Instacart, currently the most well funded and fastest growing startup in the emerging food space, is an anomaly. The evolution in food startups – from the scheduled warehouse deliveries of the past decade to the highly curated, on-demand prepared food companies currently proliferating the Bay Area – seems to have bypassed Instacart’s elementary appearance as an un-curated, broad, digital grocery store. But drill deeper and Instacart holds the potential to be the most powerful consumer-facing food ecosystem in the market.
Over the past couple of years, I’ve watched the food industry closely and worked with a number of Chicago Ventures’ investments in the space such as AgLocal, Food Genius, and Morsel. My thesis of the industry’s evolution has largely bucketed companies into three categories:
Food 1.0 – Traditionally defined by Peapod and Freshdirect, with new competition from Amazon Fresh, these online shopping experiences require advanced scheduling and item by item selection from thousands of SKUs – effectively, a digital grocery store. These service companies typically own large warehouses where they stock food, and deliver via a hub and spoke model, making dozens of deliveries throughout the day.
Food 2.0 – A digital update to traditional meal subscription services (popularized via dieting programs) but re-programmed for a Top Chef culture, these mail service delivery companies tapped into consumer demand for curated recipes – packaged with the proper amount of cooking ingredients and detailed cooking instructions. These companies reduce cognitive noise and solve the frequent “what’s for dinner?” questions as well as mitigating any food prep time.
Food 3.0 – Tapping into the evolution of single purpose on-demand mobile services, these food companies facilitate ordering via a couple of taps on a mobile app, offer ultra-curated menus, and deliver food in as little as ten minutes after confirming. This experience entirely removes all friction from the food experience, unlike delivery platforms such as Grubhub, PostMates, and DoorDash where consumers have to select from hundreds of restaurants and thousands of menu items. It fully completes the evolution of reducing cognitive overhead to a couple of menu options and three taps.
And then there’s Instacart. And it doesn’t fit in to any bucket.
Ostensibly, Instacart is merely a Food 1.0 company that differentiates by offering on-demand delivery by leveraging the “people economy,” as opposed to scheduled trucks. It achieves this by picking real items from real stores as opposed to Peapod, Fresh Direct and Amazon Fresh who own proprietary warehouses, inventory and delivery trucks – thereby leveraging the best of brand preference with the advantages of on-demand delivery. Still, on the surface, Instacart seems to ignore the trending consumer preference towards making choices easier via focused curation, or reducing friction via ready meals or pre-prepped ingredients.
But that’s the surface; underneath, Instacart opens up into a powerful food ecosystem that reduces friction both across yet to be cooked meals and ready meals. In September 2013 Instacart unveiled “Recipes” – just like the ones in your cookbook except hyper-linked to real world items deliverable within an hour. These recipes, curated by an editorial team, deliver to consumers the exact amount of product they need (1 apple for example, not 6). A single click delivers all the ingredients necessary for a meal – without requiring decisions the week before, thereby reducing friction further than the subscription services.
Further, while the influx of on-demand food companies must sustain capital intensive investments in cooking facilities and chefs, Instacart can leverage the existing prepared food counters of high end retailers such as Whole Foods to deliver a deeply curated, high quality set of ready made foods. Given prepared foods’ importance to grocery retail as one of their few high margin items, there are big incentives to partner with Instacart in ways that facilitate better logistics and allow food to stay warm en route to the consumer.
Behind the scenes, it’s possible that the real bet taking place is one of single purpose applications versus multi-purpose ecosystems – with the prevailing belief being that more complex applications will be rejected by consumers in favor of simpler decisions. But if that’s the reality – and if Instacart has powerful economic advantages in each of the three food categories – then it would only be a matter of time until Instacart unbundles into three unique offerings: grocery, recipe, and prepared foods – all leveraging the same group of delivery agents (a big liquidity advantage).
Where the food evolution goes from there is beyond my field of vision. But as foodie culture continues to grow, and as Americans increasingly care about the source of what they put in their body, there will undoubtedly be continued innovation in the food space. And no doubt, Food 4.0 is right around the corner.
VentureBeat's mission is to be a digital town square for technical decision-makers to gain knowledge about transformative enterprise technology and transact. Learn more about membership.