What Is Instacart’s Grocery Thesis?
Most of the angst over Instacart is over a simple fact. Will it go in an Amazon direction or will it be more like Alibaba?
This post asks - what if it takes the Alibaba route?
You see, Alibaba is a "pure marketplace" - it doesn't stock its own inventory. All the tools it offers are not in competition with its retailers. From storefronts, to its famous marketplace, to payments, to its many supply chain companies. All those things it offers as either an advertising platform or as a service provider.
A few interesting things to consider:
The US retail market is shell-shocked over the rise of Amazon in the last 20 years.
As a result, their generals are still "fighting the last war." Pattern matching is hard. A very common Instacart narrative is that they will become their own grocer. Meaning, they will cut out all their suppliers. Most of that feeling is based on Amazon's legacy in the space. What if that narrative is false?
But it doesn't mean that consumers still don't prefer buying from marketplaces and that they don't have scale advantages.
If Amazon started again today, would it even stock its own goods? Everything about 3P is better and more profitable.
And no, investing in automated fulfillment centers does not mean it will launch its own brands. It could easily mean - like Alibaba - it needs these to handle the volume and efficiency needs of its consumer demands. Why own the inventory if you don't have to -there no margin in it anyway. The margin is in the advertising.
Amazon has struggled with almost every brand it's started except those labeled "Basics." If there was a pure, non-competitive marketplace that owned 50+% (marketplaces have done this in every other category) of US grocery volume in 10 years, what would it look like? This quite possibly is Instacart's grocery thesis.
Dan Bourgault had an interesting angle: “In my opinion, everyone in grocery should want to be a digital media company and everyone should be collecting data, as that is the only way to succeed as a media company. Not to mention the data helps drive greater predictability in consumer behavior before it happens, which is invaluable in so many ways. I hate to quote Bezos but “we don’t sell things, we make things easy to buy.” That is the mentality of a soon to be 3,000 grocery store chain thinking like a digital media company that will make groceries easy to buy.”
Mark Fairhurst alley-ooped Dan’s statement, expounding on the possibilities: “What if Instacart really is more interested in being a digital media company masquerading as a marketplace and fulfillment provider? What if they're more interested in collecting HH data and consumer eyeballs and, in the process, generating advertising revenue on the back of brick-and-mortar retailers who risk disintermediation. A Faustian bargain to be sure for retailers. The primary objective for the marketplace is to maintain access to as many consumers as possible; hence the branching off into other retail verticals. The flip side to the business model is to limit exposure to labor costs as much as possible, hence the speculation around yet-to-be MFCs.”
I’m not sure I’d go that far, but it’s really interesting to consider. Let’s not forget how important data is in all of this - it’s not just about last-mile grocery delivery.
