retail news in context, analysis with attitude

The Chicago Tribune reports that grocery delivery service Instacart "is working with General Mills, Nestlé, PepsiCo, Unilever, and other consumer goods makers to cover the cost of delivery or provide other discounts when customers buy their products. In addition to the coupons, the companies pay Instacart to advertise on its website ... Shoppers can find discounts when filling up their carts with brands such as Degree, Doritos, DiGiorno, Häagen-Dazs, Quaker Oats, and Stella Artois."

Instacart CEO Apoorva Mehta says that fees being paid by these manufacturers now account for 15 percent of his company's total revenue.

The Tribune writes that "in its quest to build a profitable business, Instacart is searching for new sources of revenue that won't turn off shoppers. The company, which was valued at $2 billion by investors last year, had previously made up some of its costs by selling products for more than what the grocery stores charged. Customers complained, and Instacart backtracked. The company said it costs much more to deliver an order than the $5.99 it charges shoppers, but customers are unwilling to pay more."

Meanwhile, the Wall Street Journal reports that Instacart "is cutting the fees it pays couriers who shuttle groceries in several cities, the latest Silicon Valley on-demand startup trying to contain costs in a tightened funding environment. Instacart informed drivers in recent weeks in some cities, including the San Francisco and Los Angeles metro areas, about new rates that in some cases will require workers to nearly triple their deliveries to make the same pay."
KC's View:
So let me get this straight...

Instacart began its business by simply shopping at supermarkets, even without permission or agreements in place, and then would mark up those products, which would often hurt the price/value images of the stores it was getting product from. Then, it started making deals with the stores, even becoming a major c-commerce factor for companies like Whole Foods. And now it is going to start charging suppliers fees for delivering products, on top of the fees they already are charging customers.

I'm wondering what budget line these fees will come out of. Promotional budgets, perhaps? And wouldn't that, almost by necessity, reduce the promotional dollars they pay to retailers? (I've learned over the years that one of the more dangerous places to be is between a retailer and its promotional monies.)

And the delivery people who now have to work three times as hard to make the same money ... d'ya think they are going to be a little less concerned with customers service than they will be with cutting corners (both literally and figuratively) so they can make a buck?

All this does is suggest to me that maybe the house of cards on which Instacart has built its business is a little wobbly, and could come crashing down if subjected to a reasonably stiff breeze.

BTW ... the Tribune also reports that "40 percent of the company's volume is profitable-meaning most orders still lose money. (Instacart) also said it will be profitable globally by summer. However, its calculation for profitability doesn't include the cost of office space, the cost of acquiring shopper workers, or the salaries of its executives, engineers, designers, or other employees based at its San Francisco headquarters."

All of which tells me that Instacart is not a basket in which you want to put very many of your eggs. E-grocery remains important, and will become more so ... but I don't think Instacart is the answer to strategic and tactical problems that retailers have in this segment.