Hacker News Reader

Comment by lnlyplnt | Hacker News Reader

I never understood how companies like instacart explained this to their investors. Over time one of several things must happen: 1. Instacart magically makes a courier capable of doing 4 trips an hour 2. Instacart drastically increases it's prices 3. Instacart Severely lowers the compensation to courriers

View on HN

I wonder if "3" isn't an unspoken reliance on self-driving cars for true profitability. If you can be the "Amazon" of delivery the day courier costs drop from $20/hour to $.56/mi, there's an awful lot of up-side. Similarly with Uber.

>I never understood how companies like instacart explained this to their investors.

They don't need to explain anything. Most of the time the founders and investors are in on it together. Just get an exit.

1. It's reasonable that shoppers (with the help of a mobile app routing them) can complete multiple deliveries / hour. 2. They won't have to increase prices but are negotiating better pricing from the stores they work with (most of ICs profit comes from the items themselves, not the delivery fee they charge). 3. Compensation won't go down, but perhaps it won't rise as quickly as courrier utilization does.

What if Instacart isnt a delivery startup?

Or, they get 20-25% discount from retailers (coming out of stores marketing budget and reduction in store staff cost).

EDIT: The discounts come from the cost savings stores will see from delivery companies, to clarify to people commenting margins are not that high in grocery business.

1) These delivery services are become sales and marketing channel for stores.

2) Cut down time it takes for cash register scanning each product and bagging them, pick up guys do that for stores.

3) Bulk pickups-- e.g., if I can have delivery company gather milk directly from back store, my store staff does not have to spend time replenishing the shelves.

What's the margin on groceries? 1-2%?

Pretty much it seems:

> "The average profit margin for grocery stores is 1.3 percent" says Jeff Cohen, a grocery industry analyst with IBIS World.

-- http://www.marketplace.org/topics/business/groceries-low-mar...

That's net, not gross. They can afford to cut the item price if they have lower marginal costs (stocking?).

A great Mixergy interview[1] was with Herb Sorensen, author of "Inside the Mind of the Shopper"[2]. There were many fascinating revelations about the grocery business. For example, he went through the four revenue sources for grocery stores and profit on selling the goods was in fourth place, behind real estate, shelf fees, and something else I can't remember. He also explained that there is an optimum layout for a store, with counterclockwise flow.

[1] http://mixergy.com/interviews/brick-mortar-retailers-herb-so...

[2]http://www.herbsorensen.com/herbsorensenauthor.html

Average gross margin in a traditional grocery store in the US is 26-33%, depending on local competition. There is a huge range (0-90%) by product category however.

Net income after labor, distribution, and fixed costs ranges 1-6%, depending largely on market share and fixed cost control

Reference: I helped traditional retailers with price optimization for almost 20 years

Reply on news.ycombinator.com