One of the most read and quoted books on military strategy and tactics is called The Art of War written by Sun Tzu, a Chinese general, philosopher, and military strategist. One of Sun Tzu’s most famous observations is that “All warfare is based on deception.” I like the quote and I agree with the majority of the strategies proposed by Tzu.
The quote could also have been written to state the following, “All business is based on deception.” In fact, deception is a common practice in business. For example, Apple founder Steve Jobs hid the bugs that could have destroyed the reputation of the iPhone. To prepare for a demo of the iPhone in 2007, Jobs painstakingly identified how to demo the phone in a certain way that camouflaged all of the bugs. It worked. The demo was a massive success.
I believe we are witnessing another executive and company practice the art of deception in plain sight, Apoorva Mehta and the company he founded, Instacart. Here’s why.
Instacart’s 20-Year Game
The acquisition of Whole Foods by Amazon scared the majority of grocery executives into thinking Amazon would soon take their customers. Instacart benefitted from the panicked executives who contracted Instacart to provide online grocery fulfillment and delivery.
Prior to COVID, only 3% of grocery sales were online. When COVID arrived, the need for online grocery fulfillment and delivery exploded. To the credit of Instacart’s executive team, they took full advantage of the opportunity to grow their business.
(Note: I continue to read articles or hear talking heads on news programs claim that COVID is a ‘Black Swan‘ event. This is false. The shift to agrarian life 10,000 years ago created communities that made epidemics and pandemics possible. The Black Swan event wasn’t COVID. The Black Swan event was that many countries voluntarily shut down their economies creating a global economic disaster).
Will Instacart continue to grow in a post-COVID world, or will their luck run out? I believe Instacart will grow because Mehta and his executive team are already planning well into the future. However, I’m not convinced that Mehta will be there to lead them as CEO. More on this later.
According to Mehta in a recent Forbes interview, he’s “playing a 20-year game.” Mehta also states that Instacart isn’t trying to take away customers from the grocery retailers they serve, and that Instacart has no plans to “ever sell groceries directly.” Is that true? Let’s turn to Sun Tzu, for guidance on how to answer the question:
“All warfare is based on deception. Hence, when we are able to attack, we must seem unable; when using our forces, we must appear inactive; when we are near, we must make the enemy believe we are far away; when far away, we must make him believe we are near.”
If Mehta is playing a 20-year game, what then does the future hold for Instacart and its customers? Are we honestly to believe that the Instacart of today will look very similar to the Instacart of 2040 except for better analytics? Mehta is being deceptive about Instacart’s future; he has to.
I’ve written more articles about Instacart than any other analyst. I also believe I’ve posted more articles about Instacart on LinkedIn than any other member of LinkedIn. Based on my research and industry experience, I believe the following is what Instacart will and should do in the coming months and years.
Fulfillment By Instacart
Since 2018, I’ve written that Instacart will go public in 2021 or 2022 at the latest. I believe 2022 is the year it will happen. However, I believe Instacart will struggle to accurately assess their growth and earnings potential as the pandemic significantly skewed their business. Grocery retailers pay Instacart on average 10% per order. In 2019, Instacart was losing $2.00 on every order they fulfilled. (Mehta claimed Instacart was profitable in 2019). In 2020, Instacart was grossing $3.00 per order. Will this continue?
Based on current consumer trends related to grocery sales, I anticipate that Instacart will see double-digit decreases in online grocery ordering and delivery by May 2021, resulting in Instacart experiencing a decrease in revenue. A degree of panic may overwhelm Mehta and his team as they realize that Instacart is losing value at the same time Instacart wants to launch an IPO. It’s possible that Instacart will delay their IPO. It’s also probable that Instacart will change their strategy and seek out a company to acquire Instacart vs. risking an IPO.
In terms of valuation, Instacart claims that they’re worth $39B. I disagree. I believe Instacart’s actual valuation is between $10B to $14B. My opinion is based on my knowledge of Instacart’s technology and internal operations, and the internal operations and technology of similar companies. As Instacart’s largest grocery clients make changes in their business models to eliminate the need for Instacart or other third-party grocery fulfillment companies, it’s conceivable that Instacart will be worth between $4B to $8B by 2023.
I’m often asked what the future holds for Instacart in terms of their business model. In my opinion, the future of Instacart is not having their Shoppers push carts up and down grocery aisles fulfilling online orders. The combination of Instacart Shoppers fulfilling orders, and customers shopping for their groceries, is crowding aisles and decreasing the store experience for customers.
Grocery retail customers of Instacart are increasingly becoming concerned about the poor customer experience, and it is driving them to explore the use of micro-fulfillment centers (MFC) in Dark Stores, inside grocery stores, or installed in buildings attached to the side of a grocery store, to automate online grocery fulfillment. (An MFC is robotic technology capable of picking individual grocery items to fulfill online grocery and curbside pickup orders. Leveraging automation to fulfill online orders significantly reduces costs for the retailer and increases the speed of deliveries to customers).
This article outlines the best micro-fulfillment solutions on the market.
HEB, Albertsons, and Ahold Delhaize, are a few of the grocery retailers that have invested in building MFCs. Walmart is in the process of opening hundreds and eventually thousands of MFCs using technology from Alert Innovation, and Geek+. Amazon is opening MFCs. I continue to write articles explaining why grocery retailers should invest in micro-fulfillment.
Before continuing, I want to draw a distinction between MFCs and Customer Fulfillment Centers (CFC). MFCs can process around 1,000 orders per day. A CFC can process over 25,000 orders weekly. A hybrid model of CFCs and MFCs is often the best approach.
What drives Instacart is enabling their grocery retail customers to operate as efficiently as possible as it relates to the fulfillment of online grocery orders. Due to the growth of online grocery sales, I believe that Instacart should create the ability to enable grocery retailers to access automated micro-fulfillment centers (MFC) and offer Micro-fulfillment as a Solution (MaaS). Grocery retailers, including customers of Instacart, are already purchasing MFCs to automate online grocery and curbside pickup orders. Offering MaaS is a strategic imperative for Instacart as they are under threat of losing customers. Instacart continues to deny they have any interest in opening their own MFCs, but I’m convinced it will happen.
If Instacart chooses to open MFCs, they will have to start small and then scale the number of MFCs they require to meet customer demand nationwide. I estimate that Instacart will open between 6 to 12 MFCs in the first year and open as many 50 MFCs within two years. It takes on average 16 weeks to install an MFC and perfect the operations required to run the MFC. There aren’t many companies capable of installing MFCs, and most MFC companies to date have only installed a few MFCs. Instacart could eventually operate several hundred or even several thousand MFCs within their ecosystem. It’s plausible that Instacart may want to franchise MFCs to individuals who want to run their own business. It’s an idea I’ve been writing and speaking about since 2015.
I believe grocery retailers would be wise to partner with Instacart on designing the optimal MFC strategy to meet their needs. I anticipate that Instacart will partner with one or more of their grocery customers to test an MFC to prove the concept works. Instacart has relationships with many different grocery clients who may be interested in taking part in a pilot. If Instacart can convince a few of their grocery customers to contract Instacart to automate the fulfillment of orders, it’s possible that Instacart will be able to convince additional grocery customers to also sign up for MaaS.
There are many companies Instacart can select to power their own micro-fulfillment centers. I rank Attabotics, Alert Innovation, AutoStore, Exotec, and Berkshire Grey at the top of the list as being the best MFC solutions on the market. However, the company that has done the best job of marketing their system is Fabric. Fabric is also very aggressive on price. I remain convinced that Instacart will partner with Fabric as I know Fabric is actively targeting Instacart to become a customer of their MFC solution. My recommendation is for Instacart to partner with Attabotics, Alert Innovation or AutoStore. Note: I believe Walmart will acquire Alert Innovation in 2022 or 2023. If this happens, Instacart won’t have Alert Innovation as an option.
If Instacart selects Fabric as a partner, I strongly recommended that Instacart requires Fabric to raise an additional $150M to $200M to strengthen the financial health of the company. Fabric should invest between $7M to $10M to improve the company’s software and technology. Fabric must improve their technology and software.
Micro-fulfillment centers are strategic to the future of Instacart, because they will allow Instacart’s retail grocery customers to remove manual grocery fulfillment from their retail stores. This will reduce crowding in aisles, improve the customer experience, and reduce the cost of fulfilling online grocery orders and curbside pickup orders. I’ve recommended this strategy to Instacart as well the retailers Ahold Delhaize, Albertsons, HEB, Aldi, Lidl, and Kroger, to name a few.
Mehta understands that manually fulfilling online orders inside grocery stores is expensive, cumbersome and unsustainable. Mehta and Instacart must find a way to increase their value to their grocery customers without appearing to be a threat to the grocery retailers they serve. I believe opening micro-fulfillment centers is the best way for Instacart to add value. Micro-fulfillment centers will also allow Instacart to expand their business model. According to Mehta, he wants to expand Instacart beyond supermarkets. Opening micro-fulfillment centers will allow Instacart to fulfill online orders and replenish inventory rapidly to many different retailers, not just grocery retailers. Apoorva Mehta is very smart. No doubt.
There are several models that Instacart can leverage to open MFCs. My favorite model, and the model I believe Instacart will utilize, is opening MFCs inside retail stores or in a building attached to a grocery retailer. Depending on the MFC, one MFC can fulfill online and curbside orders for between 6 to 10 stores depending on the volume of orders. Grocery retailers must leverage their stores as much as possible. I believe the worst model that grocery retailers can utilize is opening separate automated or manually operated dark stores to fulfill online orders. Over time, dark stores will cannibalize sales from a retailers’ grocery stores making their stores less profitable. My research has convinced me that MFCs inside a store or attached to a store is the best model.
An added benefit to Instacart enabling their grocery retail customers to open MFCs is that Instacart can operate the MFCs and fulfill orders. Instacart will be able to pool the majority of online orders and place them in vans for deliveries. A weakness in all food and grocery delivery companies is that they leverage a ‘1 to 1’ model – one delivery driver making a delivery to one customer. A much better model is ‘One to Many’ – one van delivers orders to many customers located in the same region. Instacart will be able to achieve a model of ‘One to Many’ and also ‘Many to Many’ – many vans making deliveries to many customers.
It would be an embarrassment if all Instacart did was grocery delivery. Instacart is old enough now that they need to take it to the next level. I recommend that Instacart develop the ability to analyze the operations of their grocery retail customers, and then determine which MFC system and strategy will meet their needs. This will increase Instacart’s value creation capabilities. Instacart can provide expertise that will enable their grocery customers to create an integrated ecosystem of CFCs and MFCs to reduce costs and complexity, increase customer experience, and create a competitive advantage.
Sun Tzu would support a strategy of opening MFCs, but is that enough? No. It isn’t.
I anticipate that Instacart will invest heavily in creating a team of experts capable of helping Instacart become a leader in advertising. CPG companies that sell their products through the retailers served by Instacart, will be happy to leverage Instacart’s platform for advertising. I strongly encourage Instacart to ‘GO BIG’ into digital advertising and even consider acquiring an advertising agency to expand into other categories. However, I believe Instacart should place their focus on what I refer to as ‘Social Commerce’, think combining Facebook, Instacart and Tik Tok.
I also recommend that Instacart attack some of the issues plaguing grocery retailers. For example, grocery retailers struggle to optimize inventory and manage other aspects of their supply chain and logistics. Instacart can partner with the supply chain software company, Solvoyo, or Relex and offer access to the software through its platform. Providing value-added services that remove pain points for its grocery customers is a way for Instacart to maintain positive working relationships with its customers.
But what if Instacart continues to lose grocery customers that choose not to outsource online grocery fulfillment to Instacart and instead, choose to open their own MFCs or outsource to other companies? Will advertising be enough to make up for the lost revenue? Does it make sense strategically for Instacart to do nothing as customers abandon them? No. Instacart must do more, but what?
Although I believe there are many things that Instacart can do, I must point out that Instacart, as a policy, does not want to own inventory as they believe this will convince their grocery retail customers that Instacart is going to become a competitor. Instacart refers to this as the “red line.” I am incredulous that Instacart executives have such a destructive and wrong opinion regarding this topic. Grocery retailers will always view Instacart as a potential competitor regardless of Instacart’s business model. The time has come for Instacart to rethink their view on owning inventory.
DoorDash, Instacart’s most dangerous competitor, is going to open virtual convenience stores and use micro-fulfillment centers to fulfill orders to customers. DoorDash will eventually offer rapid grocery delivery and attempt to convince Instacart’s grocery retail customers to switch to using DoorDash. DoorDash is going curate and own inventory. Lots of inventory.
GoPuff owns inventory and eventually the company will stock and sell their own private label products across multiple categories.
Instacart must ensure that they don’t limit their ability to compete and grow because of their views on owning inventory.
Although Instacart doesn’t want to own inventory, let’s engage in a game of, What If? What if Instacart changed their business model? What if Instacart owned inventory? What if Instacart becomes a grocery retailer?
Instacart continues to deny that they want to become a grocery retailer and compete against their grocery clients. Instacart states that they want to enable and support the needs of their grocery clients. I understand Instacart’s point of view. However, I believe Instacart has the wrong strategy. For example, instead of only providing grocery retailers with online order fulfillment, Instacart should take over the center aisle for grocery retailers. This will allow grocery retailers to focus their efforts on expanding their stores to sell higher margin perishable products, add cafes, bulk bins, and so on. Instacart would create an online ‘endless aisle’ of center store aisles products for customers to order from.
Could it be possible that Instacart has a long-term strategy of becoming a grocery retailer? Let’s turn to the quote below,
“If your enemy is secure at all points, be prepared for him. If he is in superior strength, evade him. If your opponent is temperamental, seek to irritate him. Pretend to be weak, that he may grow arrogant. If he is taking his ease, give him no rest. If his forces are united, separate them. Attack him where he is unprepared, appear where you are not expected.”
I’ve read comments from retail analysts who claim Instacart will “never become a grocery retailer” because it’s a low-margin business. I understand the rationale for such comments. However, it is foolish to believe that Instacart will “never” become a grocery retailer. It’s also foolish to believe that Instacart can’t create a better retail experience than most of their retail grocery customers. If Instacart becomes a grocery retailer, I’m confident that Instacart will introduce their own private label products, expand into dark kitchens, and seek out ways to reimagine the grocery experience altogether.
I’m often asked how confident I am that Instacart can or will become a grocery retailer. I answer the question this way. I was the first person to argue that Instacart should invest in opening micro-fulfillment centers and become a system integrator. Not a single retail analyst came out in support of my argument. I will be proven correct that that Instacart will open micro-fulfillment centers because they have no choice. Under the right circumstances, Instacart could become a grocery retailer.
If Instacart chooses to become an online retailer, they will easily convert customers from shopping at their favorite online retailers to shopping at Instacart. Why? Because Instacart owns the customer relationship. Instacart has pricing, supplier, operations, supply chain, and strategy data from hundreds of grocery customers. Instacart also has a list of customer names, email addresses, physical addresses and credit card data for millions of customers.
Mehta recently stated that Instacart is “actively hiring dedicated Instacart analysts who will be embedded in retail partners’ headquarters to support them.” Data is everything to Instacart because it gives them information and strategic options. This is why I recommend Instacart to acquire dunhumby; they’re masters at retail data and analytics.
An even more interesting option that Instacart can pursue is approaching CPG companies and brands and offering them an alternative to selling their products through retailers. CPG companies can stop buying data from retailers as Instacart can provide data. CPG companies can invest their market development funds into digital advertising through Instacart. Instacart can do away with slotting fees. This is an interesting option for Instacart to explore. In addition, it provides Instacart with an opportunity to disrupt the grocery industry.
I warned grocery retailers in this 2018 article that if they contracted Instacart, they would be teaching an eventual Trojan Horse their strengths and weaknesses. Was I right? There is nothing wrong with Instacart’s business model, nor do I believe anything Instacart is doing is wrong. The only thing I believe Instacart can do wrong is not conducting ‘war games’ inside the company with the help of a strategy consulting firm like Deloitte, McKinsey, Boston Consulting Group, Strategy&, or Bain Consulting, to assess becoming a grocery retailer, partnering with CPG companies and brands, and assess their business model to ensure that Instacart has a “right to win” in the coming years.
Instacart can reimagine the grocery industry. Being an online retailer won’t be enough for Instacart to succeed – Instacart will need physical stores. Instacart can easily raise additional capital to fund acquisitions or lease available real estate to open their own Instacart branded stores.
Gorillas In Their Midst
Instacart is going to face an extreme amount of pressure in the coming years. For two years, I’ve had discussions with Postmates, DoorDash and other restaurant delivery companies, about why they should fulfill and deliver online groceries, and also teach their grocery retail customers how to install dark kitchens and sell restaurant quality food direct to their customers. I also recommended to these companies to invest in opening their own micro-fulfillment centers and/or partnering with a company that can offer Micro-fulfillment as a Solution (MaaS), like Attabotics or Ohi.
For example, I advised DoorDash in 2019 to acquire Instacart or GoPuff, when I was contacted by an executive who worked for DoorDash who asked me for my opinion on what they should do as a company. Executives from Uber and Amazon have also contacted me seeking my advice and I gladly provided my opinion.
I am convinced that DoorDash will pursue discussions with Instacart, and I continue to write in LinkedIn posts that DoorDash will explore acquiring Instacart or goPuff. I am also convinced that if DoorDash does approach Instacart, or if Instacart approaches DoorDash, the discussions will not lead to an acquisition. Based on my experience, I believe executives from DoorDash will be underwhelmed by Instacart. This isn’t a criticism. Tony Xu, the founder of DoorDash, thinks BIG. Tony believes DoorDash can be successful in many industries. The team from Instacart is focused on “enabling” their retail customers to have access to technology or services. Unfortunately for Instacart, there is nothing they do or that they provide to grocery retailers, that DoorDash can’t easily duplicate. In essence, DoorDash may view Instacart as having little to no value.
Note to Instacart: If you meet with DoorDash to discuss an acquisition, DO NOT tell DoorDash anything about what you have planned in the future. If DoorDash learns about your strategy, they will use that information against you and they will walk away from discussions to acquire you.
I have recommended to Instacart to assess acquiring Grubhub or goPuff.
My advice is that DoorDash should acquire goPuff, Getir, Gorillas, or Rappi, but acquiring Instacart remains a possibility. Acquiring a leading food delivery company in Europe like Wolt or Bolt, should also be assessed by DoorDash.
It’s also possible that Instacart will be acquired by someone other than DoorDash. Shopify or Facebook are the companies that I believe should acquire Instacart. Facebook can utilize WhatsApp, Instagram, and Facebook user pages to reimagine the grocery experience, and Instacart can turn the vision into a reality. Frankly, I’m amazed that Facebook and Instacart aren’t already collaborating.
I have advised Instacart in multiple LinkedIn posts since 2017 to avoid having discussions with Uber, as Uber is a much bigger threat to Instacart than the executive team at Instacart realizes. I believe Uber will eventually acquire or partner with GoPuff, and invest several billion dollars in creating capabilities to compete directly with Instacart. The danger to Uber is that if all they do is partner with experts that can run operations for grocery fulfillment or making deliveries for restaurants, it opens the door for DoorDash, Shipt, Instacart, or any of the rapid grocery delivery companies, to cut a deal with Uber’s grocery, retail, and restaurant customers. I’m convinced that Uber may open their own automated dark stores to offer ‘Fulfillment by Uber.’
Note: Shipt isn’t a threat to Instacart, due to the lack of senior executives with the required skills and experience to grow the company.
Instacart is also going to be pressured by the rise of ‘Instant On-Demand’ rapid grocery delivery companies like JOKR, Getir, Delivery Hero, and Gorillas. Most people have never heard of these companies because they’re based in Europe. However, these companies are a potential threat to Instacart and grocery retailers when they enter the U.S. market. Based on my research, I believe that rapid grocery delivery will be the spark that ushers in a new era in retail – Real Time Retail Delivery – the delivery of apparel, shoes, electronics, cosmetics, and other retail products, in 15-minutes or less.
Rapid grocery delivery companies can deliver groceries in as little as 10 minutes. How? By reducing the total number of products, they offer from the 30,000 to 40,000 products carried at most grocery retailers to around 2,000 of the most essential items requested by consumers. For a frame of reference, goPuff carries 4,000 items in their dark stores. The reduced number of products increases picking and delivery speeds. Opening small dark stores to scale the operations can be done relatively quickly. I believe the strategy rapid grocery delivery companies will pursue is opening dark stores and operations in the 300 cities in the United States with a population of 100,000 or more people. The impact of rapid grocery delivery companies on the retail industry will be devastating.
Instacart’s grocery customers will be pressured to offer rapid grocery delivery services thus forcing Instacart to come up with a solution. I have recommended in LinkedIn posts for Instacart to consider acquiring a rapid grocery delivery company or partnering with a rapid grocery delivery company. I do not believe that Instacart should launch their own in-house rapid grocery delivery program. Instacart has focused on same-day deliveries since their inception. Now they must create the ability to deliver groceries and essential items in 15-minutes or less. This is easier said than done hence the reason why Instacart acquiring Gorillas or Getir, or partnering with a different rapid grocery delivery company, should be considered.
If Instacart chooses to launch their own rapid grocery delivery strategy, I encourage them to introduce the use of teleoperated grocery carts from the company Tortoise. I believe Instacart can leverage Tortoise Carts as mobile inventory stations and also to make deliveries using the carts. Tortoise Carts can easily be modified with drawers to hold the most in-demand grocery and snack items. If Instacart chooses to acquire or partner with a rapid grocery delivery company, introducing Tortoise Carts should also be assessed. I also encourage Instacart to introduce the use of trikes to carry many items of the same product such as six-packs of beer or soda to reduce the workload of couriers. The trikes should be modified to be teleoperated.
I must reiterate that Instacart should not launch their own rapid grocery delivery service. I believe Instacart will struggle to offer deliveries in 30-minutes; 15-minute deliveries are out of the question. If Instacart launches their own rapid delivery program, they will have to partner with one or more companies capable of providing couriers, equipment (bikes, scooters, delivery bots) and also make the deliveries. With an ability to only make two deliveries per hour, Instacart will require thousands of couriers to meet demand. In addition, Instacart will have to compete against the large European rapid grocery delivery companies that will enter the U.S. and who will also require thousands of associates to make deliveries. It is inconceivable to me that Instacart will ever be able to launch and operate a profitable rapid grocery delivery service without a partnership with a major player like Getir or Gorillas. If Instacart launches their own rapid grocery delivery service, it’s probable that they will lose millions of dollars annually. The economics related to rapid grocery delivery don’t work for Instacart or their grocery customers.
An interesting idea for Instacart to pursue is providing 15-minute curbside pickup service to customers. Industry research reports continue to prove that consumers enjoy buying online and picking up their groceries at the stores they frequent. I anticipate that Amazon will offer 15-minute curbside pickup services from the Amazon Fresh stores that they’re opening. Instacart needs a point of view on this topic.
In my professional opinion, Instacart should partner with an established rapid grocery delivery company and let them identify and implement the optimal strategy. For example, Gorillas and Instacart can form a partnership whereby Gorillas becomes part of the Instacart platform. Gorillas can partner with Instacart’s grocery customers to open sections inside stores placing the SKUs being offered for rapid grocery delivery in a specific section to make it easier and faster for Gorillas to pick and deliver orders. Gorillas will need to supplement the network with their own dark stores as well.
Instacart will more than likely want to scale rapid grocery delivery nationwide and the company may choose to scale their service internationally. Instacart is years away from scaling their operations internationally unless they’re willing to make an acquisition of an established major player in Europe or Asia. Instacart has no international experience but Gorillas, Getir and several other rapid grocery delivery companies do.
Note to Instacart: Sequoia Capital is the largest investor in Instacart and Getir. I recommend meeting with Sequoia Capital to discuss the strategic value of Instacart acquiring Getir. If Instacart partners with any other rapid grocery delivery company, or if Instacart launches a rapid grocery delivery service with a third-party, Instacart will become a competitor to Getir. I can’t imagine that Sequoia Capital will want such a scenario to become a reality.
Let me be clear – if Instacart isn’t careful, they will destroy their reputation and lose millions of dollars in the process if they don’t implement the right rapid grocery delivery strategy. According to Sun Tzu, “Who wishes to fight must first count the cost.” Instacart better understand the costs, or they will pay dearly.
Instacart is under threat from many companies but one in particular has the ability to put Instacart out of business. Amazon.
Amazon has proven that attracting third party sellers to their platform generates increased sales from customers but also provides Amazon with a competitive advantage. A third-party seller uses Amazon as a marketplace to sell directly to consumers. About 9 million third-party sellers are registered on Amazon but only 2.6 million are active on the platform as I write this.
Third-party sellers are given the option of selecting a fulfillment method for the products they sell:
- FBM (Fulfillment by Merchant)
- FBA (Fulfillment by Amazon)
- MCF (Multi-channel Fulfillment)
- SFP (Seller-fulfilled Prime)
As Amazon expands the platform, I’m convinced that Amazon will invite third-party sellers offering food products and more importantly, groceries, to leverage the platform for their needs. This is why this is dangerous for Instacart. Amazon can offer grocery retailers reduced fees related to warehousing and use of AWS for their cloud technology needs. In addition, Amazon can offer grocery retailers free online grocery deliveries utilizing Amazon’s sizeable fulfillment capabilities.
I’ve raised concerns about this topic in discussions with current and former Instacart executives. The consensus at Instacart appears to be that grocery retailers like and trust Instacart more than they like and trust Amazon. Therefore, Amazon isn’t a threat. This is a dangerous attitude to have in my opinion. Put simply, Amazon is a predator. Amazon can kill Instacart.
If Amazon becomes a competitor to Instacart, they will also become a competitor to DoorDash, who has ambitions to expand into online grocery fulfillment and become a retailer selling snacks and other groceries. The result? DoorDash and Instacart may merge in an attempt to use their combined size to better compete against Amazon. I can make an argument for and against such a strategy.
Instacart has no choice but to be deceptive. As with all deception, however, at some point the truth becomes known. I don’t work for Instacart. I don’t work for a micro-fulfillment company. I can only present my opinion of what I believe Instacart should do.
I continue to recommend that Instacart open micro-fulfillment centers to automate online grocery fulfillment for their grocery clients in the articles that I write. Become a system integrator and sell and install their own micro-fulfillment technology to their grocery customers; acquire a rapid grocery delivery company or partner with a rapid grocery delivery company; or become an online grocery retailer and acquire Kroger, Albertsons, or Ahold Delhaize. Instacart has many options.
No one expects Instacart will become a system Integrator. Few people expect Instacart to offer Micro-fulfillment as a Solution to their grocery customers. Even fewer people expect Instacart to become a grocery retailer and end their relationship with their grocery customers. I expect everything that I listed can and may happen. However, if Instacart enables their grocery customers to have access to automated MFCs, the odds of Instacart ever becoming a grocery retailer decrease significantly.
The challenge for Instacart is that they’re vulnerable. The sun has shone brightly on Instacart for several years, but storm clouds are gathering. Going public will not ensure long-term success for Instacart. Instacart must become more aggressive and Think Big. Most of Instacart’s customers can enter into agreements with micro-fulfillment companies to purchase and install MFCs within their retail ecosystems thus eliminating the need for a contract with Instacart. This is already happening. Instacart’s customers can partner with any number of technology companies to provide software and services to improve the operations of their stores and supply chains.
I’m convinced that the executive team at Instacart doesn’t realize how truly vulnerable they are. Whether Instacart wants to admit it or not, they’re becoming irrelevant due to the number of competitors that their grocery customers can turn to. DoorDash, Uber, and rapid grocery delivery companies, will all go after Instacart’s customers. Although Instacart has long-term exclusivity contracts in place with many grocery retailers, a large portion of those contracts will expire in the next 24-months.
I believe two things have the potential to kill Instacart. First, Instacart’s irrational fear of owning inventory or making acquisitions of companies that own their own inventory and who make deliveries. For example, I’ve had discussions with executives at Instacart where I recommended that Instacart acquire goPuff. The response is always the same, “We can’t own inventory because our grocery customers will think we’re going to compete with them.” Note to Instacart: Your grocery customers are actively seeking alternatives to using your services. As Instacart’s grocery customers find alternative solutions to using Instacart, they in turn are enabling competitors of Instacart to grow.
Second, Instacart owns more grocery customer and grocery operational data than any other company in the U.S. or the world. Instacart knows the strengths and weaknesses of every major grocery retailer operating today. No other company operating today is better positioned to pivot and become a grocery retailer capable of severely disrupting the industry and capturing market share than Instacart. Instacart must assess the strategic value of such a move.
Instacart remains focused on empowering their grocery partners. Instacart believes that if they continue to proclaim that they have no desire to compete against retailers, that it will result in retailers trusting Instacart. Instacart is wrong. Refusing to make acquisitions of online instant needs or rapid grocery delivery players or forming strategic partnerships with these companies, will weaken Instacart. I’m already seeing this occur. Competitors of Instacart, especially DoorDash and goPuff, are effectively signing agreements with retailers even though both companies operate as retailers and curate their own inventory. I anticipate that rapid grocery delivery companies will also effectively partner with retailers. Once again, Instacart, I recommend that you speak with Sequoia Capital about Instacart acquiring Getir to maximize Sequoia’s investment, and position Instacart for increased growth.
Apoorva Mehta may have a 20-year plan for Instacart, but is Mehta the right person to lead Instacart into the future? Instacart must disrupt itself first and only then can Instacart disrupt their competitors and continue to be a leader. Several analysts I’ve spoken with are concerned that Mehta lacks the required experience to be the CEO of a company the size of Instacart. Mehta knows the danger ahead for Instacart. I believe Mehta will either step aside as CEO or hire a very experienced hi-tech executive to be co-CEO of the company. A co-CEO is something I encourage Instacart to consider. Mehta rightfully has a lot of pride and accepting a co-CEO may be too much to ask.
If Mehta doesn’t step aside or bring in a co-CEO, it’s possible that Instacart’s largest investors may ask Mehta to give up the CEO role and make him Chairman of the Board. If this occurs, I’d like to see Instacart hire a new CEO from outside the company. Recruiting a CEO from Amazon, Google, Microsoft, Facebook, or Apple should be explored. Will Instacart recruit a CEO from a large grocery retailer? No. That would give the appearance that Instacart is going to become a grocery retailer. I believe this is a mistake. Instacart should hire a tech and digital ads-focused CEO, and also hire an expert in grocery retailing to be co-CEO focused on growing Instacart’s fulfillment and grocery capabilities. I suggest Instacart hire Sergei Goncharov of Pyaterochka, or an executive from Tesco. Acquiring Getir, goPuff, or Gorillas, will provide access to highly skilled grocery and fulfillment executives.
At a time when Instacart is under growing competitive pressure and also considering going public, Instacart must select the best MFC solution to meet their needs vs. selecting an MFC from a company that offers the best deal. If Instacart selects Fabric, I encourage Instacart to take as much command and control over the company as possible including reengineering the processes related to sourcing, procurement, manufacturing, and also invest in technology and software. I don’t dislike Fabric I just believe the company needs an experienced team of experts to help the company transform several key areas within the company.
I recommend that Instacart assess micro-fulfillment technology from Alert Innovation, AutoStore, Geek+, and Berkshire Grey, to identify the best MFC solutions on the market, and also to provide options to their grocery retail customers for MFC. The future of retail is micro-fulfillment and robotics. Instacart must be experts at both.
I continue to believe that DoorDash, Uber, goPuff, Gorillas, and Getir, will eventually become the biggest threats to Instacart. If Amazon launches a marketplace focused on groceries, Amazon can severely impact Instacart. I’m convinced that Instacart will claim that Amazon isn’t a threat because Instacart empowers their retail partners whereas Amazon will be viewed as a competitor by retailers. I strongly advise Instacart to take Amazon seriously.
I don’t work for Instacart, but I care deeply about the company. I raise these concerns not to criticize Instacart, but to warn them of impending danger. I want Instacart to succeed. I have researched Instacart and their competitors since Instacart became a company. Instacart is vulnerable. The question is whether or not Instacart will be willing to take my advice or be willing to disrupt themselves before another company does it for them.
Once more we turn to Sun Tzu: “The worst calamities that befall an army arise from hesitation.” Instacart has no time to waste. The sand is quickly flowing through the hourglass.