Why Instacart Doesn’t Want to Kill Brick-and-Mortar

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In the U.S. last year, consumers spent nearly half a trillion dollars at grocery stores. After fits and starts, the technology industry appears to have finally started to break into this business, with a handful of new players scaling nationally.

One of those companies is Instacart, the food delivery service that works with local grocery stores to allow consumers to order groceries to their doorstep. Whereas Amazon and other ecommerce players sought to bypass these local businesses, Instacart has built its business on them — turning into a company that investors now value at over $2 billion.

Street Fight recently caught up with Instacart’s business development lead, Sarah Mastrorocco, who will join us as a speaker at Street Fight Summit West in San Francisco June 2nd, about the current delivery boom and why Instacart wants to collaborate with — not replace — brick-and-mortar retailers.

There’s been an explosion of delivery companies in grocery and a number of other verticals. What’s changed in the past couple of years that sparked this reinvestment?
In the past five years, it’s been the prevalence of smartphones, obviously. Not just with grocery or delivery — it’s the on-demand economy and getting everything you want with the press of a button, whether it’s information or the food you want from restaurants. We’ve seen [grocery] resonate, not just because of the smartphone, but the sharing economy and e-commerce in general. Grocery is a more conservative industry, and it really has seen the need for e-commerce.

What Amazon has done to retail it’s now trying to do for groceries, with Amazon Fresh. That has been a bit of an alarm for grocery stores, and Instacart has been able to play a role and get in at the right time. Then, as delivery became prevalent, Instacart resonated with our retail partners, because we’re allowing them to have a turnkey e-commerce presence — without the hidden costs — of establishing a great e-commerce site that’s seamless, that has a great catalog. You can be online and delivering to your customers in a matter of weeks, rather than a matter of years.

You work with regional and national grocery brands. Do smaller, independent grocers fit into your roadmap at all?
We have many, many small grocery stores. Many of our first signed partners were local grocery stores. We really feel like that’s part of our offerings to customers, to have a broad assortment of everything you could ever want and the retailers that you can go get them from. Having that local presence, it’s important to be able to let our customers have that experience, and we like empowering local businesses to compete with giant, national businesses.

If delivery starts to account for a significant portion of a grocery store’s sales, how would that affect marketing on their end?
We’re working with [grocery stores] to make sure we’re driving incremental business. We’ve seen that 60-80 percent of the sales on average that we’re bringing in are incremental. We want to be an “and”, not an “or”. The way we’re doing that is bringing in new customers. As high as 40 percent of [Instacart customers] hadn’t been to the store in the last year. Also, customers that like a store but can’t get there that often can order more. That’s where our marketing has been. For me — I like to talk about myself as an Instacart customer, because I am — there are a lot of stores in San Francisco that aren’t convenient to my home or work. To me, that’s huge.

The liquor industry, for instance, has embraced delivery as a way to promote their products. What do you think about collaborations like this? Do you think these services can provide new local channels for manufacturers?
We do believe there’s a strong relationship that we have with retailers. We can engage with consumer packaged goods companies to understand the behavior of our customers. We do plan, and are constantly experimenting with, ways that we can add value and engage CPG companies for our customers.

We worked with Anheuser-Busch last fall — San Francisco, Chicago, New York, and L.A. are the areas we deliver alcohol in — and we had a promotion that, between Thanksgiving and New Year’s, if you ordered Stella Artois, or Goose Island in Chicago, your delivery was at a nominal rate. We ran a promotion with Procter & Gamble as well recently. If you bought $30 of selected products, you got free delivery. It’s really engaging customers and doing so in a way that’s adding value, not just having a product shown to you on a screen.

As the web and real world converge, the concept of what’s “local” can get muddled. To some people it can mean small business; to others it’s brick and mortar. Would you characterize Instacart as a local service, even though it’s a virtual experience for the consumer?
I do think Instacart is local. We’re in 15 cities today, and we really think of our 15 cities as unique markets. When we enter a market, we want to make sure we have the local players, the retail players and the national players involved, all brick-and-mortar. Our customers know that we’re servicing from stores that are in their area. We also have independent contractors that are local to the area delivering the goods.

Where are we today in the evolution of the grocery market? Do you see things continuing to rapidly accelerate, or will that evolution be more consistent and gradual?
I see grocery delivery growing faster and faster, at least over the next couple of years. I don’t think that we’ll replace brick-and-mortar, and that’s why we feel our brick-and-mortar retail partners are our friends, and strategic partners to grow. I, as a customer, do like going to the store sometimes and discovering. There’s a difference in being there physically and discovering new products.

It’s not just delivering within an hour — we have the best recipes and shopping lists. We partnered with Yummly, for example, and they have a database of millions of recipes, and on your iPhone you can add that directly to your cart. There are ways that we can add more convenience beyond delivery.

Annie Melton is a contributor to Street Fight.