Articles about Instacart continue to appear in the press but for all the wrong reasons. The most recent articles outline that Instacart workers are losing money because bots are being used by some Instacart workers to snatch the most lucrative orders within milliseconds of the orders dropping. Some Instacart workers claim their weekly pay has dropped by 80%.
Instacart is also experiencing something that I have long predicted – customers are ending their relationship with Instacart and using their own employees to pick and fulfill orders. Most recently, Sprouts and Aldi announced they are ending their relationship with Instacart.
I have written multiple articles about Instacart; most of them have been negative. However, let me clear up a misconception – I don’t dislike Instacart the company and I don’t dislike Instacart’s executive team. Instacart has a solid team of executives. It’s true that I’ve criticized Instacart in articles I’ve written but I think highly of the company and I have a tremendous amount of respect for what the company has accomplished.
What I dislike is that Instacart can’t seem to do a better job of proactively identifying and correcting issues with worker pay, and doing a better job of not hiring individuals who use drugs, drink alcohol and commit crimes while on the job. (I constantly receive emails from individuals who work for Instacart informing me of all of the bad things going on behind the scenes. Founder and CEO Apoorva Mehta should take extreme ownership of the company to eliminate the nonsense). A small percentage of Instacart’s workers are unfairly damaging Instacart’s reputation.
I’ve also been told by Wall Street analysts and bankers that in order for Instacart to generate the highest share price for a possible IPO, the company will need to hire a replacement for Mehta. Instacart’s growth was caused by a pandemic and not because of anything special Instacart did on their own. (I defend Mehta for these reasons whenever I hear anyone on Wall Street criticize him. Mehta has put his heart and soul into Instacart. Yes, there have been problems at Instacart but Mehta isn’t a fraud like Elizabeth Holmes. I think much of the criticism regarding Mehta is unfair).
Due to the articles I’ve written, I am frequently contacted by the press to voice my opinion on Instacart and what’s next. This is where I believe Instacart is headed.
The Future Is Fulfillment
I have never believed that the future of Instacart is picking and fulfilling online grocery orders or fulfilling orders at warehouse clubs like Costco and Sam’s Club using their current model. Instead, I believe Instacart must pivot.
As online volumes continue to increase, fulfilling online orders by using pickers in stores to roam aisles and pick products off shelves isn’t a sustainable model. Grocery stores weren’t designed to have paid pickers in their aisles, they were designed to have customers. Adding more pickers increases congestion in the aisles and decreases the customer experience for shoppers in the store.
A more intelligent model for Instacart to utilize is to open strategically placed fulfillment centers in cities across the United States. The purpose of the fulfillment centers is to remove pickers from stores and instead, automatically fulfill online orders using robotic micro-fulfillment centers (MFC). (This article expands on the concept).
The reason why I recommend Instacart implement such a model is because the company fulfills online grocery orders for many of the leading grocery retailers and independent grocers. Instacart can design a fulfillment model whereby each retailer ships inventory of the products they offer online to one or more Instacart fulfillment centers. In turn, Instacart will store the inventory and fulfill online orders specific to the needs of each grocery retailer they serve.
Instacart can generate significant value implementing the model I recommend. For example,
- Labor costs can be greatly reduced as pickers will no longer be needed in stores; I estimate that at maturity, Instacart can operate their company with 50% or more fewer associates if they move to an MFC model
- Online orders can be fulfilled faster and closer to customers
- There will be situations that will call for a combination of larger fulfillment centers; in-store micro-fulfillment; and offsite micro-fulfillment to serve the needs of retailers with a large number of stores across multiple banners
- Instacart can end the use of most gig workers and instead, lease vans with full-time drivers to make deliveries in designated regions
The Best Micro-Fulfillment Center To Meet Instacart’s Needs
When it comes to picking micro-fulfillment center technology, many companies don’t know where to begin. Instead of contacting a systems integrator like PULSE (or other systems integration companies), resources assigned to select an MFC often begin the process by googling “micro-fulfillment companies”. Bad Idea.
Instead of finding a list of the best MFC providers on the market, Google’s search engine returns a list of MFC providers that have appeared most frequently in the press. Most of the MFCs that appear in the press, like the startups Fabric and TakeOff, utilize shuttle-based systems that require extensive maintenance. Startup MFC companies also have very limited software functionality. In my opinion, no retailer should enter into an agreement with an MFC that uses untested shuttle-based solutions. I prefer cube-based systems.
To prove that I hold no ill will towards Instacart, I am listing the names of MFC providers I recommend Instacart contact and independently assess:
I am recognized as one of the leading experts in the world on the topic of micro-fulfillment and MFC solutions. I am a former unpaid advisor to TakeOff and Fabric. I have researched and/or assessed all of the MFC solutions on the market. Based on my experience and in-depth research, the only MFC solution that I can recommend is AutoStore.
One of the primary reasons why I recommend AutoStore to companies is because of the solutions’ efficient and reliable design. (AutoStore has the industry’s highest uptime percentage at 99.6%).
AutoStore isn’t a startup. AutoStore has been designing and building leading edge robots and fulfillment solutions since 1996. In addition, AutoStore has successfully installed their solutions at over 450 locations globally. No other competitor comes close.
Unlike startups that invent as they grow, AutoStore grew because they invented a solution that is superior to every fulfillment and micro-fulfillment solution available today. Don’t believe me? Go to YouTube and watch videos of clunky and unreliable shuttle-based systems being pushed by startups. Watch videos of 3D robotics companies claiming to be a better solution. Then watch videos of AutoStore’s solution. Precise, powerful and proven without the complexity.
AutoStore is the leader in fulfillment for this reason – when they enter a new industry, AutoStore doesn’t invent new robots, bins, controllers, grids or ports. They don’t have to; their solution is easily scaled to new industries. Instead, AutoStore simply upgrades their proven and tested software to consider the intricacies and requirements of the new industry. Instead of creating overly complex systems, AutoStore wisely chose to build solutions that are reliable.
If given the choice of choosing a solution that is reliable vs. one that is complex, always choose the reliable option. Reliable solutions help companies run efficiently. Complex solutions cost time, money and effort and rarely, if ever, live up to their expectations.
I can state with no hesitation that if I was the CEO if Instacart, I would insist on only doing business with the best MFC on the market. AutoStore meets that requirement. However, I’m not the CEO of Instacart and for that reason, I believe Instacart will partner with Fabric. I believe it’s possible that Instacart will acquire Fabric.
In addition to contacting the list of companies above, I strongly advise Instacart to ask each of the MFC vendors they speak with the following questions:
- How long have you been in business? What year did you start the company?
- Who created your software and MFC solution? How long have they been in business? Can you provide examples of where their solution is in use?
- What is the list price of your solution including installation?
- How many companies have installed your software and MFC solution? Did you reduce the price of your solution to convince companies to select you as a vendor? How many times was this done? Why did you have to reduce the price of your solution to convince a retailer to do business with you?
- How long does it take to install your solution? Provide us proof of how long it took to install your solution, and the cost, at every customer using your MFC. (DO NOT RELY ON REFERENCES. I RECOMMEND CONTACTING THE CEO AND SPEAK TO THEM ABOUT THEIR VIEWS ON THE MFC THEY SELECTED).
- Of the companies that selected your solution, how many have extended the relationship by purchasing and installing additional systems at other locations?
- Of the companies that selected your solution, how many companies ended the relationship? Explain in full detail why the relationship was ended.
- Have you publicly revealed the results your customers have achieved by using your system? For example, Time to Install, Uptime Percentage, Pick Rate
Achieved, Cost Savings, Performance Improvement Achieved, Labor Savings, Number of Orders Fulfilled Daily/Weekly/Monthly vs. Plan. If you don’t reveal this information to the public, explain why. - Cube-based systems like AutoStore are consistently rated as the best technology for an MFC. You sell a shuttle-based system, why should we risk the future of our company on technology that is incapable of achieving the performance, reliability and savings of a cube-based MFC? Is a low-price the only thing you offer?
- Shuttle-based systems require extensive maintenance. Software associated with shuttle-based systems is limited in terms of functionality. Provide detailed records of maintenance costs experienced by customers currently using your MFC solution. Provide detailed records of requests made by customers to increase the functionality of your software.
Instacart leveraging fulfillment centers powered by an MFC like AutoStore will take Instacart to the next level.
Another option Instacart can pursue is contacting Louis Borders, CEO of Home Delivery Service, and ask him this question: Would you be interested in becoming our Ocado? I have spoken publicly on multiple occasions that a combined Instacart and HDS would create an efficient and low-cost fulfillment model. (More about Louis Borders and HDS can be found here).
Will Instacart Open Stores?
In the articles that I’ve written about Instacart, I make the argument that Instacart will open Instacart-branded stores. I continue to believe this is a possibility. Here’s why.
Instacart has done a great job of signing up major retailers and independent grocers to use their services. Instacart also did something very wise – they own all customer data. This means that when a retailer ends the relationship with Instacart, Instacart can contact the customers and direct them to another retailer on the Instacart platform. (It was smart for Instacart to own the data but grocery retailers made a big mistake by not insisting they receive copies of the same data).
Instacart has learned the strengths and weaknesses of every grocery retailer operating today. (I called Instacart a ‘Trojan Horse’ in this article). I believe it is plausible that at some point, Instacart will make a strategic decision to stop offering their services in certain regions and instead, open Instacart branded stores and self-fulfill groceries to their stores. If Instacart implements the fulfillment strategy I outlined above, they will easily be able to open their own stores.
I also anticipate that Instacart will offer their own high-quality, low-cost private label brands. (Note to Instacart: Acquire or form a partnership with Subziwalla and integrate their Indian-based grocery assortment into your inventory).
Instacart has exceptional potential for growth if they’re willing to pivot and think big. As Instacart continues to grow, they will become an acquisition target. Google, Facebook, eBay or Microsoft remain the companies I believe will gain the most value if they acquire Instacart.
