
Are Instacart layoffs a sign of things to come? - thewarrior
http://www.cnbc.com/2015/12/31/are-instacart-layoffs-a-sign-of-things-to-come.html
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bsbechtel
A 20-30% gross margin is incredibly thin. It's smaller than brick and mortar
retail, which is widely considered one of the most competitive industries. The
vast majority of companies that operate on margins like this have low $/sq ft
retail or warehouse space that they operate out of, pay employees at or below
market salaries, and do many other things to keep overhead costs low. I don't
know any details on Instacart's operations, they could be incredibly thrifty
in how they spend money.

However, the vast majority of startups operating in the on-demand space have
offices in downtown SF, one of the most expensive/sq ft places in the country
to open an office. Additionally, engineer salaries in SF are averaging
>$150,000/yr. Contract this with Amazon, a retail giant (<35% gm) who has yet
to turn a real profit and is operating at a scale most startups can only dream
of achieving. Amazon based their operations in significantly cheaper Seattle,
and Bezos started the company giving every employee a desk make out of old
doors and 2"x4"s to instill a culture of thriftiness into the core of the
company. Sorry, but I just don't see how many of these on-demand startups can
really make it when they are spending money at the rate they are with the cut
(margin) they are taking.

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Naritai
To add to your analysis, Instacart is also very dependent on a large team of
'staff' (be it contractors or employees) to provide its service. A major
cornerstone of low-margin companies like Amazon is high levels of automation
and standardization to reduce the number of humans involved.

That said, this is a relatively small round of layoffs focused on a team not
directly related to the product (recruiting), so it's not really proof that
they are in trouble yet.

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bsbechtel
I agree that this may not be a sign of trouble, although this has been
happening with more frequency across the on-demand sector. However, I would
also consider most on-demand companies as service companies, not product
companies, and in doing so, you consider the base labor cost the same as your
cost of goods sold. So the 80% driver cut for Uber/Lyft would be the same as
selling a retail product at a 20% markup (assuming sales taxes and payroll
taxes/worker's comp are equal, which they aren't).

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mkagenius
I guess, the profit will ultimately depend on delivery charge and some
percentage cut of the actual ordered item.

But how many orders they would need per day to break even the delivery boy's
costs in a best case scenario?

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david-given
Warning: autoplay video.

