
Instacart Closes Latest Funding Round at $3.4B Valuation - rayuela
https://www.bloomberg.com/news/articles/2017-03-07/instacart-raises-funding-valuing-grocery-startup-at-3-4-billion
======
apike
In Vancouver, our most popular local supermarket chain (Save-on-Foods) has
started offering a service where you can order groceries on the web or in an
app at the same prices as in the store. Then, you can either quickly pick up
the collected groceries for free, or you can pay them a fee for delivery if
you prefer. Even though the chain is local and the service is new, the
software works well, the service works well, and overall it's a good offering.

So my question is: how do investors project that an intermediary like
Instacart can outcompete the same service provided by the supermarkets
themselves? Doordash can compete on variety and speed, but most folks shop at
the same one or two supermarkets all the time and rarely need groceries
urgently.

~~~
clairity
this is not quite the right question to ask, because it assumes that the
delivery business is the revenue driver for instacart, and that for instacart
to win, they need to be better at delivery than the grocery store. it's very
hard to make such a logistics business work in the last mile because it's so
inefficient. grocery stores know this, which is the reason they are reluctant
to implement such services themselves, not because they afraid of innovation
(rather, lots of pricing innovation happens in grocery stores, to squeeze what
little margin they can out of the value chain). companies like fedex and ups
subsidize last-mile through their much more efficient long-distance logistics
operations, which people are willing to pay more for.

the delivery service is actually a loss leader for instacart's underlying
business, which is influencing purchase decisions through their app and
getting paid for it. this is where brands compete with each other (just like
shelf space in the store, which they also pay for), so it's where the money
is. instacart also has fantastic shopping data tied to individual accounts
that they can monetize in a number of ways. and then there is a bit of a
winner-take-all element in that grocery stores are unlikely to want to
integrate with more than one such service.

this last part is where the valuation comes from - it's a bet that instacart
can become critical marketing infrastructure for the grocery industry. like
many others, i'm skeptical because it's a risky strategy, but if they pull it
off, they get a big payday.

~~~
raiyu
This seems a bit left field. If you were a $100MM startup I could buy this
argument but at $3.4B you better believe that their valuation is tied to their
gross volume of goods and revenue moving through their platform.

Which is why the recently announced a change to tipping, where it would no
longer be hanlded separately but instead as part of the regular checkout so as
to make their revenue numbers look better.

They could certainly look into an advertising model for virtual shelf space,
but that will be a significantly smaller amount of money than what they are
doing in grocery delivery.

This is the same play as Seamless/Grubhub, and while they have a "promoted"
listing which generates revenue, the majority of their revenue still comes
from creating and order and doing the delivery.

The real benefit to Instacart from an investor perspective is that they are
taking a distributed market and consolidating it into one single player. So
while some stores may do their own delivery, by consolidating that space into
a single player they are able to create tremendous volume.

Now, at 33% the value of whole foods that's a different matter. But there are
some attractive pieces to Instacart's revenue story.

They don't stock inventory, so there aren't many carrying costs, they are
charging 20% on the order which means they directly benefit from customers
spending more and you can quickly see that their immediate revenue model
assuming they can keep costs under control is definitely enough to justify the
price.

The real question is how much money they are losing and if they are able to
become profitable in the long run, but that will be a question that is decided
well post IPO.

~~~
misterbowfinger

      So while some stores may do their own delivery, by consolidating that space
      into a single player they are able to create tremendous volume.
    

OP's point was that shoppers typically shop at 1-2 grocery stores.
Seamless/GrubHub is different because people are more likely order from
several restaurants across time.

clairity makes an astute point that Instacart's personalized data is more
valuable than any single grocery store's data. and competing on "store
shelves" allows them to negotiate with brands directly, and totally circumvent
the grocery stores.

.... but in order to do that, they need to capture the market, and they need
their operating model to work well for long enough to meet that goal

------
webnrrd2k
If there is as much money to be made as Instacart's valuation implies, then
it's just a matter of time until the big chains, at least, start offering
their own online shopping.

This strikes me as another version of AutoByTel.com Remember them? They worked
between you and the dealership, and generally got you a much better price on a
car, usually the fleet rate.

They did well until dealerships figured out how to use the web, and then the
company hasn't been anywhere near as relevant for a long time. It tough
existing between web-based customers and physical dealers. There isn't a lot
of loyalty, so as soon as tgere is a better price customers will change sites.
Also, Autobytel's business is really offering highly qualified sales leads to
dealerships. The basics are nothing fancier than that.

I see the same thing for Instacart. Grocery stores tend to be effective at
shipping stuff around, but tge same "shoping" experience has worked for many,
many years.

It seems like the grocery stores have a lot more power than Instacart, and
Instacart is going to have a very hard time getting between customers and
stores. It's going to be hard to make a profit when stores offer free/cheap
delivery and develop their own shopping apps.

~~~
simplehuman
What you are saying is correct. But this comment is true for every startup out
there.

~~~
koolba
In this case though I don't see a secret sauce that keeps the customer with
Instacart rather than going direct to the retailer.

With something like Uber or Lyft, you're accessing a pool of drivers that
can't immediately be created by a small competitor. Even in a local
environment.

With a grocery store I'm generally ordering from the same place repeatedly. If
they offer the same service directly, I see no advantage to dealing with
Instacart.

Maybe if they integrate vertically but at that point they become a modern
grocery store without a store front ( _I bet they 're considering this
already_). But otherwise they're just tacking a markup on something the stores
can do directly.

Another example would be a maid service like Homejoy. It's great if you don't
have a contact to begin with but once I've had a maid come to my house, I want
the same person to come back again. It's in my interests (cheaper, same
person) and the maid's interest (no commission to service) for it.

~~~
kingbirdy
As far as Instacart vertically integrating, at that point they'd be competing
with Amazon Fresh, and Amazon could likely muscle them out of the market

------
jpm_sd
It must be really weird to work for Instacart. The shoppers spend the entire
day in the supermarket, shopping for other people, waiting in the checkout
line over and over again. The drivers are just sitting around in the grocery
store parking lot most of the time. [0]

[0] [http://www.huffingtonpost.com/2015/02/02/instacart-
workers_n...](http://www.huffingtonpost.com/2015/02/02/instacart-
workers_n_6548822.html)

~~~
duderific
You can tell the Instacart shoppers in the store by the way they charge around
frantically, almost pushing people out of the way. They stick out like a sore
thumb.

~~~
omarchowdhury
There's also the blue uniform. But yeah, they are pretty aggressive.

~~~
ArlenBales
> There's also the blue uniform. But yeah, they are pretty aggressive.

Green?

[https://www.google.com/search?q=instacart+shopper&source=lnm...](https://www.google.com/search?q=instacart+shopper&source=lnms&tbm=isch&sa=X&ved=0ahUKEwj_w76IgsjSAhVBU2MKHajHBysQ_AUICSgC&biw=1077&bih=1411#tbm=isch&q=instacart+shopper&*)

------
saycheese
For anyone that doesn't know how Instacart got into YC... "How Instacart
Hacked YC":

[https://techcrunch.com/2012/08/18/how-instacart-hacked-
yc/](https://techcrunch.com/2012/08/18/how-instacart-hacked-yc/)

~~~
swampthinker
Takeaway: Every "no" in tech can be solved with a 6 pack of beer and lots of
persistence

~~~
sneak
...and by being male and speaking English well. :)

~~~
sushid
I get that what you're saying is tongue-in-cheek, but yes, when you're usually
trying to persuade anyone --person, organization, business, etc., having a
grasp in the local language is almost always a requirement.

In this particular example, however, those points are completely irrelevant as
he just used his app to show off Instacart's delivery feature.

~~~
sneak
What I was saying (on International Women's Day) is that many opportunities
are still afforded to people based on group identity that are denied to
others, and that "all problems" can be solved trivially... for some people
because of their inborn traits. It was a rejection of the "all problems can be
overcome with sufficient gumption" theme of this thread.

Beer, Maleness, being physically present in the USA, English - all of these
are group signifiers.

It saddens me to see HN users rejecting this on a day designed to highlight
this inequality.

------
dopamean
I've found Instacart to be prohibitively expensive. When in New York I've used
Fresh Direct and have never felt that I was being over charged. I have never
had an order with Instacart that made me thing the increase in price was worth
it. I'm sure a lot of people like it but I'm having a hard time being one of
them.

------
jzig
It's from those markups on sales tax [0].

[0]:[https://np.reddit.com/r/boston/comments/5xj47l/ever_what_ins...](https://np.reddit.com/r/boston/comments/5xj47l/ever_what_instacart_is_really_charging_you_in/)

~~~
sillysaurus3
_At this point, the store cost me $86.87. Instacart is now up to $142.47 after
taxes and fees. This is a difference of $55.60, or 64%. I added a 10% tip
(honestly, the shoppers deserve it, especially shopping in a grocery store on
a Sunday for me), which brought my Instacart total to $154.80 for an $86.87
grocery bill, or a difference of $78.20._

Ouch.

~~~
joering2
So it basically boils down to be a service for those few who either can make
more than $78 in an hour working rather than shopping, or those who don't like
shopping (spending all day in front of bunch of monitors I love to go shopping
just to anonymously socialize for a moment).

So as long as Instacart can survive with 1% of regular folks shopping with
them, they are golden.

------
simonkjohnson
Not entirely on topic, but in Denmark we have something similar called "Vigo",
where other people buy your groceries for you, and deliver them to you. The
fee you pay is fixed (about 6 USD).

People who want to make a little extra cash then log on to the app, look for
tasks nearby, and pick a task they want to complete. Then they buy it, deliver
it, and get paid.

The stores are partnering with the app to provide their inventory, so that you
can pick what you need and expect it to actually be available for your shopper
to buy.

Curious to see if something like Instacart would break through here.

------
overcast
What's the big deal with going to a grocery store, I mean seriously? I can
understand a market for wealthy people, who just want someone else to do
things for them, but to have enough market that the common person would find
this worth it?

Also, who wants someone picking through all their produce/meats/perishables?
That's a pretty subjective thing.

~~~
Gargoyle
I went without a car for a year, in Los Angeles. I lived near a subway, worked
remotely, and used Uber when I had to. The one thing that was still annoying
to handle was groceries, Instacart solved that. I only used them for stores
where the prices were the same as in-store, and I handled tipping in cash
(drivers were also the shoppers in my case).

I was very happy with the service, but my circumstances were pretty specific.
I'm now in a small town in the outskirts of a city and they're not an option
here. Even if they were, I have to have a car for other purposes and wouldn't
use them anyway.

I don't know how they'll expand outside of urban centers, honestly.

On a side note, about half the Ubers I see around here are pickup trucks,
which would make using them for grocery trips more practical. Hmmm.

~~~
overcast
I agree, this can really only exist in very urban areas.

~~~
ghaff
That's not really true although some degree of density is needed. I can't get
any of the latest VC-backed services but I can get Peapod and live well
outside the nearest major city on a number of acres. Where I live is certainly
not "very urban."

------
CptJamesCook
I have no comment on the valuation, but the service has made my life better.

I no longer fight with my significant other about grocery store trips, and the
house is always stocked with healthy, delicious food from Whole Foods.

In 3 years, I'm not sure I've ever had a problem with an Instacart delivery,
other than them occasionally forgetting items.

edit: I should have mentioned that I'm not very picky about what is actually
delivered, I'm just happy to have a bunch of fresh vegetables, fruit, and
sparkling water stocked in my house at all times.

~~~
MegaButts
As a counterpoint, I've never had a positive experience with Instacart.
Whenever an item is missing (and sometimes I suspect they just can't find the
item in store - one time they told me Whole Foods had no parmesan cheese at
all), there is a frustrating back-and-forth texting frenzy to decide whether
or not you want something else. Not only is it not what you want, it
inevitably costs more, and a typical order will have something like a dozen
texts from the shopper. In addition to this, the markups are way too high in
my opinion. And since I'm not in the store, I never know what's on sale and
can never take advantage of it.

After about a half dozen tries I gave up on Instacart. It was so much worse
than just going to the store myself.

~~~
jabzd
For what it is anecdotally worth, this has gotten better. It launched in
Chicago at least a year ago and the first few orders my wife and I placed, I
felt like I should have shopped myself for how many items weren't found and
how much hand holding the shopper needed to replace items. We almost gave up
on it, but with a baby in the house my wife kept with it and the replacement
feedback loop has really gotten much better. Nowadays, out of a 25 item order,
maybe 1 item is replaced and usually without a back-and-forth necessary
(something reasonable is picked and you have the opportunity to reject it).
Also, luckily, in the Chicago market most of the stores are "same-price-as-in-
store" and the prices seem fairly reasonable where I mostly believe that.

------
largehotcoffee
>$400 million round of venture funding As it stands now, I believe Instacart
will fail and this money will be wasted. The only hope for the company is to
be acquired by someone larger looking to bootstrap grocery delivery (or maybe
Uber or Amazon or something).

I regularly use Safeway grocery delivery
[https://shop.safeway.com/ecom/home](https://shop.safeway.com/ecom/home) and
I've always been happy. Delivery fees can get as low as $4 while grocery items
are (I assume) the same price as inside the store.

Instacart needs to do something different. Why don't they just copy Blue
Apron/Hello Fresh and offer meal packages with all the ingredients and recipe?
Hell, I'd be way more interested in the service if I could get that along with
groceries.

Postmates

Blue Apron

Hello Fresh

Instacart

Amazon Fresh

etc etc

These companies need to become each other, before Amazon becomes all of them.
It seems like the biggest innovation from Instacart I could find was "the
company wasn't collecting beverage can and bottle deposits accurately until
recently, and the fix has increased gross margins by 25 cents on average
deliveries nationwide.". This company is doomed.

Side note, I still can't get over the fact that I can't view a single item
they offer without creating an account. Even going to browse their website for
this comment, I walk away disappointed.

------
asciimo
I expected Whole Foods to acquire them. They have so much infrastructure on
site at popular Whole Foods locations that it seemed inevitable.

~~~
ironchief
I thought so too. However, the valuation of Instacart is now in the range of
Whole Foods $3.4B vs $9.3B

Expect to see much rougher competition from Whole Foods. They have quietly
already started this with their coupon app[1] (the wedge) and pickup (powered
by instacart)[2]

[1][https://www.theguardian.com/business/2016/feb/10/whole-
foods...](https://www.theguardian.com/business/2016/feb/10/whole-foods-
introduces-digital-coupons-app-shoppering)
[2][https://pickup.wholefoodsmarket.com/](https://pickup.wholefoodsmarket.com/)

~~~
marrone12
The valuation doesn't necessitate what they may ever sell at. It'd be very
easy for whole foods to acquire instacart after their hypothetical exit never
happens and their valuation tanks.

------
jonnynezbo
We use InstaCart to keep the fridge and pantry stocked at my small company. It
works like a charm, and saves us nearly 2 hours a week. You get "free"
deliveries with InstaCart Express for $149/year. The website and iPhone app
are easy to use, and interaction with the shopper works almost flawlessly.
Honestly, it's a no-brainer for us.

~~~
paulcole
Wow! Almost 2 hours a week! What do you do with the extra time?

~~~
puranjay
Why, post on HNews, of course!

------
tabeth
Am I missing something or are of these "I'm too rich to be bothered with this
task" services just creating a new servant class in the United States?

This "servant class" has already existed, but now I feel as if it's being
carved out of the already diminishing middle class.

~~~
27182818284
>Am I missing something

I think you are a bit, because I use a lot of these services and am not rich

Uber/Lyft isn't "I'm too rich to drive" it is "I'm drunk at the bars and need
a ride home." or "The BART is closed because high winds blew stuff on the
tracks and my flight leaves out of SFO in just a bit. "(Lyft really saved me
on that one, no cabs around)

Instacart isn't "I'm too rich to go grocery shopping" it is "I'm a mom of two
kids, one of them has diarrhea right now, we need some things from the store"

Etc - have to run but you get the idea

~~~
aianus
Even daily Uber use is cheaper than owning a car where I live (Toronto). Car
insurance alone is $400 a month for a young single male.

------
euphoria83
I have used their service many times and am in general not satisfied. Items
are missed, the quality of produce picked is not the best, items ordered are
not found and replaced, same day delivery is almost gone as an option now, the
service fee of 10% stinks of mal-intent. Also, I am not sure how they will
compete with Amazon Pantry/Prime or Google Express. The investment and
valuation seem bloated.

------
coupdejarnac
Are they actually making money, or are they going to be another fantastic
short-sell opportunity, a la Snapchat?

------
Hydraulix989
Those had to be some pretty bad terms.

------
misiti3780
I just logged in for the first time and used a lower manhattan zipcode, the
options seemed fairly sparse. I assume that it is more useful in other parts
of the country?

~~~
dopamean
If you're in Manhattan Fresh Direct is the best choice IMO.

------
dkarapetyan
Obviously the numbers still don't add up for a delivery business so what
exactly is driving the valuation up?

