Instacart Case Study On Value Chain Analysis

Question

Task: Students need to read the following case study, relevant to IS and business strategies, and answer the questions at the bottom.
Can Instacart Deliver?
The online grocery store Webvan was perhaps the most well-known flop of the dot-com boom. Its 2001 failure led many pundits and investors to concluded that the online grocery business model was untenable. However, Webvan’s downfall was due mainly to pursuing a first-mover advantage strategy. It paid more than $1 billion to build huge distribution warehouses, bought fleets of delivery trucks, and invested heavily in marketing. Then it offered free deliveries on any size order, at virtually any hour, at prices that trumped its brick-and-mortar competitors. This was not a formula for generating profits.
In recent years other companies are testing the waters again for online grocery sales. FreshDirect in New York City has succeeded by combining fresh local produce, organic and kosher items, and customprepared meals with standard grocery store fare. Established brick-and-mortar firms including Albert-son’s, Safeway and Peapod.com (the online entity for both Stop & Shop and Giant) took over as pure play online firms perished.
The newest entrant, Instacart bypasses the expenses of warehousing and transportation altogether by using a legion of independent contractors and local food retailers. These personal shoppers receive orders via the Instacart smartphone app, fill them from grocery store aisles, and use their own vehicles to deliver them to customers’ doors. Like fellow “sharing economy” firm Uber, Instacart minimizes labor costs by requiring its personal shoppers to pay for their own auto and health insurance and Social Security contributions. Purportedly paid between $15 and $20 an hour, depending on how quickly they can fill and deliver an order, most Instacart shoppers work part-time on flexible schedules. Instacart co-founder and CEO Apoorva Mehta believes Instacart’s competitive advantage is two-fold. First, customers are not limited to a single vendor and can combine items from multiple stores on one order, so product selection is truly customized. (Instacart uses special software that can track inventory across multiple supermarkets.) And since personal shoppers are on call around the clock, customers have to neither order many hours in advance of delivery nor wait for a delivery window. In fact, customers can have their grocery list filled and delivered in less than an hour! Instacart’s app provides a detailed map of each local establishment including store aisle contents. The customer’s grocery list, compiled using extensive drop-down menus either on the website or in the app, is organized by merchant and aisle to provide maximum order fulfillment efficiency. Inventory is tracked for all of Instacart-affiliated merchants. As a personal shopper skims an aisle, bedecked in a bright green T-shirt flaunting the Insta-cart logo, items can be selected for different orders placed at different times. The software can also plan delivery routes and predict future customer orders.
iPhone users can connect to the Instacart app from Yummly, the largest recipe search engine in the world, and have the ingredients delivered in time for dinner. Visitors to Food Network websites, with more than half a million recipes, can browse recipes online and then click a button to add ingredients they need to their Instacart shopping cart. The Instacart app is integrated with Google Now cards so that Android users can place orders for either delivery or pickup using a token generated within the app.
Instacart’s core competencies thus dictate its target market: the price-insensitive, convenience shopper. At first, item prices were marked up (20 percent in one sampling) and a $3.99 delivery fee charged.
An Amazon Prime–like service called Instacart Express requires a certain volume of business and a $99 yearly fee in exchange for free delivery. One of Webvan’s big mistakes was pursuing a mass-market strategy. It was never going to be able to turn a profit by providing quality and selection at rock-bottom prices—with free delivery to boot. Instacart is instead catering to shoppers who are willing to pay a premium to have both quality and selection.
By mid-2015 Instacart had 200 employees and 4,000 personal shoppers in New York, Los Angeles, San Francisco, San Jose, Washington, DC, Chicago, Boston, Austin, Seattle, Philadelphia, Atlanta, Boul-der, Denver, Houston, and Portland, Oregon. It continues to grow. Grocery purveyors, from large chains such as Costco, BJ’s Wholesale Club, Safeway, Kroger, Super Fresh, Trader Joe’s, and Whole Foods to local specialty shops such as Erewhon Organic Grocer & Café in LA, Marczyk Fine Foods in Denver, and Green Zebra in Portland are now welcoming Insta-cart as a way to expand their customer bases ahead of the full national rollout of Amazon subsidiary Amazon Fresh.
While many analysts predict that matching the bargain basement prices of Amazon and Walmart is unavoidable, Instacart is instead modifying its business model. Partnerships with Petco and Tomlinson’s Pet Supplies in Austin, Texas, hint of additional product areas on the horizon, while Mehta
speculates that expansion into general logistics is conceivable.
Many of Instacart’s grocery store partners now set their own prices, paying Instacart a cut of each order. This has freed Instacart of the burden of mark-ups, protected it from the vagaries of variable food prices, and provided a more stable profit structure. Retailers have been willing to pay Instacart in the hope of gaining more business because Instacart enables a single store to serve people across a larger geographic area. Affiliated retailers are reporting gains, although the numbers are small. Nilam Ganenthiran, head of Business Development and Strategy, maintains that different types of agreements have been reached, declining to specify whether partners are outsourcing their ecommerce to Instacart for a monthly fee or are charged per item purchased, per order placed, or per customer serviced.
With national chains achieving just 1 to 2 percent margins on grocery delivery, the Instacart model of layering labor on top of the existing grocery infra-structure is still unproven. According to a Wall Street Journal analysis, an order of 15 common items such as frozen peas, milk, cereal, and fresh fruit costing about $68 from a San Francisco Safeway store would produce a profit of only $1.50 for Instacart. If the order were smaller by one 28- ounce jar of peanut butter, Instacart would break even, and a smaller order could push it into the red. Without price concessions from participating merchants, can Insta-cart attract enough customers? And maintain a pay scale that ensures the top-notch customer service demanded by its target market? And still make a profit? And can retailers’ sales gains from Instacart be sustained? Instacart may be a great idea, but it’s a very big bet.
CASE STUDY TASKS:
1. Give a brief introduction about the company Instacart.
2. Analyze Instacart using the value chain and competitive forces models. What competitive
forces does the company have to deal with? What is its value proposition? 3. Explain how Instacart’s business model works. How does the company generate revenue?
4. What is the role of information technology in Instacart’s business model?
5. Is Instacart’s model for selling online groceries viable? Why or why not?

Answer

Introduction
As per the Instacart case study, Instacart is an American organisation works as same-day grocery delivery and pick up service in the United States and Canada. Instacart provides services with local food retailers and independent contractors to provide products to customers. Instacart operates an online application system by using which, its customers can pass their orders such as personal shoppers and grocery stores. Further, these stories can deliver the products by using their vehicle or any other medium as per their convenience. By using this sharing business model, Instacart is able to minimize the labour cost, transportation and warehousing cost. The payment is done on the basis of the time of delivery taken by the delivery partner. Most of the Instacart employees and shoppers work part-time as per their flexible schedule and availability of time (Roose, 2019).

As per the data of 2015 analysed in the Instacart case study, Instacart is working with the total number of 200 employees and more than 4,000 shoppers from different regions like Los Angeles, New York, san, Jose, San Francisco, Washington DC, Austin Seattle, Chicago, Boul-der, Atlanta, Houston, Denver, Oregon, and Portland. The organisation is continuously growing in its target market (Alawamleh, et al., 2017). This enables the customers to shop from one to more shops without going anywhere or without paying any extra charges. This report will be detailing the main competitive advantages, value proposition and value chain model based on the Instacart case study. Further, the importance of information technology in the business model of Instacart and the viability of such a model has also been defined in this report. In the end, a conclusion is drawn briefing the main findings of the report.

Can you develop a Value Chain Analysis basis the Instacart case study?
There is a requirement of an effective value chain analysis of Instacart to release that all functions or activities need some scrutiny level. The primary activities of the organisation can be defined as follows:

Figure 1 Value Chain Analysis
(Source: Author)

Primary Activities
The primary activities and functions of Instacart directly include production and sales functions to potential customers. Analysing these activities can help in improving the overall performance of the business.

Inbound Logistics
It is very important to maintain stronger relationships with the suppliers as their support is important to store, receive and distribute products and services. In the Instacart case study, the organisation is required to develop a relationship with the information technology service providers as this is the most important aspect used by Instacart in form of raw material (Bammann, 2019).

Operations
The main examples of operational activities of Instacart comprise packing, machining, trial and testing, accumulating. It also includes service and manufacturing operations. The developed productivity can help Instacart to attain consistency and effective economic growth, higher profitability and power ser of competitive advantage.

Outbound Logistics
The main outbound logistics comprises warehousing, material handling, order processes, scheduling, delivering and transporting. These can be used by Instacart to optimise and analyse the sources of competitive advantages and thus to achieve the growth objectives of the business (Bhargava, et al., 2018). As observed in the Instacart case study, Instacart is consistently dealing with order scheduling and processing to increase the effectiveness of the overall delivery system.

Marketing and Sales
This stage helps the Instacart to highlight the differentiation points and benefits of offered products to persuade the customers that it is providing better products and services in contrast to its competitors. Only the development of high-quality products at a reasonable cost and differentiative features are not sufficient to create a value chain until Instacart does not invest in marketing and sales functions. The sales and marketing agents play an important role at this stage. In the Instacart case study, its shoppers and local retailers also work as a marketing medium by delivering products and services on time (Purcell, et al., 2017).

Other examples of sales and marketing activities of Instacart includes shopper force, promotional activities, advertising, channel selection, pricing, coupons, discounts, offers, development of relations with the channel members. Instacart can make use of push or pull marketing strategy depending upon the current standing in the market and awareness among the customers.

However, it is also required by Instacart to avoid the false commitments about features of the products that cannot be fulfilled by the retailers and other delivery partners.

Services
The services provided before or after making sales play a crucial role in the development of customer loyalty towards the organisation (Hishe, et al., 2016). The modern and upgraded customers mostly prefer post-sales services in the form of asking for feedbacks and their review about the groceries and other products delivered.

Secondary Activities
The supporting activities are important to facilitate and coordinate with the primary value chain activities. Some main secondary activities based on the scenario of Instacart case study can be defined as follows:

Firm Infrastructure
The firm infrastructure specifies a wide variety of activities like legal issues, quality management, accounting, financing, strategic and planning management. In the case of Instacart, this support activity does not exist as it works with the help of local retailers and thus customers do not need to visit any store or shop. Food and other grocery items are delivered to their doorstep. However, focusing on this perspective can help Instacart to strengthen its competitive position in the target market.

Human Resource Management
It includes evaluating the skills of employees and thus provides proper training to deliver the best quality services to the customers. The shoppers are hired after analysing their background along with following all documentation processes (Correa, et al., 2019). There are some motivational practices like performance-based rewards that are also introduced by the organisation to increase the efficiency of human resources.

Technology Development
It is required to integrate information technology into the distribution and marketing of products and services. Some example of such uses by Instacart contains technology-oriented customer service, automated software, information and data analytics, and product design research. The research development department of the organisation falls under this category.

Procurement
The procurement includes purchasing of the inputs ranging from raw material, machinery, equipment, and some other important items for delivering final services. thus, Instacart is required to consider the procurement activities carefully and thus to optimise inbound, operational activities and outbound value chain.

Competitive Advantages
From the above-mentioned value chain analysis on the situation of Instacart case study, it is clear that Instacart is required to base its competitive advantages on the availability of scare and rare resources. It may include skills, distribution network, assets, and intellectual capital. Value chain analysis can be helpful to the organisation to identify such activities and development of such areas to attain a strong competitive edge over the competitors. It can also be used to understand the use of human resources and other resources to set the differenced target for its competitors to achieve by adopting any of the differentiation strategies (CHETAN, et al.,2019).

Competitive Forces (Challenges and Opportunities)
The Instacart case study analysis illustrates that Instacart has to face great pressure from its competitive landscape as investment climate and regulatory threats are continuously increasing. However, these threats can easily be turned into opportunities. For example, the regulatory obligations and threats are forcing the Instacart to apply new models and employee engagement related acts, it can turn its shoppers into part-time employees. The opportunity lies is that Instacart can provide training its shoppers and then supervising them to highest shopper utilisation and measuring overall performance.

Value Proposition
The value proposition of Instacart is pegged on doing what the local grocery stores cannot do as per their own. The organisation works in a fragmented industry made up of regional and smaller chains and thus it has entered into handling logistics to the online orders, pick-ups and delivers. It has increased the delivery partners by more than 50 percent. As mentioned in the Instacart case study, Instacart uses an approach to create grocery coalition by analysing the weaknesses of existing business models and then fixing the same instead of exploiting.

Instacart Business and Operating Model
The platform provided by Instacart enables the customers to select the groceries, stores and delivery time as per their convenience. After paying the delivery fee either in form of per order, monthly or yearly basis, the shopper receives the order on application connected via phone or computer. The selected items are packed and delivered to the customers of the driver who is assigned to complete delivery. Mobile technology works as the main differentiator to the successful working of the capital-intensive business model (Chokhavatia, et al., 2019). The shoppers can also be stationed at the selected stores and thus there is no need to invest in any kind of infrastructure in the form of physical stores.

Figure 2 Business Model Canvas
(Source: Author)

Creating Value in the Supply Chain and Revenue generation
By integrating the information technology and adopting a technology-based operation model, Instacart is able to develop some new revenue streams and thus to reduce the overall cost. By entering a partnership with the local retailers and food providers, ensuring to deliver the higher sales volume, Instacart is effectively managing the addition of new revenue streams on the basis of sales deprived through Instacart Platform. In addition to this aspect of Instacart case study, Instacart also enables its partners to access enterprise-level software. This technology helps in merchandising, sales analytics and inventory analytics along with enabling the retailers and partners to understand their customers effectively and to generate more business revenue. Instacart has also integrated its application to the retailer;' system with some of the retailers like Wholefoods. It helps in cementing the supply chain and making it more efficient to work smoothly (Kundu and Chatterjee, 2018). In addition to this, the partnership enables the organisation to access some special checkouts and mapping of stores, saving overall cost and thus to increase the items shopper minute.

There is an increase in the revenue achieved by working directly with the customer packages group’s organisations. The use of analytics and mobile technology as mentioned in the Instacart case study enables the Instacart to provide CPGs targeted marketing by instant coupons and discounts. This coupon helps in increasing the traffic on the application and can also be redeemed easily in comparison to availing discounts during offline grocery shopping. It has been analysed from the Instacart case study that more than 80% of the American customers seek for coupon code while shopping online either in the grocery sector or in any other sector (Tech, 2020).

Use of Information technology
The use of information technology enables scaling due to an increase in the order per hour and easily batching of orders with one another. The total number of deliveries per hour is also increased while keeping the extent of the expenses that is per hour wage or salary to be provided to the driver or shopper. In addition to this, Instacart makes use of predictive technology to analyse the total time taken by an order to be fulfilled from the time of receiving order until it reaches to end-user. It helps in allocating the available resources more effectively and efficiently.

Based on the above Instacart case study analysis of value chain activities and the use of information technology it can be sated that model of Instacart for selling online groceries is highly viable and can help in increasing the revenue of the organisation is long-term. The main feature of this model that this does not need huge investment in warehousing, transportation and infrastructure development. Thus, the organisation may be able to produce low-cost services and products to the customers. In addition to this, this would also enable the customers to get grocery products at similar rates or even at discounted rates. However, the proper functioning of this model largely depends on the efficiency of partner retailers to provide products on time. The selection and availability of shoppers and the effective working of online application is also a considerable aspect for such purpose.

Conclusion
On the basis of the above report on Instacart case study, it can be stated that in the present ear of Morden business, the organisations are required to develop business models that facilitate low-cost involvement and may result in generating higher profits. Instacart business model of selling online groceries and food products is also a simple and effective business model. The main activities of Instacart have been discussed in this report with the help of value chain analysis. Further, some competitive advantages are also identified from such Instacart case study, the working of business model in generating higher revenue has also been discussed in this report in brief. In addition to this, it is also clear that the entire business model of Instacart is based on information technology and thus, the role and use of information technology have been discussed in detail. At last suitability and effectiveness of the business model have been discussed in brief. All information and data are derived from the official reports of the organisation which is available online. The theoretical perspectives are taken from journal articles related to marketing and consumer behaviour. 

References
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Bammann, H. (2019). Participatory value chain analysis for improved farmer incomes, employment opportunities and food security. Instacart case study Available at: https://openresearch-repository.anu.edu.au/bitstream/1885/157876/1/223_participatory.pdf

Bhargava, A., Bafna, A. and Shabarisha, N. (2018). A review on value chain analysis as a strategic cost management tool. Acc Financ Manag J, 3(3), pp.1386-1393. Available at: http://iaiest.com/data-cms/articles/20191104085927amIAJAFM1810009.pdf

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