A topic of interest to readers of Forbes is the grocery industry and especially Instacart. It’s easy to write about Instacart due to the increased amount of press the company is receiving for its missteps in managing its workforce.
The poor treatment of its contract employees has been a consistent problem for Instacart. Many of Instacart’s gig workers have contacted me and provided me with proof of how hard they work and how little they’re paid. I am constantly asked “Can’t you work for Instacart and help us? Instacart doesn’t have a single executive with your experience or brain power. We trust you.”
Out of professional courtesy to Instacart, I have not provided consulting or other support to Instacart’s gig workers.
To Instacart’s credit, the company recently reversed course on confiscating a workers tips to achieve a designated hourly pay rate. Amazon and DoorDash announced they plan to continue using the same tip policy that generated so much bad publicity for Instacart. The best word to describe the policy of confiscating tips is sleazy.
Another interesting topic to write about is whether or not Instacart will become a competitor to the grocery retailers it serves. Despite denials to the contrary, I remain convinced Instacart has every intention of eventually becoming a competitor.
At some point, Instacart will apply all that it has learned from its grocery customers to create its own retail experience. (Instacart founder Apoorva Mehta was working for Amazon when he came up with the idea for Instacart. Did Mehta immediately share the idea with executives of Amazon to benefit his employer? No. Mehta chose to create a company and become a competitor to Amazon).
Since grocery retailers willingly gave Instacart access to their data and willingly taught Instacart their business, there is nothing they will be able to do once Instacart decides they’re expendable. I can’t stress this point enough: Grocery executives at the largest grocery retailers foolishly, and I do mean foolishly, allowed Instacart to learn their strengths and weaknesses. Are we truly to believe that Instacart isn’t going to leverage that knowledge to its advantage? (I encourage Instacart to leverage the data and knowledge its gained from its retail customers to the benefit of Instacart).
I have discussed this topic with grocery executives, retail analysts and consultants and all are in agreement that it doesn’t make sense for Instacart not to expand its business model by becoming a retailer and a competitor to the retailers it currently serves.
Instacart’s future shouldn’t be focused on enabling online grocery fulfillment, Instacart’s future should consist of creating an innovative grocery retail model. The retail industry can use all of the innovation it can get and that Includes Instacart either opening its own stores, acquiring a grocery chain, moving into private label manufacturing, becoming a distributor of groceries similar to Amazon FBA and so forth.
I have written additional in-depth articles about Instacart where I outline a series of arguments regarding Instacart’s intentions and future. A recurring theme is that Instacart has tremendous potential as a company. Instacart also has a growing list of issues. Specifically, Instacart’s business model doesn’t work for everything its grocery and warehouse club customers want Instacart to provide. Here’s what I mean.
A Square Peg In A Round Hole
To illustrate why I believe Instacart doesn’t have the right business model to meet the needs of all of its customers, see the pictures below. The pictures are of online orders being fulfilled at Sam’s Club and Costco locations. I could have also posted pictures from grocery retailers showing large amounts of groceries being picked. However, the majority of complaints I’ve received from Instacart’s gig workers have primarily taken place at Sam’s Club and Costco locations.
Instacart does a good job of picking and fulfilling individual online orders at grocery stores and delivering the groceries to customers. However, Instacart is a foolish choice for fulfilling bulk orders. Frankly, using Instacart’s gig workers to pick and deliver large bulk orders is asinine and inefficient. The pictures I have posted don’t lie. (I have received hundreds of pictures similar to the ones in this article).
The process utilized by Instacart to fulfill bulk orders can only be described as ridiculous.
I have watched multiple orders being fulfilled by individuals (men and women) who could barely lift some of the items that needed to be picked.
I have also watched in amazement as many of Instacart’s gig workers struggle to push around the carts needed to hold the items being picked. It becomes even more interesting when workers push cart’s out to their vehicles and they struggle once again to lift the items from the cart to their vehicle.
Most Instacart workers drive cars or small SUVs and vans with minimal cargo space. The process can take hours and require picking, pushing and unloading carts multiple times and driving back and forth to the same customer to complete the order.
Instacart’s workers are woefully underpaid for how hard they work. This is an issue that needs to be fixed once and for all.
Instacart is a low-cost option for retailers and I believe Sam’s Club and Costco view Instacart as nothing more than a low-cost solution for a painful problem, picking and delivering groceries and other products in bulk to customers.
Because Instacart loves being able to put out press releases touting the brands its partnered with, Instacart has intentionally reduced the cost of its services to the point where the company barely breaks even and in most cases, loses money on every delivery. Why? To make it easy to sign up new customers.
Instacart has stated multiple times that it has several revenue streams hence the reason it is willing to take a loss on order fulfillment and delivery. Instacart understands that it is to their benefit to fulfill groceries at a price point cheaper than grocery retailers and competitors can.
The fact that Sam’s Club (and Costco) believe utilizing Instacart to fulfill bulk orders for businesses and individual customers makes sense is embarrassing. They use Instacart for two reasons: Instacart is cheap and neither company has come up with a better plan.
Walmart is a master at logistics but for some reason Walmart just can’t figure out last mile delivery. In addition, Sam’s Club utilizing Instacart gives the impression that the company is willing to ignore the reality of what’s taking place at Instacart in terms of the company’s inability to pay its workers fairly and create a better work environment. Instacart poses a reputational risk to Sam’s Club and Walmart. (Costco should know better than to utilize Instacart as well).
I am convinced that if Sam Walton came back to life and saw what’s taking place at Sam’s Club regarding the use of Instacart, Walton would fire every executive that approved the use of Instacart. (Walton could detect BS from a mile away).
I am incredulous at Walmart’s inability to create a best in class last mile delivery program for Walmart and Sam’s Club. Walmart continues to lower the bar by increasing the number of last mile delivery providers it contracts instead of designing and implementing a grocery fulfillment and last mile delivery strategy that leads the retail industry. Copying isn’t innovating. (Walmart recently announced it was ending its relationship with Deliv. I won’t be surprised if Deliv is acquired in 2019).
Neither Sam’s Club or Walmart have implemented strategies that address the biggest issues of last mile delivery: Low order density and high costs. Same-day grocery delivery is currently available in 800 of Walmart’s 5,000 stores and warehouse clubs, and the company plans to add 800 more this year.
The problem is that even in stores that offer online grocery delivery, the volumes are low and the orders are spread out requiring drivers to travel long-distances. Walmart also does a terrible job of fulfilling orders in its stores. I won’t be surprised if Walmart contracts Instacart or acquires Instacart simply out of frustration. Bad idea, Walmart. The problems you’re facing with order fulfillment can easily be solved. Everything Walmart and Sam’s Club are doing is reactive in regards to last mile delivery and not transformative. Are there better strategies? Yes.
I am not picking on Walmart. I have the utmost respect for what Walmart has accomplished as a company. With as much talent as Walmart/Sam’s Club have at the executive level, however, the current strategy is shocking. Like Sam Walton, I expect Walmart to lead, not follow.
If I ran Instacart, I would create a Instacart Business division that specializes in fulfilling bulk orders. I would lease cargo vans and box trucks or I would partner with companies that have vans and cargo trucks and I would look for ways to utilize their excess capacity. Another option would be to start a program whereby Instacart leases equipment and contracts workers to manage bulk pickup and delivery specific to a number of stores or a region similar to a program recently announced by Amazon.
Instacart Business would utilize electric powered carts that can raise and lower making it easier to pick products off of shelves and move the cart to a vehicle to be unloaded. I would revisit the entire business model to make it more efficient and easier to fulfill orders. Bulk delivery is growing in importance and there is no reason why Instacart shouldn’t consider disrupting warehouse clubs; this is why I believe Instacart should acquire Boxed or merge with Boxed.
Regardless, Instacart has to implement a better business model when it comes to fulfilling bulk orders
On the record: Instacart doesn’t like it when I write articles about them. Here is my reply: On a near daily basis, individuals who work for Instacart reach out to me to vent, to ask me for my help, to thank me for writing my articles and to provide me with inside information on the company; this includes current and former executives and gig workers. I have never reached out to anyone at Instacart to get information. Everyone at Instacart reaches out to me.
Should Retailers Replace Instacart?
Instacart may have felt like the right choice at the time Amazon acquired Whole Foods and contracting Instacart likely saved the jobs of many executives who found themselves on the brink, scrambling to compete with Whole Foods and Amazon. Instacart may have saved executives their jobs but it may potentially kill their brand and company if Instacart does indeed become a competitor to the retailers it serves.
In my previous analysis, I mentioned Jyve (along with Bringg, Aisle Ahead, Self Point, Mercatus, Mi9, Shipt, and Farmstead) as an alternative to Instacart. Since the publication of the article, Jyve has come out of stealth mode and revealed over $400M in bookings in its three and a half years of existence. Based on a thorough review of Instacart competitors, I believe Jyve has positioned itself as a leading alternative to Instacart, and one of the best choices for grocery retailers to leverage in order to meet their e-commerce needs.
Jyve offers a best in class solution for picking and packing groceries and has partnerships with digital storefronts and delivery service providers – like Deliv – to make it the complete package for retailers. More importantly, Jyve has a solid leadership team truly focused on creating a welcoming and positive experience for its gig workers.
For executives worried about a rocky transition period of building and managing new systems, Jyve presents an easier path simply because retailers can start using Jyve while they’re still in bed with Instacart.
What I find interesting (and what I appreciate) about Jyve, is that the company has invested heavily in its human capital. The company has created what’s called the ‘Skill Economy’ and developed a platform that assesses a person’s skill set then uses machine learning to match the person to a retailer or CPG brand’s needs – merchandising, inventory management, brand ambassadorship and e-commerce fulfillment.
Every effort is made to allow Jyvers (company associates) to switch between retailers and CPG brands to maximize the number of hours each associate wants to work. A spokesman for Jyve stated “Jyve gives its workers the flexibility of a gig economy type job but with fair and transparent compensation that’s commensurate to their skills.”
Unlike Instacart and several other companies that hire workers to pick and pack orders as well as deliver the orders, Jyve believes it makes much more sense to separate jobs so that the best associates are assigned to complete each task. (I strongly advocate this approach.) For example, Jyvers do not deliver the grocery orders they pick and instead, that task is performed by a skilled resource. Because Jyvers do not leave the stores themselves, they do not incur expenses that are inseparable from delivery – like wear and tear on their vehicles, gas and wasted time in transit.
I often ask grocery retailers what they’re afraid of when discussing replacing Instacart? If it’s the threat of a drop in sales that’s keeping a retailer on Instacart’s platform, I point out that any temporary drop in sales is nothing compared to losing your entire customer base, which is a distinct possibility if a retailer stays with Instacart.
For example, if another store happens to have a certain item in stock on a day when a customer places an order, Instacart makes it very simple for the customer to make their purchases from another store. Instacart has no incentive to help retailers keep its customers loyal to its brand. Instacart’s goal is to drive as many customers as possible to the Instacart platform. Period. It’s irrelevant to Instacart if a retailer is unable to retain its customers.
I wrote an article outlining the process for how a grocery retailer can delistfrom Instacart but I have never made a recommendation for any retailer to replace Instacart. I am only presenting an argument as to why grocery retailers may choose to seek an alternative to Instacart.
Instacart was a savior when Amazon acquired Whole Foods. However, due to Instacart’s inability to provide leadership and create a company with an impeccable reputation, Instacart has become a risk to the grocery retailers that contracted Instacart. One more time: Instacart is your competitor, and not your savior, grocery retailers.
An executive at a large grocery retailer using Instacart recently told me “Our customers don’t think they’re ordering from Instacart, they believe they’re ordering from us.” The lack of understanding on the part of the executive was staggering especially since customer survey data clearly indicates that customers of retailers that use Instacart overwhelmingly believe they’re ordering from Instacart when they place an online order.
It has become abundantly clear that many executives that got into bed with Instacart have failed to understand the impact of Instacart to their brand and company. Therefore, let me be clear: Any retailer that utilizes Instacart has lost the relationship with its customers that order groceries online. Instacart is the brand, not the retailer. To regain ownership, grocery retailers must explore, assess and select a provider that best meets their needs while allowing the retailer to retain and control all data, as well as retain the customer relationship.
There are many options available for grocery retailers to replace Instacart and remove a major threat. For example, grocery retailers can consider GrocerKey for their front-end, allowing the retailers to manage the e-commerce aspect of their business and owning the customer relationship. In turn, grocery retailers can utilize Jyve for order shopping and fulfillment as well as utilizing Jyvers in the stores to stock shelves and perform other tasks.
Retailers can also turn to Aisle Ahead which has created a platform that makes grocery shopping a personalized experience with complete online shopping and trip planning technology, access to millions of recipes, apps and websites for home cooks and bloggers, and marketing automation tools. Aisle Ahead is one of the more interesting digital platforms that I’ve evaluated.
There is also Self Point which offers holistic, white-label e-commerce solutions that give grocery retailers the tools to build and manage their own Branded website, with Marketing, Customer Service, Order Fulfillment, Automated Warehouses, and Delivery Solutions, that will propel their business ahead of the competition, and make their grocery store, the place to shop online. Self Point is a platform that I think offers tremendous value to grocery retailers.
Killing Instacart remains a priority for the company’s competitors and rightfully so. However, what’s truly endangering Instacart is that it continues to suffer from self-inflicted wounds. Regardless of how high-flying Instacart has been as a company, the company can come crashing to the ground if its customers decide Instacart poses too much of an internal threat and a reputational risk.
Do I want Instacart to fail? No. I want Instacart to become a better company.
As for what’s next for Instacart, I believe the damage has been done and regardless of Instacart’s success, many grocery retailers will begin to replace Instacart with any number of companies such as Bringg, Jyve, Mi9 or Mercatus to name a few. From a strategy perspective, it doesn’t make sense for any grocery retailer to view Instacart as anything but a future competitor. At one time, Instacart was the only company capable of providing grocery retailers with an ability to compete against Amazon. Not any more.
If I become the CEO of a grocery retailer using Instacart tomorrow, the first thing I am going to do is delist from Instacart and end the relationship. Instacart is a Trojan Horse. In addition, there are better platforms and better strategies than using Instacart. End of story.
My advice to Instacart is to start a business division to better fulfill online bulk orders. In addition, Instacart should acquire or merge with Boxed. Another option for Instacart to consider is leveraging its ability to raise capital and acquire Sprouts. I also believe there is a good chance that Instacart will be acquired. Google remains my top choice to acquire Instacart.