retail news in context, analysis with attitude

The New York Times reports that Instacart, a two-year old e-commerce company that specializes in providing personal shopping services at a variety of retailers, has gotten an infusion of capital to the tune of $44 million.

According to the story, the investment was "led by Andreessen Horowitz. Three venture capital firms that previously invested in the company, Sequoia Capital, Khosla Ventures and Canaan Partners, participated in the latest round … Jeff Jordan, a partner at Andreessen Horowitz, said he was attracted to Instacart because it was a 'people marketplace.' He said the company had an advantage over other grocery delivery services, including FreshDirect, because it did not rely on warehouses, trucks or other capital-intensive infrastructure."

Instacart currently serves consumers in 10 cities, shopping at retailers ranging from Whole Foods to Trader Joe's, charging consumers delivery fees or annual subscription fees for its services.

In a blog posting yesterday, Jordan wrote: “We’re making a bet that Instacart’s partnerships with brick-and-mortar grocery stores will be the winning play in grocery delivery to the home, with the ability to fend off competition from e-commerce companies that build out their own infrastructure.”
KC's View:
Maybe.

It is an interesting bet, though not one I'd make. (To be fair, though, I'm not nearly as smart or rich as these guys.)

The thing is, Instacart doesn't really have partnerships with retailers. best I can tell, from having talked to some of the retailers involved, they have deals … which is different from partnerships. My sense is that Instacart is tolerated by retailers, not embraced.

I understand the value proposition, but it seems to me that it could be quickly undermined by retailers offering their own delivery services, or going into business with Google or some other provider that might provide more value. Instacart offers some convenience, but at a cost … and it really doesn't do anything other than that. Sure, warehouses and trucks cost money, but they also give a retailer the ability to deliver on its promises and control, to some degree, its own destiny.

I continue to believe that Instacart is looking to get acquired and converted into a retailer-driven entity. This other stuff is just foreplay … it's sexy, it gets people's attention, but is it really the basis for a long-term, sustainable relationship?