Three other venture capital groups that previously invested in Instacart, including Sequoia Capital, Khosla Ventures, and Canaan Partners, also participated in the most recent round of funding.
Today is an EXCITING day, we’re thrilled to share that we’ve raised $US44M in Series B. We have huge plans for the future of grocery shopping!
— Instacart (@Instacart) June 16, 2014
Following in the footsteps of companies like Uber and Airbnb, Instacart is attacking a time-consuming service — in this case, grocery shopping — by similarly employing the help of strangers.
Unlike more-centralized food delivery approaches like FreshDirect, PeaPod, and Amazon Fresh — which rely on relatively expensive warehouses and trucks to do the work — Instacart users can shop from nearby grocery stores online, and after that, a stranger who’s registered to be an Instacart shopper does the heavy lifting, which includes the physical shopping, checking out, and delivery. On its website, Instacart promises “groceries delivered in an hour.”
In a blog post, Andreesen Horowitz partner Jeff Jordan explains how Instacart’s service is significantly more efficient with regards to money-spending than its competitors:
Instacart’s leveraging of existing infrastructure obviates the need for physical capital investment. To put a point on it, Webvan raised $1.2 BILLION largely for cap ex in their unsuccessful attempt to build a centralized grocery e-commerce business back in the day.
Instacart makes its money from the delivery fees, although the company’s registered “shoppers” receive a cut of those fees for every delivery. Instacart also offers an annual subscription for customers who don’t want to pay on a per-order basis.
“The shoppers are trained well,” Aditya Shah, head of expansion at Instacart, told Business Insiderin a previous interview, “and they shop for food for clients the way they would shop for themselves.”
According to Shah, other food delivery services typically require order minimums and it’s unclear where the food actually comes from — whether it’s a warehouse or a grocery store. It’s also difficult to predict whether your food will arrive the same day or the following day; on Instacart, your food arrives that day, you can choose when it arrives, you know exactly where it’s coming from, and you can purchase groceries from multiple stores in a single order.
For most stores, delivery through Instacart will occur in under 2 hours and cost just $US3.99. The fastest delivery time so far, according to Instacart’s website, was just 12 minutes.
The Instacart app is free, but the company is still working on expansion. The service is currently available in San Francisco, Washington, D.C., Chicago, Boston, Philadelphia, and New York, but Jordan explains how Instacart’s “people marketplace” is quickly growing:
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. … Instacart’s virtual model lets them expand to new cities quickly; their market entry strategy requires them to digitize local grocers’ inventory, hire drivers, and acquire consumers. Contrast this with the centralized e-commerce players and their need to build warehouses, buy trucks, buy and receive inventory, hire both warehouse workers and drivers… For these same reasons, Instacart should also be able to service smaller cities more efficiently.
“People marketplaces” like Uber, Airbnb, and now Instacart are growing because the partnerships benefit all players involved: Customers find them convenient, retail partners get more business, and those same retailers are incentivized to promote the service. For other ecommerce startups, perhaps this means the key to success isn’t to replace brick-and-mortar stores, but to partner with them.
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