Instacart 15-minute delivery plan leaked, but a big gamble

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An Instacart 15-minute delivery service is planned to launch early next year, in a significant advance on the company’s current two-hour delivery time (with a 30-minute service available in some cities) …

The Information reports.

Instacart is planning to launch a pilot program to provide delivery of groceries or convenience items in 15 minutes or less to U.S. customers, said two people with direct knowledge of the plan. As a part of the proposed program, Instacart would pay a company that manages couriers to quickly deliver goods from the same grocery stores whose merchandise Instacart already offers to its existing customers, most of whom currently receive their orders within two hours or less.

Instacart recently asked several logistics companies to submit proposals for the ultrafast delivery program, with plans to launch an early version of the service in a U.S. city as early as February, the people said. If it did so, Instacart would thrust itself into competition with ultrafast grocery delivery startups including Jokr, Getir and Gorillas. 

What’s notable about all these instant delivery companies at present is that they are losing money – sometimes huge sums of money. New York-based Jokr, for example, lost $13.6M on just $1.7M worth of sales. Place a $10 order, and it costs the company $80 to supply and deliver it.

That’s partly because this is a business that only works at huge scale. You need warehouses (known as “dark stores”) in every neighborhood, and enough customers to sustain them all.

But a second factor is the massive competition in this area, which means that the only way they can attract customers is by offering expensive incentives. In London, for example, I’ve now taken advantage of 50%-off deals from four different companies.

What makes matters worse is that this is a commodity service. They all offer the same service of 10- to 20-minute delivery at local convenience store prices or better. There is zero reason for a customer to be loyal to any one company – people will just go with whichever one happens to be offering the best prices or promotions at the time.

The only way this business model can work is if all your rivals go bust, so you then have enough demand to scale up to a profitable size, and no longer have to offer expensive promotions. Essentially each of these companies is telling investors they will stop losing money if their rivals run out of cash before they do.

Instacart might have the advantage of name recognition, with lower marketing costs, but it also appears to have a more expensive model.

Instacart, which operates an app-based marketplace for retailers such as Costco and Kroger, and uses freelance contractors to handle the deliveries. The startups, in contrast, buy grocery and convenience items at wholesale prices and sell them at a markup.

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