Instacart, Google Express, Amazon Fresh — The 35% Markup Question

Years ago I walked by a colleague talking about Google (Shopping) Express, and my life changed.

Grocery shopping, the kids bobbing in front of the cart, then disappearing, people pushing carts with aisle rage in post-work rush hour, it’s not quality family time.

And then, fruits, vegetables, dry goods came to my door. It cost me what I’d pay at the store. Besides a weekly milk stop, I didn’t go to the grocery store for three weeks at a time. Issues with my order were handled swiftly, cheerfully, items credited back to my account minutes later. It was amazing. It set great expectations.

Then Google took away fresh goods. Then added an annual fee. At some point prices started increasing over in-store prices. Then there wasn’t an annual fee anymore, but the minimum purchase became at least $35 for most shops.

I tried Instacart then, abandoned it, and recently tried it again. And I tried Amazon Fresh.

Instacart. I tried again because in How I Built This with Guy Raz, Instacart Founder Apoorva Mehta said “early on because we didn’t have any retailer relationships we had to mark up the items, and there’d be a small delivery fee as well, and we didn’t know if customers would want to pay that and it turns out there are a lot of customers who are ok with that, but we realized if we partner with the grocery stores, we could reduce the premium, or make it to be the same price as the store and that dramatically changed the way people interact with Instacart today.”

Here’s how I ended up abandoning my Instacart from Costco (again):

1. The prices were too high compared to in-store prices. I’ve shopped at Costco for years, I am expecting value pricing, not premium pricing. The lack of transparency about the markup feels sly. I compare prices for dry goods at Google Express, Amazon, knowing I’m burning up time, which adds to the frustration
2. Searching can be time consuming because the search engine is not that smart. This is true for many site specific searches — Google Express too. Here’s an example — search for Cello Shaved Parmigiano — which is what the container says, and is the correct name for Parmigiano, and nothing comes up. But search for Cello Shaved Parmesan, and you will get the Parmigiano. Since this is not uncommon, it takes up time
3. Out of stock — if one essential item is not available, and I still have to make a trip to the store for it, then the amount of time saved by ordering online is negligible

After 50 minutes of filling my cart, I start to check-out. This is where Instacart adds 10% service fee, plus a delivery fee, plus the option to add a tip starting with a 10% suggested amount. I look at the delivery times available, all the next day, abandon my cart, frustrated by the time sink, and decide to go to Costco and compare.

I go to Costco on my way home from work the next day, purchase the same items. It adds 20 minutes to my commute. I spend about 50 minutes in Costco. Time-wise including driving, it cost me 20 minutes more than ordering online.

Here is how the product prices stack up — 19% higher on Instacart than in-store — in dollars, that’s $29 dollars more:

Costco recently started to offer Instacart directly on the Costco website, they have this banner at the top “prices average approximately 17% higher”:

Adding the service fee, the minimum delivery fee, and the minimum suggested tip, the total is now 35% higher than in store, or nearly $66:

Paying $66 for one delivery is above my value threshold, but if I’m not the Instacart customer, who is? My husband and I work in tech with tech incomes, we have kids, nannies, days packed full, and I do not like to go to the store. Our nanny could get this shopping done in less time for less cost and make more money than the Instacart delivery person will make.

In that same podcast, I learned that Instacart has tens of thousands of customers, about 3000 full time and 12,000 part time employees. How do these numbers stack up?

• Revenue: Interpreting “tens of thousands” as maybe 50,000 customers, paying $65/week for a year, that’s $171M
• Consumer Market: Estimating 400,000 1–2%-ers in the U.S., that’s $1.37B market
• Costs: 3000 corporate employees at $150,000 per employee per year is $450M
• Costs: 12,000 part-time employees at 40 hours/week at $20/hour per year is $500M
• Instacart has raised $674M to date

So costs are roughly running at $950M for maybe $171M in revenue plus the unknown of what Instacart makes from retailers. How much are these consumers worth to retailers?

In the Shareholder-Customer-Employee trifecta of business, putting aside the Shareholder, Instacart and Google Express are solving for the retailers first. If the Customer is someone paying, and the Employee is someone being paid, then, in these multi-sided markets, there are two sets of customers, and two sets of employees competing for consideration.

Customers:

• Consumers (users) — paying for goods and services
• Suppliers (retailers) — paying for access to users

Employees:

• Part-time labor (shoppers, drivers)
• Corporate (business strategists)

In all these businesses, the part-time employee — the shopper, delivery person comes in last. That’s a topic for another day. In these multi-sided markets, it seems like the winners for now are the businesses that relentlessly put the consumer first, like Uber and Amazon, because dominating the consumer market puts them in the most powerful position.

I can tell Instacart and Google Express is not thinking about me, the consumer, when I use the product. Its not just the price of goods, its that the experience isn’t designed for me. Or, at least, not how I consume, maybe I’m an outlier.

Here is another quote from Apoorva, “there are a lot of retailers where people really want to shop from, people get their favorite types of groceries from, where they don’t like amazon..”

Its not that there are a lot of retailers I want to shop from, its that there are items that some retailers have, that others don’t. I would much rather shop from one online store and get it over with. And that’s what these retail-to-online shopping platforms could do for me. Instead, they force me to shop by store. With Instacart, I keep everything to one store. With Google Express, I check my cart repeatedly and move items from one store to the other in a game of whack the delivery fee, back and forth between search and cart screens, because I don’t want to pay 3 delivery fees for items from 3 stores. This is just one place where these retail aggregation platforms could rethink cross-store shopping, for example:

• Look across all the items in my cart and suggest the best price combination to me, that would save lots of time
• Google Maps and Waze track my trips, Google knows when I visit a retail store, probably has it for some of my neighbors, there’s so much there to predict not just what I will need when, but in the context of my neighbors patterns as well. If we all seem to be going to the same Costco and Target and Safeway in patterns that could be aligned, imagine volume pricing and fewer deliveries
• Instacart could do this without maps, if it had enough regular users living near each other. Rather than optimizing for the orders coming in real-time, optimize around the individual, or when possible, aggregate prediction

Amazon Fresh has its own issues, items out of stock, selection not stellar, and the confusing Fresh vs Pantry vs Prime pricing schemes, items sometimes bizarrely overpriced. But I see a lot of Amazon Fresh green coolers on the porches of my neighbors, and there is something delightful about getting a cooler with enough dry ice to play with for 24 hours and popsicles that are rock hard.

Amazon Fresh dry ice magic — rock hard popsicles

These platforms aren’t designed to make the consumer’s job (to buy stuff) easy, and that feels like a miss. Its been at least 4 years and the consumer experience either hasn’t improved, or has gotten worse. Walking through Costco, I altered what I put in my cart with thoughts like “I’m not going to buy the maple syrup now because I might need that $15 item in my Google Express/Instacart minimum later this week when we run out of something.” Someone needs to rethink the experience, right now there’s little net value for the consumer. Otherwise I don’t see how these platforms will thrive. I just read about Basket — I’ll maybe give it a try. Last week I went back to Safeway.com after leaving it untouched post Webvan years, filled my cart hassle-free with what I buy at Safeway (no time lost trying to pick the right combination of items from the right store), and $6.95 in delivery fees later, friendly delivery man at my door, it felt like a good deal.