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In the New York Times this morning, technology columnist Farhad Manjoo has a piece about Instacart, the company that has since its beginning transitioned from being a personal shopping service to being the e-grocery arm of a number of retailers ... a shift that has enabled the company to experience enough growth for venture capitalists to value the company as worth $2 billion.

This smacks of being a kind of "bubble," Manjoo writes, though the company also seems to be showing the ability to build incremental sales for retailers with which it is going into business.

Manjoo writes: "Instacart shows great promise - its founders and investors believe it could provide employment to tens of thousands of workers, improve the reach and financial prospects of small and large physical grocery stores, and eliminate what many people consider the drudgery of grocery shopping.

"Yet its success may rest on some unproven assumptions about the market: that delivering groceries can be done efficiently enough to sustain its low prices; that it can be done in sprawling suburbs as well as dense cities; and that, if it takes off, it will add to, rather than siphon off, business from large grocery chains."

You can read the entire column here.

To summarize, the story says that Instacart offers service in 15 cities and plans further expansion this year, and that for the first time, it is making the majority of its money from retailers, not consumers. It used to be that Instacart, serving as a personal shopper, would shop at a variety of stores and mark up items on delivery. Now, it is being transparent about pricing and taking a cut from retailers with which it has cut deals ... and those retailers are reporting an apparent bump in incremental sales.

Still, Manjoo writes that "the long-term danger for Instacart may be that as it grows, a declining number of sales will be incremental to physical stores - and, instead, will come at the expense of people going to the store, a situation that may put off retailers from working with the company."

BTW ... Instacart also has been expanding in other retail venues: It announced this week that it is expanding its partnership with Petco, delivering pet products in 14 cities around the country after a successful test in Boston and San Francisco.
KC's View:
It is a column worth reading, because while Manjoo demonstrates a fascination with the technology side, he seems more than a little skeptical about whether this is a sustainable business model. In fact, he even suggests that Instacart would be the next Webvan ... though he does not go so far as to suggest that it will be.

I continue to be more than skeptical, in the same way that years ago I was highly critical of Priceline's attempt to apply its "name your own price" model to the grocery business, which went down in flames even though some pretty major retailers thought that it serve as their long-term e-commerce solution. (I used to write critical columns about Priceline's grocery business for a website called IdeaBeat, which led to Priceline's management trying to get me fired. I'm happy to say that while Priceline's grocery business collapsed under the weight of its own arrogance, and IdeaBeat also went out of business, I'm still kicking.)

Trust me on this one. Retailers that outsource the fulfillment part of their businesses to companies like Instacart are making a potentially disastrous mistake. I think you can outsource some functionality, especially on the technology side, but you have to not just preserve your relationship with the shopper, but nurture it so that it grows and deepens over time. E-commerce is not a short-term tactical play ... done right, it is a long-term strategic play that is all about the consumer relationship.