Instacart has big plans to automate parts of its grocery delivery operations, reports Bloomberg, but the company’s plans are as much a bluff as ambition.
Bloomberg describes a plan for the gig-work grocery delivery network to “build automated fulfillment centers across the US, where hundreds of robots would pick up boxes of cereal and cans of soup while people collect produce and delicacies.” Some centers would be built next to supermarkets, while others would be “stand alone” operations. Instacart would partner with a supermarket chain to handle inventory, outsource the automation side to a robotics company, and handle order processing and deliveries itself. If it works, the system would automate large parts of the company’s freelance workforce.
However, it doesn’t seem like Instacart is making much progress. Bloomberg notes that while the company has been working on these plans for more than a year, it has “not yet signed any supermarket chain” and is behind schedule in developing its fulfillment centers. Meanwhile another report of the Financial times in February, the company suggested it plans to open as many as 50 centers within about a year. The clock is definitely ticking on that.
There are certainly real reasons why Instacart would want to automate. The company’s current business model is based on paying hundreds of thousands of gig employees to run customers’ errands for them. This approach has found many customers because it is convenient and allows supermarkets to offer online shopping and delivery without creating their own service.
But this setup also has problems. As Bloomberg notes, shopping with Instacart is expensive. The company’s delivery charges, gratuities and fees contribute 25 percent to the order cost, according to data from consulting firm MWPVL International Inc. Another source of tension is that supermarkets don’t want Instacart to steal their business in the long run. They were happy to work with the company when they had no other way to offer online shopping and delivery, but that is changing, says Bloomberg, with new delivery options offered by startups and existing food delivery companies expanding their reach.
Both factors put pressure on Instacart, which is especially bad at a time when the company wants to go public, either through a direct listing or an IPO (originally rumored for early this year and now reportedly pushed) back to the end of 2021). Making big plans to automate its business seems like one way to alleviate some of this pressure — investors hope the company can cut costs and find a new way to partner with supermarkets.
Certainly, automating the shopping is not out of the question in the long term. Grocery Ocado, for example, has massive operations that use both robots and humans to pack orders and is collaborating with chains in the US who want to take advantage of that technology. But the use of robots in this way is still in its infancy: it requires huge investment and patience to solve the bottlenecks and cannot just be stuck on a company.
Meanwhile, it’s not clear how sustainable Instacart’s current business really is. As a private company, we don’t know how much money it makes or loses, but The information reported that it did not make its first profit until early 2020 thanks to booming pandemic sales. Meanwhile, the company has been repeatedly accused of unsustainably exploiting its workforce, particularly during the pandemic.
Overall, the situation is similar to that of Uber, where the company repeatedly promised that its loss-making, gig economy business would become sustainable when it developed self-driving cars to replace all those pesky people. And we all know how that turned out: the taxi company sold its self-driving team in December last year.