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Instacart raises bar on home delivery

Like many new companies in this era of technology, the needs of the owners led to the launching of Instacart, an online grocery shopping and delivery service.

“It was a problem that we personally had that we wanted to solve,” said Max Mullen, a co-owner of Instacart. “We wanted to get high-quality groceries and have them delivered quickly, and nobody was doing that.”

He and a couple of partners launched Instacart in July 2012 in the San Francisco market and since then have expanded it to 12 metropolitan centers across the United States. Mullen said five new metropolitan areas will be opened by the end of 2014 and he expects exponential growth in 2015, with most major population centers being served by the end of next year.

Mullen said other online grocery companies have not survived for various reasons that Instacart has been designed to avoid. For example, he remembers the famous flameout of Webvan, which was also launched in the San Francisco Bay area, and said that company was “extremely costly to run from an infrastructure perspective. And it was over-leveraged.”

Webvan could not support that infrastructure as it searched for customers and it died a spectacular death.

Personal-ShoppersPersonal shoppers on their way to delivering an order. Produce is included in 95 percent of all orders and makes up about 35-40 percent of total orders.Instacart has a simple model built on partnering with existing retail grocery stores and offering very fast delivery. Using the company’s technologically advanced software either on a computer or a smart phone, a customer can order groceries, including fresh produce, and often receive that order within an hour. In fact, if certain geographic criteria are met when the order is placed, Instacart guarantees the delivery within an hour.

Mullen said the company is targeting busy moms as well as urban professionals. He said both groups are challenged for time and appreciate having their high-quality groceries delivered the same day they order them. It is the speed of delivery that he believes will help Instacart survive as giants such as amazon.com and Google enter the home delivery grocery space.

Instacart can make good on its delivery guarantees because it has shoppers in stores throughout the metropolitan area waiting for orders to appear via their own smart phones. Instacart partners with specific independent retailers and chains in each market area. Often the personal shopper is already working on another order when the new order is placed. The items are bought via a previously established account and delivered quickly.

Mullen said the delivery can happen so quickly that a mom making a meal and missing an ingredient can place the order and have it delivered while still making that dish.

For orders under a $35 ring, the delivery charge is $5.99, while for orders above that threshold the charge drops to $3.99 per order. In addition, most customers tip the delivery person.

Mullen said the model works financially for several reasons.

First, the retailers that are involved share the cost of the service. The benefit to that store is that it often gets access to new customers.

For example, in San Francisco, Rainbow Grocery is a very popular independent grocery co-op, but its single location makes it difficult for consumers who live several miles away to frequent the place. With Instacart, they now have access to the high-quality produce and other items for which the retailer is noted.

Mullen said that as Instacart moves into a new metropolitan area it partners with popular retailers with high-quality products that many consumers want access to. This gives the service instant credibility and instant access to customers.

Other retailers that are currently serviced by Instacart include Whole Foods, Costco, Kroger and many smaller chains throughout the country. As it opens new markets, Mullen said its rate of growth in each market is increasingly faster.

Many items on the Instacart website are sold to the consumer at the exact same price that is available in the store, but Mullen said some retailers do adjust their pricing both up and down. They might charge more for some items and make others available at a lower cost as a special promotion for online shoppers.

When Mullen and his partners launched Instacart, they thought fresh produce, like other items in the store, would be on the average consumer’s shopping list, but Mullen said its popularity has been a bit surprising.

“Produce is on 95 percent of our orders and makes up about 35-40 percent of the total orders,” he said.

The company does train its shoppers on picking top-quality produce, including such intricacies as how soon an avocado will be ripe. Mullen said customers do have the option to buy produce in various stages of ripeness so the personal shoppers need to be able to accommodate those requests.

“It is our biggest selling category, so we need to get it right,” he said.

He said the training module includes written material, an online video and in-person training.

The top sellers in the produce department for Instacart mirror the top sellers for any brick-and-mortar store. Bananas are No. 1, with other top-10 categories being berries, packaged salads, avocados, citrus, onions and grapes. Overall, fresh fruit is a better seller than fresh vegetables.

The company’s personal shoppers are typically students or stay-at-home moms looking for extra income. Shoppers are paid based on their number of deliveries in a given time frame, so a quicker shopper can make more money. While many are part-time, Mullen said there are some who do it all day long as their main source of income.

When the company first launched, Mullen said the initial users were from higher-income levels, but the low cost of delivery and access to the same price in the stores has created customers from every price range. What they have most in common is lack of time.

In each metropolitan area that it enters, Instacart maps its service area carefully so that the customers can be reached efficiently and quickly.

For example while the East Bay in the San Francisco area is covered by Instacart, my community on the east side of the Oakland/Berkeley Hills area does not yet have coverage, though Mullen said it should open up soon.

The current markets that are covered by Instacart are Atlanta, Austin, Boston, Chicago, Denver, Los Angeles, New York, Philadelphia, San Francisco Bay area, San Jose, Seattle and Washington, DC.