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Shopping for groceries is one chore that is proving stubbornly resistant to a tech revolution. Billions of venture capital dollars have been funnelled into start-ups that build warehouse robots and online delivery platforms, yet most shoppers still want to pick up a basket and dawdle round the aisles themselves.
This week, San Francisco grocery delivery company Instacart reported a heart-stopping $2bn loss in its first set of earnings as a public company. Tech companies reporting big losses after they list is not a new phenomenon. Uber reported a $5bn quarterly loss shortly after its initial public offering in 2019. But Instacart’s price collapse eclipses Uber’s. The company which listed in September was once valued at $39bn as a start-up. It now has a market cap of less than $7bn.
In theory, groceries are an appealing prospect. In the US it is a $1.5tn market — the sort of size that encourages new ideas. Yet so far, no one has come up with a service that can change habits. It remains the largest category of consumer spending still done mostly offline.
There are some reasons to be positive about Instacart. It has survived the bonfire of superfast delivery services like Jokr and Gorillas and it is still adding users. Plus there is always the possibility that generative artificial intelligence will one day lead more people to use ecommerce for their AI shopping lists.
As you might expect, app-based services are already popular here in San Francisco. The aisles of my tiny local supermarket are regularly blocked by Instacart shoppers slowly making their way through the shopping requirements of an online customer. I use it too. Fees are high but it offers a $9.99 monthly membership with unlimited free deliveries for orders over $35. If you live in a city and don’t have a car it’s a useful way to outsource a weekly chore.
This week Instacart was joined by Amazon, which declared plans to open new grocery stores and offer delivery to all US customers, not just members of its Prime subscription service.
The question is: why has it taken Amazon so long? When it bought Whole Foods six years ago there was an assumption that it was about to upend the entire supermarket industry — perhaps turning it into an online-first sector. That never happened.
It is true that the US is behind other countries in this area. Morgan Stanley estimates that across the US, about 11 per cent of grocery shopping takes place online. That compares to about a third of non grocery sales. But for all the talk of a migration towards online shopping during the pandemic, a study by McKinsey found that online grocery shopping is still fighting to make a mark. In the UK, where Ocado and Tesco offer same-day services, it accounted for just 12 per cent of sales in 2021.
Maybe the answer is to give shoppers both options. Instacart is looking for ways to insert itself into the lives of shoppers who prefer to buy their groceries in person. Two years ago it bought Caper, which lets users scan and take home items from shops without checking out. Amazon has a cashless payment services in which users scan their palms.
Does anyone want that? From the window of the Financial Times office in San Francisco I used to be able to see one of Amazon’s first cashless convenience stores. Users with Amazon accounts could walk in, pick up a sandwich and walk out again, letting the store’s cameras and sensors track them and charge their account. But after the initial interest wore off the store was rarely busy. This year it closed.
