On-Demand Food Delivery Goes Mainstream, Part One: Instacart

During the first quarter of 2018, local on-demand food delivery achieved mainstream status. In response to Amazon.com’s expansion of delivery on the back of its Whole Foods acquisition, WalMart announced that it would increase its delivery services to reach 40 percent of American homes in 2018. But it is Instacart, which today added 55 Fresh Thyme Farmers Markets to its service, which has leapt to the forefront of same-day food delivery.

Over the next several postings, we’ll examine the state of food delivery, how the competition has played out, consolidated, and morphed into several distinct flavors of food-to-the-doorstep. Groceries, pre-packaged foods for preparation, and prepared foods have each spawned intense experimentation to conveniently reach, by our estimate, more than 65 percent of the U.S. population. Compared to only two years ago, when I assessed the availability of on-demand services in the U.S. for BIAKelsey, at a time when only densely urban areas were served, the accessibility of grocery delivery and other on-demand services has increased by twelve-fold from 5.1 percent of Americans.

In 2016, the U.S. American Time Use Survey found that 44.6 percent of Americans (40.3 percent of men and 48.6 percent of women) spent part of each weekday purchasing goods and services, and about 10 percent more time during weekends. The average time a week spend shopping by women that year was 6.35 hours and 4.45 hours among men.

Taking the total employed adult population, approximately 126.4 million people as a base, the time spent on shopping by people who could pay for delivery to use their time in other ways represents 2.17 billion hours of addressable service time for food delivery companies.  We feel this is a conservative estimate, as the partly employed (those working in the gig economy) and retired may be able to trade reasonable delivery fees for additional free time.

Instajuggernaut

Fresh Thyme Farmers Market added Instacart delivery this week.

Although Amazon and WalMart are poised to make significant expansions into grocery delivery, both have struggled with logistics and coordination. WalMart has activated its employees to make deliveries on their way home from work and recently partnered with Uber, while Amazon’s Fresh delivery service has taken strides forward and reversed course several times in the last year as the Whole Foods acquisition’s implications are analyzed. 

Instacart has stayed a determined course, refining its home delivery and shopping experience to establish delivery services in 4,500+ U.S. cities and towns, from Alabaster, Alabama, to Waunakee, Wisconsin.

Instacart raised $200 million in February 2018 to bring its funding to date on a to $874.8 million with a valuation of $4.2 billion. Having started out as a Y Combinator company in 2012, Instacart has kept a small group of top-tier VCs engaged in each round, adding Sequoia Capital, Andreessen Horowitz, and Kleiner Perkins, followed in the February round by two private equity firms. These are patient investors who poised for a huge payday when the company goes public. Instacart remains quiet on its IPO plans.

Relative to other on-demand companies that continue to burn money to acquire market share, Instacart is an efficient operation because it builds on grocer partnerships that give it access to millions of customers, instead of relying solely on consumers to discover and use the service. The partners launch in-store marketing for Instacart, complemented by Instacart’s online outreach.

Ravi Gupta, Instacart’s CFO told CNBC on the latest funding that the company has “more money than we need” to compete effectively. The reason is simple: Instacart is the promiscuous delivery partner. Instacart has partnered with grocery chains large and small, including Safeway, Costco, Whole Foods, and many others. Amazon and Walmart, by contrast, must rely on their own chains’ traffic to get consumer delivery orders.

Grocery delivery is repeating an earlier platform economy pattern, the walled garden. Amazon and WalMart are seeking to enclose their shoppers in a comfortable but closed garden of consumer delights while Instacart can burst through brand limitations to shop multiple stores, if necessary, to cater to exactly what the consumer wants.

Personalization also brings us to the challenge we see for grocery delivery in particular. Instart has limited promotional capabilities and suggesting products to a shopper using their phone to repeat an order can be perceived as interruptive, using their time to say “No” to things they don’t want.

Traditional marketing by grocery stores tended to rely on weekly pricing cadences supported by mailers and inserts in local papers. Effective though it was, it also produced over-stocking of some items and understocking of others, delivering waste and dissatisfaction among shoppers who couldn’t get what they wanted when visiting the store. Rain-checks for sale prices still take time at the cashier counter, and food rots in bins behind the store when it turns out shoppers didn’t want as much produce or specially priced bread as planned.

Instacart’s challenge will be how to provide their shopping staff insights into suggesting products to consumers to anticipate their willingness to try a new fruit or a different, more sustainable packaging for meat, milk, or other wasteful containers. Marketers will also need to understand how to use sampling — dropping “Try Me” products into an order with a simple mechanism for adding it to future orders if the consumer likes it. Searching for a new product will not be attractive. If a customer wants a sample flatbread pizza they received as a promotion, it must be suggested the next time they pick up their phone to shop.

This brings Instacart back to an element of traditional groceries which keeps people coming in to query the butcher, the produce staff, and in-store experts about how to prepare a meal or a new ingredient. Instacart will need to enable its delivery staff with contextual information to help improve the shopper’s experience politely and successfully. The oceans of transactional data already piled up in grocery chain systems will need to be analyzed and linked to the conversation Instacart has with shoppers through its app and when the Instacarter is standing at the customer’s front door.

On-demand in small business: Four ideas for growth

Where is your place in the on-demand economy? Many workers and small businesses, including retailers, see the encroachment of Amazon, WalMart, and myriad other services as destructive. Yet media-enabled global brands are consistently challenged when engaging home- and office-based customers. The future of your business, whether a physical location or as an independent contractor, depends upon finding new niches where human expertise overwhelms online-only engagement.

Non-manufacturing businesses account for about 80 percent of the U.S. economy and are reported by the Institute for Supply Management as growing strongly for 97 consecutive months. Amazon, Uber, Lyft, TaskRabbit, Instacart and other services seem poised to steal business from local experts, but we think that by studying their approaches, small business and independent businesspeople will find greater revenue opportunities and a foundation for maintaining a trusted relationship with consumers. There are many new niches in the ever-specializing economy.

Last week, Uber announced beauty salon network bgX had become the first “business that has fully integrated with Uber for Business.” If you are seeking styling or a blow-out before an important meeting, “The platform will provide the convenience of having premium salon styling delivered directly to women at home, work or at a hotel.” The stylist comes to the customer if they happen to be in London, Paris, or Dubai. It’s a small footprint, but bgX could build geographic presence with time and marketing, adding cities with high concentrations of luxury styling customers.

Services consistently add greater value than other sectors of the U.S. economy

Uber’s head of Uber for Business in Europe told the Evening Standard that 65,000 businesses have begun to integrate Uber services. Health services and elder care home companies pioneered the gig-sourcing local drivers to bring patients to appointments and ferrying retirees to an from shopping, events, and around town. Westfield Malls set up Uber transit centers in 33 of its malls last Fall. Yet, a survey last year showed that the majority — 73 percent — of small businesses used no gig services.

Likewise, Amazon extended its Whole Foods home delivery service last week. Adding San Francisco and Atlanta, as well as adding a Prime discount of five percent on Whole Foods purchase, the once virtual giant is developing a physical footprint in local markets. With Amazon Go stores prepped to serve walk-in-walk-out shoppers, potentially as ubiquitously as 7-Eleven does today, the Bezos machine is targeting the consumer on the go while catering to their home and office needs with Prime and Prime for Business memberships.

As a small business or an independent worker thinking about how to compete against these global brands, focus on where the human-to-human gap has opened as a consequence of automation. Logistics have been improved dramatically, but feedback, recycling, and recirculation of products all remain stubbornly local in nature. A salesperson is still the best way to capture feedback because they bring the ability to ask questions and report back non-verbal signals. This is where a massive opportunity remains for individuals in the gig economy.

Scale, surprisingly, is the reason the Small Business opportunity is growing. The delivery of services and products-as-a-service require deep personalization. Mass personalization will remain a matter of demographic or psychographic templates that must be tuned in the last-mile to engage the specific customer’s values. 

The Minte, an apartment cleaning service in Chicago, demonstrates how small businesses can find and fill gaps by selecting a target market to serve better than national brands can today. The company identified apartment buildings as a market where it could rapidly lower the cost of service by increasing customer penetration in a single location. 

“Once you’re in one building, all the others start coming to you,” The Minte CEO Kathleen Wilson told BuiltInChicago. “It really just exploded.” Call it “share of locality” thinking. Instead of simply thinking of gaining more of a consumer’s wallet, look to expand a business’ relationship with customers’ neighbors.

Word-of-mouth and local selling of these services don’t happen entirely online. People make the sale and pass customers along based on their satisfaction with a service. The focus on increasing Share of Locality inverts the marketing challenge. Small promotional and direct-sales engagements can kickstart a local on-demand business. If you are looking at the on-demand economy as a looming threat that will wipe out your local services market, study the gaps opening between big brands and local buyers to find a new niche. 

  1. SMBs should position themselves as a local connector between global brands and customers. Uber, for example, has a massive local targeting investment that relies on its teams localizing and distributing marketing offers based on geotagging and artificial intelligence.SMBs have extensive insight into local demand and can tap into, for example, mobility services such as Lyft, Maven, and Uber, providing deeply contextualized local offers.One small business may offer Lyft rides to customers who want to shop at their location while another may choose to offer in-home delivery. Both, however, bring a local customer to the relationship with a mobility provider that can be mined for additional service opportunities. If a customer likes dinner delivered every evening, would they also like a housecleaner to come tidy up after the meal? Assembling these local services, consolidating them into a single point of contact and feedback for global brands, is a defensible position in the market.
  2.  Shopping destinations should consider aggregating delivery opportunities. Amazon has begun installing Amazon Lockers in Whole Foods stores, allowing shoppers to pick up online orders while at the store. Groups of retailers and service providers need to look at the businesses near them to understand where they can consolidate the delivery of goods and services. With improved logistics and retail management systems, a local store could become the destination for picking up a new product and receiving hands-on support and training for the consumer. Expertise is the rarest commodity. Small business is the most distributed approach to expertise delivery, which has been the foundation of consumer trust for generations. If your small business is isolated from others but draws regular customer traffic, can you use Uber or Lyft to “do the shopping” for a customer while they have their hair cut, their car serviced, or while they learn a new skill in a small training center attached to a local mall?
  3. SMBs and workers should focus on excellent service and enduring customer relationships. Today, gig work is treated as a commodity, and it results in lower wages as more workers join. However, consumers prefer trusted providers, especially for personal services. As the on-demand approach to work expands, small business and labor both need to leverage the trust they develop with local consumers in order to build their pricing power.Differentiation based on service level and trust will increase earnings. At the very least, a highly regarded local source of service or product expertise — the person who sold the customer their last three lawn and yard tools or the regular provider of the perfect massage — can earn more based on increased demand. Going further, the local expert service provider can follow the “breakage model” adopted by many companies, such as DropBox. They charge a little more for a lot more service on the bet that most of the services will not be consumed. A local SMB service provider, for example, could offer priority callback and service visits to “members” who pay a small monthly fee to jump to the front of the line when they need help. 
  4. Tie into the on-demand economy and push the limits. Uber for Business, for instance, has extensive information about the routes and timing for deliveries but does not have a personal relationship with local consumers outside the Uber app. Like salon company bgX, look at what your business, or you as a service provider, can deliver and seek to be the local partner for on-demand product manufacturers and local mobility providers. You will find that there is no local sales interface to collect feedback from potential customers and expertise is unevenly distributed.Your ability to use multiple on-demand services is critical to success, so mix and match aggressively. Attack the problem of how to get a product from point A to point B, to onboard a customer to a new service, such as home security DIY installers who need to train customers to manage their security systems, or the need to efficiently deliver for hands-on expertise, whether a doctor, lawyer, auto mechanic, or any other person-to-person service. Small business and individual workers can take a robust part in extending services revenue, by tying expertise to products, fulfilling delivery, service, and post-purchase support locally, and thinking systematically about where value can be added in the on-demand economy.

On-Demand Economy Notes, February 12, 2018

Although Uber and Waymo settled there intellectual property case last week, the status of workers as independent contractors took a new twist in a California court. Worker payment, training, retention, and earnings drove much of this week’s on-demand news. During 2018, worker retention will be a major issue for on-demand companies.

Wirecard, a German payment card vendor, is bringing pre-paid cards for on-demand work to the United States, Payment Source reports. As we noted recently, payment cards are a lever for bringing the unbanked out of the gray economy.  The technology avoids engaging with the payee’s bank account. Direct-deposits add costs to payments while prepaid cards are easily distributed, Wirecard argues. Kate Fitzgerald writes: “Wirecard’s ability to function as both an issuer and acquirer enables customized disbursement programs ranging from reimbursements to rebates and rewards, is a positive, but not entirely unique.”

Waymo-Uber Settlement: After months of tense preparation, an appearance by former Uber CEO Travis Kalanick, and a couple days of courtroom testimony, the Battle of Autonomous Cars Case came to a close. Uber has agreed to transfer slightly more than one-third-of-one-percent of its shares to Alphabet, Waymo’s parent company, and to submit to ongoing reviews by Waymo of its autonomous car developments. That stock, valued at $244 million, based on Uber’s largely fictitous $72 billion valuation, which was deeply diluted by SoftBank’s recent investment, Uber settled for about a quarter of the damages Waymo had been seeking.

We believe the significant move in the case came from new Uber CEO Dara Khosrowshahi, who has made apologizing for, and improvement of, Uber’s behavior the hallmark of his leadership.“While I cannot erase the past, I can commit, on behalf of every Uber employee, that we will learn from it, and it will inform our actions going forward,” Khosrowshahi wrote in a statement. Again, this is Uber growing up.

Women see Uber pay gaps, despite algorithmic work assignments. The wage gap persists in the on-demand economy, partly due to the duration of their Uber driving career. Forbes’ Erik Sherman reports that researchers at Stanford University and the University of Chicago found in separate reports that women consistently earn seven percent less than men. Part of the difference is accounted for in shorter driving engagements by women generally — female drivers churn out of the fleet faster than men, reducing their compensation over their Uber earnings lifetime. However, the culprit appears to be in the cost and time involved in training to become a driver, use the Uber apps, and build a consistent practice of driving.

Grubhub gets Yum-y. The holding company that operates Kentucky Fried Chicken and Taco Bell, Yum Brands, is investing $200 million in Grubhub, by buying the stock on the open market. The company will also sign an agreement with Grubhub to deliver KFC and Taco Bell food from 5,000 locations in the United States. Yum will take a board seat. Grubhub shares shot up 27 percent on the news., and have given back much of the gain in the market correction.

Quartzy says hairstyling is all about relationships. In a piece that details the rise and fall of several on-demand beauty companies, Noël Duan details the travails of hair care in the jet set, suggesting it does not translate to the consumer needs of the average person needing a “blow out” at work or home.  She concludes that customers want to go to salons because it is a special occasion and that the relationsjip with the stylist is central to the perceived value of a beauty experience. That last element, the personal relationship is the deciding factor in most home and on-demand services: People want to know their preferences are understood.

Duan conflates in-salon experience, like the free glass of champagne proferred to guests, with the intimacy of the experience. The edge of the network is made of human relationships, not just the details of the engagements that justify an on-demand hairstyling that is twice the price of a salon. On-demand is poised to deliver the same experience as the salon for the same or a lower price, because there is no overhead for the A-list location of a high-end salong. But Duan is right that if the human connection is missing, the industry will fail.

Grubhub case points to worker classification as independent contractors. The U.S. District Court for Northern California ruled in Lawson v. Grubhub that the company satisfied the state’s Borello common law test when it treated Raef Lawson, a Deliveroo rider in Southern California, an independent contractor. Lawson’s behavior, such as setting his phone to airplane mode during work time, drove the decision. It is not clear this case will build a solid foundation for gig companies to treat all workers as contractors.

Deliveroo faces union showdown. The Independent Workers’ Union of Great Britain has requested a review of a November ruling that denied its riders holiday pay, the national living wage, and the right to bargain as a collective.  The case now revolves around a clause in the Deliveroo contract relating to the rider’s obligation to provide a substitute if they cannot make a delivery, which the union says was misinterpreted by the court last year. The disputed clause makes the rider responsible to vet the replacement’s right to work and conformity with health and safety laws, a role traditionally relegated to the employer. The outcome, along with the results of other British, European, and U.S. cases, continues the debate about the nature of work and employment.

Amazon’s attack on grocery stores ramps up. Building on its Whole Foods acquisition last year, Amazon has tapped the Dallas and Austin, Texas, Virginia Beach, Virginia, and Cincinnati markets for free two-hour delivery of groceries. Bloomberg Technology reports the twist is that the Whole Foods locations will provide the inventory instead of relying on a regional warehouse. Known as Prime Now (apps are available on Apple and Google devices), the service is the first to combine Amazon’s Prime program with grocery delivery. Philadelphia grocers are preparing for the Amazon Prime onslaught with Instacart partnerships, The Inquirer reports.

Shipping By Amazon, for Amazon. The news that Amazon will build its own in-sourced shipping capability shocked the shares of United Parcel Service and FedEx last week. This makes sense from a local perspective, as much of the last-mile delivery traffic is outsourced to the United States Postal Service, FedEx, and UPS today. However, Amazon’s inventory systems will be the ultimate driver of shipping strategy, and most inventory needs to be near big cities. Amazon’s extensive regional warehousing system is in place to support Prime two-day and other shipping. Getting inventory to the warehouses, however, if an inter-modal shipping problem that requires multiple carriers and alternative routes if one mode of shipping is unavailable. This is not the death knell for traditional shipping, but it does place the focus in traditional shipping on the longest hops in the supply chain.

Instacart ramps up its funding, again. On the heels of 150 percent year-over-year revenue growth, Instacart closed a new $200 million round last week. Now valued at $4.2 billion, the company has raised $874.8 million, according to Crunchbase.

Instacart is slashing delivery fees. The Buffalo News reports that Instacart drivers and shoppers in the region are seeing their compensation cut by more than 50 percent. Just six months after launching with a $10 payment for each order delivered, shopper/drivers now average $4.75 a delivery plus $0.40 per item. It would require an order of 13 items to reach the previous $10/delivery level. Instacart offered a rich bonus for early delivery staff, but has failed to explain why its fees to drivers appear to be falling. The company is hoping repeat orders will include more items, and that may be an erroneous assumption.

Facebook doles out $5 million to community leaders. The story of local markets, which Facebook would like to support through improved storytelling and local advertising, will get a big boost from its selection of as many as five people to receive $1-million grants to “bring people closer together.” We recomnmend starting with local news and that Facebook refrain from seven-figure contributions to kick-start community engagement; Instead, find 200 journalists in local markets who will cover those markets closely and with real engagement with the citizens, business, and government issues. Pay them $50,000 a year to launch local Facebook-hosted communities and the results will be better.

Agency workers account for more of the British workforce, the Independent reports. The number of “agency workers,” or temps, has risen by 40 percent over the last decade to 800,000 people now serving permanently as temporary staff, according to a survey by the Resolution Foundation, a non-partisan think tank.

On-Demand Economy Notes, January 24, 2018

Lots of short notable goodness for your on-demand economy appetite today. News and thoughts follow.

ADP gets serious about on-demand. ADP, the Paterson, N.J. payment processing and payroll provider, acquired WorkMarket, a freelance management platform. The startup’s Work OS supports on-demand and full-time employee relationships that is integrated with Salesforce, among others. This marks the beginning of a serious experimentation phase for on-demand work models. 

Amazon isn’t perfect. Amazon Restaurants, the retail giant’s food delivery service, has laid off 50 staff in Seattle. It is not clear that means the group is under the knife, but it shows that food delivery services are still wide open markets.

The Institute for the Future released an important on-demand economy white paper, “Designing positive platforms: a guide for a governance-based approach” to on-demand marketplaces. Their focus on governance, the rules of engagement between a platform and worker, as well as the way the platform ensures representative and transparent practices to minimize information asymmetries in their markets, is critically important. As a former Chaordic Commons trustee, I can attest to the difficulty in creating governing documents like the IFTF advocates. The IFTF framework is an invaluable contribution to this dialogue. Read it for yourself. Summaries won’t do it justice.  And there is a useful list of companies studied for the report.

Gig worker payments are shifting to day-of-delivery and direct deposit. Lots of interesting data points in this PYMNTS.com article. PayPal is the conduit for 35 percent of gig workers’ payments and 54 percent of workers use direct deposit.  Drivers use direct deposit far more than other categories. I imagine we will see a day when a job contract is a debit card.

Amazon may not have cashiers in its Go convenience stores, but Bolt, a San Francisco startup just coming out of stealth mode, according to TechCrunch, is angling to help the rest of the stores on Main Street catch up. The initial services focus on online commerce, from check-out to fraud and business intelligence. Transaction platforms like this will survive and thrive based on customer engagement. Bolt looks ready to attack the cart abandonment problem today.

Omnicom, the ad conglomerate, incubated Spry, an on-demand public relations firm, which launched this week. The business idea turns on the idea that editors make the press release professional, and freelancers can be called on to generate drafts quickly and cheaply. Content.ly for press releases is a wedge, but the agency faces competition from full service firms that can amplify the messages they create. Omnicom’s spin-out, Cision, and PRNewswire businesses will eventually play a part in Spry’s success.

Mastercard launched the Inclusive Futures Project to address on-demand transactions, government services, and smart cities experiments. Here is the plan and partner projects announced today, with this explanation of the focus: “Two commercially viable segments surfaced as areas in need of more dedicated focus and research: Struggling Middle Income consumers and Gig Economy workers. The reality is: all too many of these individuals and their families fight to achieve and maintain financial stability; and as such, consistently find themselves excluded, unable to reap the benefits of a growing economy.”

Drones are coming with your stuff. Dorado, a European on-demand delivery service says drones are two to six times cheaper and 1o times faster than current options. What is Dorado’s play? To raise $55 million through a ICO to fund its go-to-market strategy for home and business deliveries in Europe. The firm has raised $r million from Goldfish Fund, an ICO-centric institutional fund.

Fiverr tells Crunchbase News it acquired AND CO, a SaaS platform for freelancers and self-employed workers. A video release explains the deal. The company suggests this deal indicates consolidation is underway in the on-demand economy. It’s just the first wave. AND CO had previously raised $2.5 million.

Instacart Adds Retail, Couponing, and Voice Services

Instacart is dramatically expanding the services it can offer retailer customers with its $65 million acquisition of Unata, a Toronto-based developer of retail software. Bloomberg and TechCrunch cover the details of the deal. Why does it matter?

On-demand companies traditionally focus on the last-mile, putting people to work delivering and providing services to the home. However, Instacart is acknowledging with this acquisition that it needs a larger role in retail. Unata will provide Instacart with retail storefront software that, we expect, will eventually be integrated with Instacart human services. 

Instacart is hedging its bet by deepening its retail services offerings. Integration with logistical and messaging tools, such as voice, can be tied into consumer solutions expressed as a “skill.” Voice combined with couponing capabilities would allow a product request made to a smart speaker to take a grocery order and offer better pricing or coupons when alternative options are available, then organize delivery in the background. Instacart a separate upsell to retailers, another stream of revenue in the face of competition in on-demand. 

Amazon’s looming retail presence should not be a short-term concern for Instacart, as the Seattle retail giant has not (yet) mastered on-demand services. Instacart could change its revenue mix, moving to emphasize retail services with on-demand humans subsidized by software in order to win market share. 

Amazon is big in online sales, but still only four percent of retail in U.S.

It was a very good holiday season for Amazon, with growing sales and the massive adoption of Alexa-enabled devices. However, keep in mind that after all this success and 20 years of investment to get to 44 percent of online commerce, Amazon still accounts for only 4 percent of U.S. retail sales in 2017. This suggests there is lots of room for growth at Amazon, as well as plenty of inroads for challengers to pursue. We think the brand service experience will be a keystone of expansion as Amazon enters the neighborhood. Target isn’t the solution for Amazon’s local challenge, but Target’s salespeople may be useful to the project. How to get those Target people out of the store and into the market, that is the question.

Replacement parts made where they are needed

A van containing a 3D printer arrives at your front curb, the plumber knocks and, granted entrance, checks your sink downspout, which is leaking. Problem identified, she calls up the broken part on her computer and prints it in the van, installs the new downspout, and finishes the job. No inventory to carry around, just a focus on service. Amazon received a patent this week that supports this scenario. The human is the critical factor here, as they translate the customer’s issue into a plan, identify the broken or missing parts, print them (though this is a machine’s job), then installs it.