Instacart fears it’s too late.
The company announced Wednesday that it will begin ultra-fast delivery in the coming months, starting with Publix grocery store customers in Atlanta and Miami. The news came amid a broader push to improve its partner retailers’ ability to transact online using tools like ads and performance trackers.
Fast delivery is a burgeoning business in some of America’s biggest cities, but it hasn’t been good for all platforms. Intense competition has resulted in heavy losses as platforms offer discounts to compete for business. Compared to typical grocery delivery models that use contract workers, some fast-delivery platforms also favor a more expensive employment model to ensure workers can quickly source and deliver goods from small warehouses that companies also have to pay to operate, known as “darkstores.” “.
Last year, the New York-based express delivery service 1520 closed after running out of funding. And rapid-delivery startup Fridge No More has been defunct for several weeks after deal talks with DoorDash reportedly collapsed. That’s not to say its service wasn’t popular with consumers: From early August 2021 to late February this year, research by YipitData shows Fridge No More’s transaction volume in New York City quadrupled.
But even Gopuff — Rapid Delivery’s largest pure-play platform, which was valued at $15 billion as of July last year — didn’t make a profit on an earnings before interest, taxes, depreciation and amortization basis last year. (The company said earlier this year it was “contribution profit positive.”)
The losses have caused many investors to question the viability of the fast-delivery model for smaller players, especially as some established delivery platforms that typically have longer delivery times, like Uber Technologies’ Uber Eats, have just started being profitable on an adjusted Ebitda basis to become .
Instacart’s switch to faster delivery seems to validate the Gopuff-like model, at least in terms of customer demand. Nick Giovanni, Instacart’s chief financial officer, said in an interview on Wednesday that he believes the fast delivery trend has legs, noting that consumers will “absolutely” still be demanding fast delivery of groceries 10 years from now , because the customer will have gotten used to the speed.
But there are a few notable differences between what most instant delivery startups offer and what Instacart is trying to build. First, Instacart appears to be merging with retailers rather than becoming one itself. This could be helpful from an economic point of view, since the partners already have many stationary locations. Instacart says it’s the largest grocery marketplace in North America and helps facilitate online grocery delivery and pickup services from more than 70,000 stores in more than 5,500 cities.
However, Instacart’s announcement states that it will conduct 15-minute delivery in the first two cities from its own warehouses. The company said it would work to be flexible with retailers based on their preferences, giving them the option to use warehouses that Instacart operates and manages, or to consolidate Instacart’s warehouses within their existing brick-and-mortar locations.
Fast delivery providers have invested in their own brands — Gopuff, for example, recently launched Basically — to boost margins. Instacart should be able to offer traditional brand names through its retail partners and avoid owning the inventory. Instacart’s employees are a mix of contractors and employees, although the company says most are under contract.
Another difference is that fast delivery will be part of a more holistic product offering at Instacart. As such, the company will be able to subsidize potential losses from other offerings like its traditional delivery service and ads. The company declined to comment on what an ideal mix of ultra-fast delivery and regular delivery when due would be, but Mr Giovanni said fast delivery of only small orders is “a difficult business model”.
After booming early in the pandemic, Instacart’s growth has slowed significantly since then, prompting the company to focus on additional growth avenues. New chief executive Fidji Simo, for example, has favored the company’s foray into higher-margin advertising. However, it’s unclear whether Instacart’s move to fast delivery is an attempt to reignite growth or retain key retail partners who may feel they’re missing out as fast delivery grows in popularity. Either way, its launch will be a high-profile experiment worth watching: if the caterer can’t make the economy work, who can?
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https://www.wsj.com/articles/rapid-delivery-gets-some-insta-validation-11648136354?mod=rss_markets_main Fast delivery gets an Insta validation