Grocery Delivery Service Instacart (YC S12) Raises $44M (opens in new tab)

The number of people on the internet (even if we strictly limit to the USA) is far larger now than it was in 2000. There were an estimated 400 million worldwide internet users in 2000. It's now estimated at over 3 billion.

In 2000 only 41% of all US households had internet access. Now it's 81%. This number also doesn't include internet in your pocket (74% of all Americans have some kind of mobile broadband).

The idea of "groceries on the internets" was never bad, it just tried to enter a market that didn't actually exist yet. They also tried to do too much, too quickly: i.e., launching into low population density markets that had zero chance of being cashflow even in the next 20 years. Notice that Fresh, Instacart, Google Shopping Express, and all these other perishable delivery companies are now strictly only in the densest urban areas where there is sufficient economy of scale to make the numbers work.

There are also some smaller contributors to success: people in general are much more willing to put their credit cards on the internet and buy things through the internet. People are able to access the internet while on the go. In the case of Amazon and Google they're leveraging a brand and existing user base that they've been building for years. The state of web tech also means the products are far less painful than before - keep in mind that 2000 was before AJAX, where every click of every button meant a completely new page load... over a connection that is likely dialup.

The game is very, very different from the way it was in 2000.

More and more, it seems like most y2k ideas were good. Unfortunately they were almost all too early.

One significant difference is that instacart just matches you up with shoppers who can go to your local stores, pick up the food, and deliver to you and everyone in your area. I believe the Y2k grocery services had fleets of trucks, warehouses, and tried to act like a layer in between the food distribution companies and the buyer. This method proved to be extremely expensive and hard to sustain.

Its a legitimate question actually.

The difference is that they got their logistics and pricing down. The Y2K companies didn't.

Smartphones didn't exist back then and there isn't the dot com bubble going on right now.

Mobile smartphones. That's what changed, and it's made all the difference.

I think it's pretty obvious that Instacart's exit strategy is to make some great technology that either Amazon or Google will buy-out.

There is no way they will survive as a company long-term trying to compete against either of those two. It's a low-margin business with expensive, labor-intensive components that won't scale efficiently over time. They just need enough money to last long enough to convince Amazon or Google to buy them at a premium so that the investors make their 10x.

My reason is simple. I use Instacart frequently. When I first evaluated Google Shopping Express, it didn't seem possible to buy basic perishables such as milk and orange juice (and I don't mean the canned kind that sits on shelves at room temperature). That's pretty much a killer if I can't buy fresh milk and orange juice.

Faster delivery

Bigger selection

Speak directly with your shopper

They do, but their interface really blows and the scheduling system can be troublesome because they have a limited number of drivers and sometimes you'd have to schedule delivery during a bad time. I've only used instacart a few times, but I could immediately tell it was way better than Safeway's delivery mechanism.

For starters, I could have a single watermelon delivered at 11pm for a party I had going on, but with Safeway, I could not do same day delivery and it would need to be delivered during working hours the following day because the other times were already booked. Safeway's delivery mechanism is probably good enough for large offices that need regular deliveries, but Instacart is good for all other times. I probably would just stick with a single delivery service for everything so I wouldn't waste my time using Safeway's service.

Instacart feels very similar to Google Shopping Express, and if you haven't tried out either service, you should definitely try one of them out. Google Shopping Express can't deliver perishables, but they do support Costco, so if you don't have a car and you need 50 rolls of paper towel, that's the best place to be.

It probably has to do with traveling distances which vary greatly depending on the area. I don't want my frozen stuff to thaw while sitting around waiting for the next driver or during transit. I don't want my stuff squashed so vehicles need to be bigger to handle multiple loads, which also sort of implies inefficiency while traveling without a load.

I could see it working extremely well in big compact cities since they already have many delivery services. However, in the spread out areas it wouldn't work so well without many drivers which increases costs and the price of goods.

Also, most people want to inspect their fruit and veggies before they buy them. The interfaces could take input on the state but that would just slow things down IMO while a human would have to sort them. Unless there are systems out there for ripeness detection. I might buy something for tonight's dinner, in which I want something ready, or I might be preparing for a weekend dinner and want something that still needs time.

I believe all of these issues can be overcome, but I don't see how all that labor, vehicles, and tech could be a marginal cost. Well, I can see the tech cost approaching zero/order since all it needs is the existing catalog/POS system with a simple web interface. Most people I know either shop on their way home from work, a trip they are already paying for, or wait for the weekend to go as a group.

They are, at least in some markets. Where I live (Boston), two of the largest grocery stores (Stop&Shop, RocheBrothers) both have delivery services where you order online. And I know there exists grocery delivery in Chicago, Seattle, and other major cities as well.

At least among my friends, Instacart seems to be more popular for Trader Joe's and Whole Foods.

We get delivery groceries from Stop & Shop (in NYC) and it's great - much cheaper than going to any of the stores around here. The website doesn't look too fancy, but functionally it's totally fine. I think Fairway and Freshdirect also serve the area, but Stop & Shop seemed the cheapest.

I've recently moved to SF from London. One of the first thing you'll notice is that the supermarkets are years behind London. They're far inbetween, light on some product groups, and lacking in services like quick delivery. I was surprised Tesco didn't hit it off here.

Yep, extremely disingenuous. One time they left the receipt in the bag and let me assure you that there are huge markups being taken...

I'm a pretty heavy Instacart user, and I'm convinced what they're making on markup eclipses what they make from delivery fees.

Not complaining, just wish the messaging didn't gloss over it as mentioned above.

I pretty much had thought that they didn't make money on delivery because on average drivers make $5 - $8 per shop/delivery. Free delivery with $x in groceries also confirms that they are making a margin on groceries, which I've heard is as much as 30% but I guess that depends on how often they update their prices and if there are sales going on at the stores they shop at.

You answered your own question, yes eventually you have to make money. You just have a different definition of eventually than VCs do.

There should be a basic level of business knowledge required to participate in these discussions.

Was broken when I checked earlier, seems to be fixed.

Working fine here.