Instacart frequently. When I first evaluated Google Shopping Express, it didn't seem possible to buy basic perishables such as milk and orange juice (and I don't mean the canned kind that sits on shelves at room temperature). That's pretty much a killer if I can't buy fresh milk and orange juice.

And then when they offer those products at lower prices?...lol

Not everyone is driven by price. Sometimes convenience trumps price. I use the delivery services so I don't have to waste an hour at Staples to buy one item.

Faster delivery

Bigger selection

Speak directly with your shopper

The only way I can see this as profitable is at a huge markup or they start stocking items themselves just like a grocery store does. I think people care less about what grocery stores the shopper goes to than getting the correct items. They should just have a food warehouse and stock stuff.

Huge instacart user, was wondering what was happening now that Amazon and Google are both moving into the space. It's awesome to see that they're winning.

The link seems to be broken?

Working fine here.

Was broken when I checked earlier, seems to be fixed.

i loved it from the start when i was in the bay area doing my and loved it so much that if i wasn't a founder almost applied to join. good luck and exciting market.

Congrats Instacart!

Shit, déjà Vu. Is it y2k again? If not, what are these guys doing differently from the Y2K grocery services?

EDIT: since Adredreseen Horrowitz invested, I assume it's likely not a repeat from Y2k, and I'm really interested in what they're doing differrently

Smartphones didn't exist back then and there isn't the dot com bubble going on right now.

Its a legitimate question actually.

The difference is that they got their logistics and pricing down. The Y2K companies didn't.

The number of people on the internet (even if we strictly limit to the USA) is far larger now than it was in 2000. There were an estimated 400 million worldwide internet users in 2000. It's now estimated at over 3 billion.

In 2000 only 41% of all US households had internet access. Now it's 81%. This number also doesn't include internet in your pocket (74% of all Americans have some kind of mobile broadband).

The idea of "groceries on the internets" was never bad, it just tried to enter a market that didn't actually exist yet. They also tried to do too much, too quickly: i.e., launching into low population density markets that had zero chance of being cashflow even in the next 20 years. Notice that Fresh, Instacart, Google Shopping Express, and all these other perishable delivery companies are now strictly only in the densest urban areas where there is sufficient economy of scale to make the numbers work.

There are also some smaller contributors to success: people in general are much more willing to put their credit cards on the internet and buy things through the internet. People are able to access the internet while on the go. In the case of Amazon and Google they're leveraging a brand and existing user base that they've been building for years. The state of web tech also means the products are far less painful than before - keep in mind that 2000 was before AJAX, where every click of every button meant a completely new page load... over a connection that is likely dialup.

The game is very, very different from the way it was in 2000.

That sounds reasonable. I do still wonder about building up infrastructure vs crowdsourcing. I'd love to have groceries delivered, I hate going to the grocery store & spending hours of my life which I can put to better use. However, I'm an early adopter.

The negative Karma points were totally worth the responses. Wish there were some more with more specifics on said startup.

More and more, it seems like most y2k ideas were good. Unfortunately they were almost all too early.

Even some of them were viable at the time, but forced into unsustainable growth to compete with other companies, since money was free or negative cost -- e.g. Webvan was actually a good business in certain cities, but got pushed to expand very rapidly and thus died.

I'm waiting for "datahaven" to be a viable business, though. That would be really fun.

Mobile smartphones. That's what changed, and it's made all the difference.

One significant difference is that instacart just matches you up with shoppers who can go to your local stores, pick up the food, and deliver to you and everyone in your area. I believe the Y2k grocery services had fleets of trucks, warehouses, and tried to act like a layer in between the food distribution companies and the buyer. This method proved to be extremely expensive and hard to sustain.

Isn't that what FreshDirect does?

Are they actually making any money? Every time I see their headlines these days, it's "Instacart raised $X" and not "Instacart earned $Y." Don't you have to eventually make money to pay back those VCs?

There should be a basic level of business knowledge required to participate in these discussions.

Here's a brilliant idea: how about instead of being a dick about it, you explain the circumstances.

It was a serious question that deserves a serious answer, not self-righteous snark.

Wait, weren't you being snarky? "Don't you have to eventually make money to pay back those VCs?"

I was totally feeding off his tone, and I also love how he believes his question deserves an answer.

You answered your own question, yes eventually you have to make money. You just have a different definition of eventually than VCs do.

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