
Instacart Is Generating Profits? - rafaelc
http://fortune.com/2016/03/24/instacart-profits/
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vannevar
There's a lot of discussion in the article about AI and improved efficiencies,
but I wonder how much is due to real improvement and how much is simply the
result of increasing prices and cutting pay, both of which are also cited.

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pbreit
Yeah, it seems like they trotted out the "data scientist" to provide some
smoke an mirrors. 20% efficiency increase vs 50% labor cost improvement?

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Dwolb
Instacart are thinking very well about their business operations well but I
still am apprehensive on their unit economics.

The numbers given are $5.99 for a single delivery fee or $149 for an annual
subscription. In Atlanta they're making $6.96 per order and in Chicago they're
making $4.29.

Let's say a shopper makes $15/hr and can pick 5 orders per hour with an
average basket size of $100. The delivery driver also makes $15/hr and can
deliver all 5 orders with the basket size of $100.

Total labor cost is $30, or $6 per delivery and total revenue is 5*$5.99 or
$29.95 for a slightly negative gross profit.

So then is it reasonable to pick and checkout more than 5 orders per hour or 1
every 12 minutes in a random, non-optimized grocery store layout in the US? Is
it reasonable that a grocery store would pay out 6% off topline revenue to
Instacart when grocery industry profits are already in the single digits?
Could it be the average order revenue is substantially higher than $5.99 if
annual subscribers use their service fewer than once every two weeks? Or is
their cost basis truly lower than fully burdened employee costs of $15/hr?

It just seems like the economics are pretty sensitive to operational metrics
so it'd be great to get an official view into the business.

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cehrnrooth
Location density of the deliveries has got to have a massive impact on their
effectiveness. I'm highly skeptical of their ability gather groceries and
deliver to 5 separate locations within 1 hour. Even in a dense area where it's
5 minutes between each location (plus parking, plus entry / exit and delivery)
that's 25 minutes minimum.

The longer the time, the lower the $/Hr. The further away the locations are,
the higher the transportation costs are for the driver, further cutting into
their actual take home pay (not including, miles, depreciation, insurance,
etc...).

Instead of making deliveries after the order (and trying to bundle orders and
deliveries), I would think a dispatch model where one set of workers go out in
the morning and make the orders and deliver to a central location. Then have a
second shift make deliveries, but that would make it difficult to maintain the
independent contract status of their workers.

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Dwolb
Agrees on the location density point - the route for the driver has got to be
near perfect for their model to work.

The dispatch system is an interesting thought. I wonder if it fully aligns
with their delivery time promise.

I think the dispatch system points to another 'lever' however - certain
recurring orders can be lazily filled. i.e. when the shopper has no rush
orders he/she can fill her free time filling orders which are upcoming, but
not immediate

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rw2
This is not suprising. There are grocery delivery startups like freshdirect in
NYC that has much lower delivery cost and they are doing delivery from outside
of the city instead of inside. Granted, they have daily windows, instead of
realtime delivery.

Long term, with enough customers, it's easy to cut down costs with a variety
of different ways.

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pbreit
I thought Primack was smarter than this. Seems like he might have been played
here. Even at $7/order (apparently its best market), I'd be surprised if that
covers variable costs, even in a market denser than Atalanta.

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tryitnow
Interesting. I'd love to see their financial data. The problem with private
companies is that they can say pretty much whatever they want and there's no
way to do a "smell test" by looking at audited GAAP numbers.

It does make sense though that they should realize economies of scale (which
is probably the driving force in their margin improvements despite all the
talk of 'date science').

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yueq
The key issue really is Instacart doesn't have pricing power of the groceries.
This will limit their potential to be profitable.

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draw_down
Before this I didn't know that they charged subscription fees. I have toyed
with the idea of using Instacart, but I wouldn't pay a subscription. I don't
really see the point of a subscription fee for a retail service. I give you
the money, you give me the thing, end of transaction, right?

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pkroll
You can just use it and pay a fee every time, or you can subscribe and get
Free Delivery... of course they still charge more than most of the stores for
the groceries themselves. I subscribed last year for both myself and so I
could send my mom groceries, and barely, barely broke even: 25 orders. Given
the price increases since then, you'd still need 25 orders to break even.

