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Instacart (YC S12) wants to be Amazon with 1 hour delivery (techcrunch.com)
157 points by apoorvamehta on Aug 1, 2012 | hide | past | web | favorite | 98 comments

I'd love to have this service at home, so I'm (selfishly) hoping Instacart becomes hugely successful!

That said, I can't help but wonder whether the company will find a business model with sustainable economics. A lot of really smart people have tried and failed to accomplish this sort of thing before. For example, Amazon invested $60 million in Kozmo.com back in the late 90's, and they couldn't make it work. (Kozmo.com ended up raising a quarter billion dollars before shutting down.)[1]

The main challenge is that same-day, point-to-point delivery is very expensive -- a complex problem. (Most delivery systems in use today rely on some kind of hub-and-spoke design.) Perhaps the wide adoption of smart phones will make point-to-point delivery economically viable for Instacart -- e.g., by giving the company cost-effective access to underused delivery vehicles as needed to satisfy the ebbs and flows of consumer demand.

I'm curious to see if and how Instacart can pull it off.


[1] http://en.wikipedia.org/wiki/Kozmo.com#History

While I agree that a lot of smart people have tried this before (Kozmo.com, WebVan, etc), I believe that there are significant differences in the approach that we are taking.

Specifically, Kozmo.com was founded in an era where you could IPO without having profits. Having that mentality from day one allowed them to make huge concessions to users such as give them free delivery on everything, and not have a minimum order. For example, you could pay $1.50 for a gum on Kozmo and get it delivered to you within an hour. WebVan, on the other hand spend $1B on building it's own warehouses and fulfillment infrastructure.

Learning from those companies, we have done a lot of things differently. For starters, there is a minimum order of $10. There is a delivery fee of $3.99 for 3 hours and $9.99 for 1 hour. (Would you not pay $4 for someone to do all your groceries?) And, we do not hold any inventory - all of it is sourced directly from local retailers.

It is also important to mention that the time that we live in is very different. People are a lot more comfortable adding their credit card information on web/mobile. Not to mention, the access to smart phones that people have gives customers the ability to shop from anywhere - office, couch, next to the fridge.

We believe we are different from the companies that have tried this in the past. And, we hope we are live in your hometown very soon.

(edits to follow)

apoorvamehta: thank you for your prompt, articulate response.

The logistical challenges look daunting to me. My recollection is that the problem of coordinating and optimizing deliveries in such a point-to-point system with time constraints is NP-hard (I could be wrong about this, but that's my recollection). Then one has to deal with all sorts of real-world problems like order-fulfillment errors and substitutions (intentional and otherwise), constant shrinkage of merchandise, etc.

Obviously there's some price at which the service can be profitable, but I'm not sure it's $4. (Consider that the former CTO of Kozmo, Chris Siragusa, has been running a one-hour, point-to-point $3 delivery service for a number of years, MaxDelivery.com, but he has kept the service restricted to a relatively small, dense area in lower Manhattan, making the economics worthwhile.)

In any case, I sure hope you're right!

cs702, your recollection is correct. Last mile logistics is a hard problem. Not to mention, order-fulfillment errors and substitutions do happen. However, we believe these are solvable. It comes down to two things - one is proper training of the drivers and using technology as much as possible to eliminate chances of errors.

That is too high level. Let me explain more clearly for one specific case of order substitution. Since we are focusing on a niche (groceries), our system has already calculated the substitutes of items. We know how to substitute a Store Brand Ketchup to Heinz IF needed.

A lot of what I know about logistics is from my time at Amazon Supply Chain, where I dealt specifically with the challenge of fulfilling packages to the customer from AMZN FCs (aka warehouses). And, at Instacart we believe we can have the same efficiencies IF we model the stores in a city just like AMZN modeled warehouses across the world.

> And, at Instacart we believe we can have the same efficiencies IF we model the stores in a city just like AMZN modeled warehouses across the world.

My supply chain experience comes almost entirely from third-party shipping (somewhat) similar to this. In my opinion it's considerably harder and more problematic than dealing with your own fulfillment centers. You give up a lot of control.

There's a whole slew of problems: * Integration with other people's systems, which are often horribly dysfunctional, require manual intervention (such as re-keying), and can't give you the data you need (e.g. stock levels) * The fact that you have to rely on staff that don't work for you, and either don't care about you, or in some cases deliberately sabotage your orders * You're often relying on a vendor who is also a direct-competitor in this or other channels

I think a good model is Seamless. They act as the middleman just as you do, however it's the restaurant's name you see, rate, and attach reputation to. This gives them the incentive to provide good service. If you're shielding your vendors from the effects of providing bad service, then there's less incentive to provide good service.

I think it's an interesting problem to solve. Though here in NYC we're spoiled by a large range of next-day options; I personally use services such as Fresh Direct, Amazon (Prime and "Shop 'n Save"), Soap, and USQ Wines.

IF you can somehow get a network of local retailers in each city, such that the stores together behave like and otherwise have similar operating and economic characteristics as regional warehouses, then, yes, I agree, it's possible. That's a big IF, though.

I have to take my hat off to you guys for attempting this!

Interesting. Do you plan to replace the weekly trip to Wal-Mart in terms of range, or will you limit yourself to the smaller product selection you'd get in a local corner store?

What will you do if all your drivers are busy? Will I be able to book an order for an hour-long slot in the future, or is delivery now or never?

if you can coordinate your own employee, or an employee at the supermarket to pull the order and have it ready just-in-time style to the curb, and then have the courier, again, be it your employee, a taxi without a customer, or another shopper going home to the same neighborhood you have gold. I would focus on the coordination of activities people are mostly already doing and by putting it all together you, and this specialized order fulfillment network/consortium make a few bucks.

I wish you luck.. that is a super cool business you get to design.

Sure it's NP-hard for an optimal solution, but the n here might be fairly small (how many orders in a 1 hour window?) or they can just use heuristics to do very well, if suboptimally.

[...] how many orders in a 1 hour window?

Depends on the city. In large metropolitan areas like NY, Chicago, the VA-DC-MD corridor, etc., potentially tens or hundreds of thousands at certain times of the day (e.g., 7pm, when people get home from work).

I see a very tight profit margin, but the key to pulling this off is good supply chain optimization.

Good luck

> Specifically, Kozmo.com was founded in an era where you could IPO without having profits

Yes, it's different this time. Just ask Groupon.

Also, and maybe you have a lot more insight into the business model than I do, but I just do not see how this scales, as your marginal labor costs have got to be a very high portion of your revenues. How many deliveries per hour can an employee handle?

For example, assume you are paying $8.00/hr. If you have one person shopping, and they can compile 4 orders per hour, and one person can deliver those, which is a big if, you are just breaking even on labor costs.

> Yes, it's different this time. Just ask Groupon.

(The important part of what you quoted was not "you can no longer IPO without profits" but "the ability to IPO without profits harmed kozmo, and we are not making the same mistake". It's not particularly important whether or not IPOing without profits is actually still possible.)

Apoorva, Something that I noticed working in Bangalore is the BigBasket.com model. Order something that will be delivered in a time slot. Say I need egg + broccoli + rice etc. I get to choose the next available delivery time. Chances are that the slot might get filled. But if I choose 9:30 AM, it will be delivered by 1-2 PM. The next slot available is 4:30 delivery. Reduces sourcing end variables for the supplier & increases predictability on the other end.

Thanks for cloning Get It Now after using it. ;)

You also have another way of making a few more bucks here and there. Supermarkets often have coupons, and also buy one get one free type offers. The former can reduce the cost of goods to you, and the latter means you can charge two customers for an item but only pay for it once.

It seems like by having a delivery fee is a non-starter.

"I can get it in 2 days free with amazon, or $4 today... is that worth it?" People will spend huge amounts of time and effort to not pay delivery charges, even when the total price ends up being the same!

But then again, I can't count the number of times I've ran out to the store and paid more than Amazon prices because I didn't want to wait two days for shipping.

So does that mean you view yourselves as potential competitors for services like Safeway's home grocery delivery?

I'm hoping service succeeds also - its an awesome value proposition for consumers. However, I've built a few real-time delivery businesses, and I'm pessimistic.

Real-time operations are costly to manage even though the software has become easier to build. Not being Amazon and not being able to control inventory, and access to that inventory, hurts. However, probably a bigger issue is establishing consumer habit - triggering that need to order at the moment the user wants it. This comes down to establishing a brand (expensive) and also evolving consumer behavior (more expensive). And, these consumers will have to be in the < 200 geographical regions of the US that are dense enough to facilitate < 4hr delivery profitably (its probably less than 50 regions where you could fulfill on 1-hr delivery profitably at any substantial volume).

You could say Uber is a counter example of succeeding in this space. I would argue that they replaced an existing consumer habit with a better one. I don't see that in the same-day delivery space - thus the need for education.

There have been a few generations of these services (Webvan / Kozmo; Licketyship; Ecourier / Shutl; Postmates). Eventually, the cost of tapping into consumer habit vs the small margins of brokering a delivery will create an amazing opportunity. In the meantime, the cost of educating and acquiring users is a big deterrent and if you can build the kind of company innovative enough to solve this problem, its likely you have a prohibitively high opportunity cost.

I think the main problem is sourcing. If sourcing can be done locally, then delivery costs will automatically plummet. Take vegetables for example. The actual cost of growing the vegetables is negligible compared to the transportation costs of delivering and storing to the end consumer. There is also the added cost of storing. Companies are doing a lot to address the transportation and storage but not doing much to address the sourcing issue. I think one startup in NYC is doing some sort of urban warehouse farming to tackle the sourcing issue.

Do you think that the delivery economics work better in incredibly dense regions like Mumbai or Shenzen?

Actually I think this business model works better in big and dense Asian cities. There are a few things going for them: 1. cheaper labor: that drives down delivery costs 2. low credit card penetration is a business advantage: the drivers (or bicycle riders :), can collect COD. That saves card transaction fee too ... 3. buying habit: I know for certain that many Asians still shop groceries daily. This, together with a very busy, growing, new middle class, provides for a big and fast growing market

Not sure if the market is big enough, but there could also be an opportunity for servicing foreigners in those countries fearful of being quoted a 'tourist price'. e.g., you're in Xian and are going hiking at Huashan the next day. You'd like to have a package of supplies (drinks, snacks, packed lunch) delivered in the evening so you're ready to go in the morning. Some of things would be trivial to organise with a walk around the block, but others might be difficult because of the potential language barrier.

I think to solve this problem, Amazon needs to bridge the gap between their value and local retailers' stock.

It'd work something like this:

You go online.

You want to buy a new A/V receiver

You find the one you want on Amazon at 9 am

Amazon then asks you where you live

Amazon taps into a database of willing stores that might carry the product. Most big-box stores have web-based inventory checks, so syncing their inventory with Amazon's system would (hopefully) be easier. Amazon offers the service to more specialized outfits; Smaller stores would get support in integrating the inventory system. Amazon would have to make a deal with these stores to make this work.

Using a partnership with UPS/FedEx/et.al., Amazon figures out which locations are still due for visits from a logistics company. Most make residential shipments as the last part of the day.

Amazon tells the store, "A customer requested this receiver, please put it in box size A1 and hand it to the UPS dude with this shipping label."

Amazon pays the retailer below retail, but above cost. The retailer takes it because they want the business; Amazon recoups because same-day shipping is a premium.

Box goes on the truck, truck comes to your house.

Voila, new item by EOD same day.

Isn't this sort of the way those flower delivery sites work? You purchase some arrangement online and then a local retailer puts it together and delivers. So this model already exists and is (presumably) successful. I'd sure love to see it rolled out to other industries.

In those cases people tolerate massive delivery fees because it's not just the access to the florists they have to worry about but also access to the recipient.

The bottleneck is the delivery: unless there are sufficient deliveries to be made in your neighbourhood, sending a van to just your house then back to depot is very expensive. For hundred-dollar-and-up items this works, but not for the kind of consumer goods that people want within an hour (food, namely). And for $9.99 for one-hour delivery, who is not getting paid very well here?

I think food already has its systems in place (think eat24.com). The only leftover gap is the retail items. That said, many retail items aren't that expensive, but utilizing GPS and logistics tech is the key here. You don't have to make one-off stops if you coordinate. Hell, can you imagine how much UPS or FedEx would like something like this? Their overhead would go down to almost nothing, and they could replace fleets of big air freight with many electric powered local trucks.

What do pizza delivery drivers get paid? And that's for working after-hours.

I swear a friend of mine years ago was getting under $4/delivery? Might've misremembered.

The expense is mainly because of the driver. The moment self driving vans become economically feasible the delivery expenses will drop precipitously.

And customers will, what, walk out to the robovan and dig through the boxes until they find theirs?

Paying a guy to sit in the robovan and run the packages to the door isn't going to be appreciably cheaper just because he sits in the passenger seat.

Robotically offering me a box seems significantly easier than robotically driving a freaking van.

Right, now we're talking about stuff that's a hundred years away (yeah I know Google car ...)

What is still left to be done? Google has extremely detailed mapping and the self driving car works well in real traffic. (One advantage a car has over planes is that if things go horribly wrong it can just stop.) http://en.wikipedia.org/wiki/Google_driverless_car

There aren't any technical unknowns left. Obviously the algorithms will continue to be tweaked and improved. Importantly it can operate in the existing environment - there is no need for every car to switch to driverless at once.

Amazon already has "Amazon lockers" scattered across Manhattan where you can go pick up your packages from a kiosk inside a grocery store / drug store. You enter a pick-up code on the touchscreen, and a specified locker opens up with your goods inside it. It's easy to see how similar tech could be adapted for use inside a robovan.

Any particular location you have seen this in NYC? Haven't seen it yet

I've personally only used the one at the Gristedes in Sheridan Square, but based on their locator (http://www.amazon.com/gp/css/account/address/view.html/ref=l...) it looks like they have a good 15-16 in Manhattan and 3-4 in Queens/Brooklyn.

Are you just waiving fuel costs?

Nope. But self driving vans can do things humans can't. For example they can wait in a neighbourhood until an order comes in so they don't need to drive back to base. Or care that the wait is 3 hours. Or that they are working at 3am. Heck they don't ever even need to return to base, instead just making small efficient local journeys (and using electricity instead of petrol).

Remember that anyone locally would also need to spend a similar order of magnitude in fuel (and likely more) if they went to get things themselves.

For example they can wait in a neighbourhood until an order comes in so they don't need to drive back to base.

I don't think people have fully thought through the impact of this yet.

A year ago I dared to suggest on HN that self-driving cars could potentially cause congestion (because it would be cheaper for an electric car to sit stationary traffic rather than paying for a park).

Back then I was downvoted to oblivion. I hope now people think it through a bit more.

You are being too negative. In high density areas there is far less likely to be downtime, and the vehicles can wait just outside that area in a sensible parking place, such as one with electrical chargers. It is the suburban areas where they are more likely to need parking, and more likely to have it.

I reckon self driving cars will also lead to significantly less car ownership. Taxis will become cheaper, more flexible and more plentiful (political shenanigans aside). The Zipcar model works too as the car can come to you.

And of course the cars can be coordinated to alleviate congestion. For example the system may work out that a particular car going at 29mph for a stretch instead of the limit of 30mph would avoid a glut of traffic 5 minutes ahead, or take a different route, or tell it to wait 5 minutes when it is empty.

I think by that point we will be using Helium 3 so no big deal there.

There's an online used bookstore (Estante Virtual) in Brazil that kind of does this, though obviously with books. It's a network of 9 million titles, all coming from secondhand bookstores throughout the country who have uploaded a list of their inventory. When I browse for a book, I can choose a local vendor and if I want, find out the location so that I can just go there in person if I think that's faster than Brazil's national courier services (as many times, payment to the vendor means making an in-bank deposit to their account).

There's evidence that Amazon is about to make another go at same-day delivery, see: http://www.slate.com/articles/business/small_business/2012/0...

It'll be interesting to see how this plays out against Amazon's push into same-day delivery. Amazon is setting up local distribution centers of their own. Instacart is using existing distribution centers (i.e. retail stores).

Both companies need to figure out how to best deliver items locally. This is a big logistical challenge (but luckily it's well researched). In addition, Amazon needs to predict demand locally and ship items to a local distribution center. Instacart can leverage existing supply chains but has to pay a premium for it. If Instacart is willing to operate at a loss for a while, they might actually have an advantage over Amazon and can fully focus on getting the local delivery part of the equation right.

Very exciting stuff and congrats on the launch!

Disclaimer: I met Apoorva a few weeks ago and have been happily using the service since. I'm extremely impressed by how he managed to do all of this essentially alone and can't wait to see what's next.

Edit: typos

The techcrunch article title is misleading - they don't want to be Amazon; they're not maintaining warehouses (which may prevent them from crashing like Webvan). They're effectively delivery people that you hire to bring you products from local stores, which is a very different market.

Regardless, there are a lot of dead companies that litter the path for a product like this. I'd be surprised if Instacart succeeds.

This is the most useful service i discovered i recent months. period. I seriously recommend this to anyone in SF. I dont remember the last time i went shopping for groceries. It already saved me tons of hours and money. no-brainer.

disclaimer: my company is in the same YC batch and I know Apoorva personally and was happy to get early access to service.

I love that the website doesn't shoehorn me into a crappy mobile version when I load it, but what happens now is that I get a picture of an iPhone and apparently nothing elseā€”it's not at all intuitive for me to think to scroll horizontally to find the content of the web page, especially with the hidden-by-default scroll bars on the iPhone. To clarify, the horizontal scroll bar that appeared when scrolling vertically while "looking for the rest of the page" was hidden by a thumb for me. I only barely thought to check horizontal scrolling before giving up on the page as somehow broken on my iPhone.

Deatil of what I see (on the left) vs what I probably should see (on the right, after zooming manually):


fixed now. thanks for the heads up :)

If they were to do alcohol delivery this could be really big. Even if they charge more for it (say $20) it's going to be extremely popular.

I've ordered alcohol with the app...

That's a very interesting idea. I can see the demand being there, but a lot of legal hurdles.

This gets even better and it will save tons of money when I can create a bag, save it, then simply press one button to re-order.

Coming up in the next iteration (i.e. in a day or two) :)

It's a great idea, in theory. But who's the target market? Wealthy professionals have a wife to bring them stuff or have personal assistants (hard to believe in the world of dual income households, but I have friends that do just this). Young, less wealthy professionals just go pick up the items themselves or have friends pick them up for them. College kids aren't going to pay for such a service, they enjoy taking a break from studying to go pick up something. And yes, I know, I'm sure there are stay at home husbands that do errands for their wealthy professional wives, I just don't know of any.

Grocery shopping for the lazy AND impatient? Yes please.

I have been using past few week while it was in Alpha and I got say, its my favorite service for drink runs like sodas/juices/liquors. Def going to become a regular user. Gonna be following with much interest.

Also, to add to the conversation.It all about timing, right? Now with Amazon being as big as it is and we see companies like Rewinery, Exec, Postmates smashing into this on-demand local delivery space. The time seems ideal for a company like Instacart. I do miss WebVan though.

Monday I was having a conversation with a coworker about the looming major showdown between Amazon and Walmart. My take was Walmart should offer exactly this, allowing them to leverage their massive supply chain and warehouses in every city with more than 5000 people (aka "The Walmart").

Awesome to see a startup rising to the challenge.

Wasn't there a documentary about this somewhere back in the day that came to define the dot-com bubble?

The documentary was talking about Kozmo.com, which had several issues in their business model including no minimum order size or delivery fees.

I've been using instacart a lot lately and it's awesome. I really think this is going to big.

How can they make money delivering for $9.99? I guess the item prices are jacked up a little.

Sounds nice. I know some people have been using Exec (YC W12) to do this, but instacart is much cheaper. The only thing that takes all the excitement for me is that it does not have a android version OR a web one....

This looks great. Today I'm sick WFH and could really use some meds delivered. I signed up for an invite... what is the process/wait time like? I may have to try something else if I'll need to wait too long.

You can get your pharmacy orders picked up in SF by Exec (http://iamexec.com). In California your assistant only needs your name, address and phone number to get your prescribed medications.

Unfortunately for you I would expect medicine to be something they won't deliver. Alcohol, too.

I was thinking more like cough drops and advil, not prescriptions... would those still be outside the acceptable list of things to deliver?

I ordered Advil through instacart. Really saved me.

Have you looked at the financials of this? 10$ for 1 hr delivery means that either the carrier is paid less than that hourly(and I guess at least 20% less than that) or he is supposed to deliver more than 1 package per hour. Considering transportation costs and idle time, I am not sure this will work smoothly. It will work if there is a list of carriers ready to drop what they are doing to go buy groceries and make some money. Basically, it will work in cities with lots and lots of students...

Doesn't Amazon plan to be Amazon with 1 hour delivery?

same day is different than 1 hour. not to mention, you cannot order perishables from Amazon.

Only available in Seattle.

This kind of seems like a rip off of Postmates' "Get It Now", no?


Kozmo.com of the new era bubble.

This will be interesting.

Peapod but faster?

Kozmo.com, but with a saner business model.

I remember Kozmo.com! The big difference now: Smartphones

wiki search for kozmo shows 2 more similar services: MaxDelivery, Urban Express, both in NYC though.

No, Amazon, but within 1 hour. No need to overcomplicate things.

Well, except they sell only groceries, which isn't at all Amazon's core business (and isn't what Amazon does, in 99.9% of the world).

And they do their own delivery. It's nothing at all like Amazon, except perhaps for the user.

In Seattle, Amazon is testing Amazon Fresh for groceries. Amazon Fresh has their own delivery infrastructure with their own trucks and drivers.

They also deliver other things using this system. I received a CD via Amazon Fresh on Sunday, that I'd ordered on Saturday, whilst still paying for Tuesday delivery (free with Prime)

If Amazon can make this scale, they are absolutely competing with them directly. If Amazon can't make this scale, then it's unlikely to be a profitable business model for anyone else.

I can barely get a pizza delivered in an hour, and they've been doing that since the 1970s (I guess, I have no idea when pizza delivery started). Do I have to worry about Instacart maniacs driving like banshees on the road?

This feels like a specialized TaskRabbit kind of thing (like what they tried to do with the $10 delivery for In-N-Out anywhere in SF). Could be workable if there's enough customers.

If something is located within an hour of me I could just drive and get it, or use a local delivery service. I use the internet to buy extra weird stuff that I can't get locally.

Groceries+short delivery window... sounds like webvan ;-P http://en.wikipedia.org/wiki/Webvan

Love the idea.. Possibilities around POS data and Nielsen like services are obvious extensions.. Good luck!!

Better than Peapod and Kozmo, the time for such a service is definitely now in the mobile driven world.

Are you guys limiting the invites? I'd love to check it out but haven't received my invite yet.

Congrats Apoorva! Glad to see us 08 Elecs trying to change the world for the better.

Who delivers? Is this a P2P marketplace (like Taskrabbit, etc?)?

Looking forward to giving this a try. Best of luck!

This is a brilliant idea. Hard, but worth doing.

I truly want this on my city, and I guess a lot of people are thinking the same, so the model has a lot of potential!

Milkplease (refused by YC) is more promising and we are trying to be faster


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