Why are technology companies and high-profile startups so hot for grocery delivery, still, in 2015?
Let’s keep things simple: Americans spend nearly $700B each year at grocery stores. Each year, every year. It’s not a fad, it’s what they do. They often visit them at least once a week, if not more. And, the person going there is usually the head of the household and therefore commanding the household’s purchasing decisions.
By being a lucky early user, I was invited to invest a small amount in Instacart. Little did I know at that time how excellent the team was at this service, which appears mundane from the outside. That was in 2013. Back in 2007, Amazon launched “Fresh” and only 6 years later, again in 2013, started rolling out to a few other cities. Along the way, Peapod was there, and the ashes of Webvan still linger in the air.
Then, yesterday, Google announced it would start offering grocery delivery via Google Shopping Express in San Francisco. Over the past decade, big box retail has added grocery to their arsenals, with Costco, Target, and Walmart all offering you the chance to buy a large TV and organic bananas all in one stop. When I shared this news on Twitter yesterday, one responder shared this link about Amazon testing drive-through grocery stores in Sunnyvale and another shared this link about how 3PL (third-party logistics) providers are hopping up to help protect these grocery chains and independents from the predation of the larger companies.
Instacart, by contrast, has leveraged its founding team’s knowledge of the industry, leveraged structural changes in the labor markets, leveraged timing with widespread mobile penetration, and leveraged the Uber regional rollout playbook to attack more markets and grow. People often wonder about how markets value certain companies, but if grocery shopping is a core habit nationwide, and if the other big companies want to get into it but operationally can’t get it done, it validates even further how difficult Instacart’s role is, especially in a culture where most consumers expect free delivery without markups.
On top of this, consider that the next time you go to Whole Foods or Safeway, what you see in the store today may be very different in 10 years. Grocery, it turns out, is the thing that keeps customers physically coming back, and once they’re there, they may also want to buy other things, such that a retailer like Whole Foods could do a number of creative things, such as building out their Life365 brand (like Costco does for Kirkland). I think of Instacart as a layer that sits in between the customer and all of these retailers — it handles inventory and delivery management for the companies, and it offers variety and choice for the customer, as well as allowing them to save time.
From 35,000 feet, it may all seem mundane, but it is not so. It is something the big companies want to provide badly, but they can’t. Holding inventory is expensive and limits customer choice. Training people to pick and prepare grocery items takes a long time and a lot of care, attention to detail. For ordering and browsing on a mobile device or the web, design matters, and people browse in different ways. And, let’s not forget the simple, staying rule: the category is enormous. Instacart competes and wins by innovating behind the scenes and keeping things simple on the outside in this simple, huge category.