Instacart expands to East Bay cities as part of continued growth effort
As it fights to dominate a crowded industry, on-demand grocery delivery startup Instacart is expanding its Bay Area presence to the far reaches of the East Bay while continuing to adjust its business model.
The San Francisco startup on Wednesday is set to announce that in addition to Oakland and Berkeley, it now serves Fremont, Union City, Lafayette, Concord, Walnut Creek, San Ramon, Livermore, Dublin and Pleasanton. That means Bay Area residents from Marin County to San Jose can use the app to order items from retail chains such as Whole Foods, Petco, Costco and Total Wine & More.
“The Bay Area’s our largest market,” said Siddhartha Agarwal, senior general manager for the company’s west coast region. “It’s our home market, and customers have been requesting us for quite a bit of time in these areas.”
The news comes as Instacart is racing to expand throughout the U.S. and has made major changes to its business model. Instacart overhauled its tipping policy, changed its revenue model, reclassified some of its workers and laid off others — twists and turns that illustrate the difficult road Instacart faces at it fights to beat out competition from rivals such as AmazonFresh and Postmates.
Industry experts say the on-demand delivery industry has become uncomfortably crowded, which could spell trouble for Instacart and others. Many of those companies likely will be consolidated in the coming years, said Steve Blank, a professor at UC Berkeley and lecturer at Stanford University who specializes in entrepreneurship.
“Not all of them will survive,” he said. “Now it’s a question of who has the best model and who has the best execution.”
Instacart makes a profit on every order, Agarwal said, operates in 29 markets and is launching in a new city every month. The company has raised $275 million in funding and is valued at $2 billion.
But as Instacart experiments with its business model, it hasn’t always received positive reactions. A change to the company’s tipping policy last month prompted a backlash online, with couriers attacking Instacart on Facebook and Twitter in a swarm of angry posts tagged with the hashtag “#WheresTheTipInstacart.”
The conflict started when Instacart replaced its prominent in-app tipping option with an optional 10 percent “service fee” that goes to Instacart instead of directly to the worker. The company says the money is used to increase the commission couriers make on each order, providing them with a steady stream of revenue instead of forcing them to rely on tips. Customers still can use the app to tip couriers directly, but the option is harder to find.
Ultimately, Agarwal said, Instacart wants to keep its workers happy so they don’t defect to Uber, Postmates, or one of the dozens of other on-demand startups.
But Liz Temkin, who delivers groceries for Instacart full-time in the Santa Monica area, said she’s making less money because many customers no longer leave big tips. She used to make more than $200 a day, 60-year-old Temkin said. Now she barely hits $150.
“I’m working more hours just to keep my head above water,” she said.
In another major change, Instacart last year started charging companies like Pepsi and Nestle to advertise and push coupons on the app — a move that allows the startup to rely less on delivery fees. Now 15 percent of Instacart’s revenue comes from those deals, Agarwal said.
And last year, facing a lawsuit and pressure by employment activists, Instacart reclassified its in-store shoppers as part-time employees. Couriers who deliver the groceries, and workers who both shop and deliver, remain independent contractors.
Agarwal wouldn’t say how much the change cost the company in employee benefits. But he said the switch let Instacart train its shoppers on skills like how to choose an avocado and how to keep a customer’s rotisserie chicken hot while keeping the ice cream cold.
Agarwal added: “We feel really good about the benefit it’s had to the bottom line.”