Grocery Deliveries in Sharing Economy
This article is an interesting pairing with our prior posting regarding Shyp, Click & Ship. The model for third-party services, shipping and shopping is undergoing fundamental change, and this change is accelerating and obviating currently successful business models. DJK
When you buy groceries from Instacart, the company summons a green-shirted “personal shopper” through its smartphone app to pick up your items from a grocery store and deliver them to you. Credit Peter DaSilva for The New York Times
“I hope you realize that you are about to witness a remarkable display in ineptitude,” the technology investor Michael J. Moritz said as he entered a Whole Foods store in San Francisco one recent afternoon.
Mr. Moritz, the chairman of the venture capital firm Sequoia Capital and a recipient of a British knighthood last year, was wearing a bright green T-shirt bearing a logo for Instacart, a two-year-old grocery delivery start-up that Sequoia has invested in. He was here to show me what it’s like to work for the start-up — in particular, how unexpectedly difficult it is to quickly and accurately buy and deliver an assortment of groceries for a stranger.
Instacart might not sound like a novel service. It is one of several companies that is trying to revive a dream first floated, and then shelved, during the last dot-com boom — the dream of ordering your staples online and having them show up at your door a short while later. At least a half-dozen firms offer grocery delivery across the country, including Amazon.com’s AmazonFresh, FreshDirect, Peapod and services run by big grocery chains.
But behind the scenes, Instacart is unusual and intriguing. It operates according to a decentralized business model that borrows from services like Uber, Airbnb and other firms in the so-called sharing economy. And it is not only potentially lucrative, but also could redefine how we think about the future of labor.
When you buy groceries from Instacart, the company summons a green-shirted “personal shopper” through the firm’s smartphone app. The shopper receives your list, scurries through a grocery store to pick up your items and then heads across town in his own car to deliver your stuff.
Instacart’s shoppers earn from $15 to $30 an hour, depending on how quickly they deliver people’s food. That’s quite a high wage considering the job does not require a college degree, is part time and can be done during flexible hours. It’s substantially more than the typical supermarket worker salary of about $9 to $11 per hour — though of course without any benefits like health insurance. The workers are independent contractors, responsible for paying for expenses like their own Social Security taxes.
Still, Instacart’s success suggests that rather than simply automate workers out of their jobs, technology might create new labor opportunities for people who haven’t acquired formal credentials or skills in an economy where low- and medium-skilled workers face a bleak outlook. Like the ride-sharing service Uber, Instacart creates work by connecting affluent customers who have more money than time with part-time workers who have the opposite problem — lots of time, not enough money.
But unlike ride-sharing or apartment rental services, Instacart isn’t intruding upon a regulated industry, and its service poses little risk to its customers’ health or property, so it faces few of the complications that have dogged other sharing companies. Because it expands the customer base for physical stores, it has also been welcomed by some grocery chains as a potential bulwark against the wider rollout of Amazon’s delivery service.
Instacart creates vast selection for customers by allowing them to shop at many different stores, from large chains to specialty shops like San Francisco’s worker-owned, vegan-friendly Rainbow Co-Op.
“When you ask what kind of niches we’ll see for people who used to be in traditional middle-class jobs, this is the kind of labor that could fit into that,” said Tyler Cowen, an economist at George Mason University whose book “Average Is Over” contemplates how technology is altering labor markets. “I wouldn’t want to suggest people will become grocery-delivery millionaires,” he said, “but if you don’t have a college education but you’re smart and responsible, could you make a living doing this and maybe piecing it together with some of these other kinds of jobs? Absolutely.”
Instacart was founded in 2012 by Apoorva Mehta, now 27, an engineer who spent two years working at Amazon.com. “I had this problem of never having groceries in my fridge and never having the motivation and energy to go to the store,” Mr. Mehta said. But he found most grocery services, including AmazonFresh, too cumbersome. They required him to submit his order many hours in advance of delivery, and they sometimes didn’t offer the merchandise he was used to getting at his local store.
What’s more, traditional grocery delivery services are costly to set up, requiring warehouses to store perishable food, a fleet of custom-painted trucks for delivery and a staff of full- or part-time workers to package and deliver the orders. “We were the clowns who invested in WebVan, and we are only just getting out of therapy from that,” Mr. Moritz said, referring to the first boom’s spectacular grocery flameout.
Instacart does not maintain warehouses or trucks. Instead, the service is assembled out of found parts — existing supermarkets, willing part-time workers and their cars. The model has many advantages. It creates vast selection for customers by allowing them to shop at many different stores, from large chains to specialty shops like San Francisco’s worker-owned, vegan-friendly Rainbow Co-Op. It allows for extremely quick delivery too, including an option that will deliver your groceries in under an hour.
Though he declined to provide specifics, Mr. Mehta also said the firm had turned a profit in certain markets. Instacart now operates in ten cities, including New York, San Francisco, Chicago, Boston, Austin, Seattle and Los Angeles, and plans to be in 17 by the end of the year. It has 50 full-time employees and more than 1,000 independent shoppers under contract, many of whom fall into two demographic groups: college students and middle-aged mothers looking for flexible work.
Apoorva Mehta founded Instacart in 2012. “I had this problem of never having groceries in my fridge and never having the motivation and energy to go to the store,” he said. But he found most grocery services lacking. Credit Peter DaSilva for The New York Times
Despite its low-cost business model, Instacart isn’t cheap. The service charges a delivery fee of $3.99 for most orders, and it also makes money by marking up store prices. The amounts vary depending on the item, but I noticed Instacart’s prices coming in at about 20 percent more than I could find at my local store.
The markup explains in part how Instacart can afford to pay shoppers such high wages. But as I discovered as I shopped with Mr. Moritz, there’s another factor behind high pay: Shopping is a skill, and Instacart pays handsomely to get people who are very good at it.
Though he could talk at length about the virtues of Instacart’s business, Mr. Moritz is a billionaire investor, but he turned out to be a poor shopper. As we walked through Whole Foods, he often needed my help to locate a customer’s items. I had to show him where to find grapes, bananas and Perrier; neither of us had any luck finding Babybel cheese.
A few days later, I went on another delivery with Sharon Schedler, a 43-year-old mother who has been working for Instacart for about a year. She was a pro. Despite my peppering her with questions, she completed an 11-item order in under 10 minutes, including giving the customer a call to suggest substituting chicken breasts for chicken tenders, which were out of stock. Ms. Schedler was also meticulous about picking produce. “I try to be pickier than I would be for myself,” she said as she studied zucchinis for nicks.
Lawrence F. Katz, an economist at Harvard who studies technology and labor, offered a few reasons to stifle excessive optimism about Instacart’s model. First, technology may yet one day render Instacart’s shoppers obsolete. Drones could pick our groceries, after all.
Another possibility, he said, is that wages will be bid down as more people compete to become Instacart shoppers. Or, as the company’s software becomes more sophisticated, it could squeeze more efficiency out of workers; they may end up doing more work and not earn any more money for it.
A third problem is the lack of job security and benefits, which were once considered standard features of middle-class jobs. But Mr. Mehta says he doesn’t see that shifting. “The advantage to this model is that you choose your own hours,” he said. More corporate control over work habits “is something that would drive a lot of people away. The independent contractor model — I’m not sure that’s going to change.”