The Instacart of Agriculture
What we can learn from Instacart about aggregator ag marketplaces in agriculture and what that means for the prospects of GROWERS.
In the mainstream finance world there has been sentiment that the IPO window is open.
This has led to many traditional technology companies either releasing an S-1 or being rumored to be releasing one.
One of these players is InstaCart.
Instacart is a delivery company based that operates a grocery delivery and pick-up service in the United States and Canada. The company offers its services via a website and mobile app, allowing customers to order groceries from participating retailers, with the shopping being done by a personal shopper.
Recently, I watched a presentation from Steve Valencsin, CEO of GROWERS, talk about the similarities between their GROWERS App business and Instacart.
He’s right, there are similarities. If the Instacart S-1 is any indication, this also points to the challenged success of GROWERS (an ICL owned entity) efforts.
Marketplaces in Agriculture
Online marketplaces have been tried in agriculture for two decades. There is yet to be a successful one, whether talking grain marketplaces or input marketplaces, and I am certain there won’t be a successful one anytime soon across those two areas.
I have been critical of marketplaces in agriculture for various reasons— from the complex nature of input buying, to the regional nuance, to the importance of physical infrastructure, to relationship dynamics, to the consolidated nature of grain and input companies, and more.
I wrote a primer on this in 2021:
Aggregator Marketplaces vs. Platform Enablers in Agribusiness: A Primer - Upstream Ag Insights
What is an Online Marketplace?
Online aggregator marketplaces (eg: Amazon Marketplace) help consumers and third-party sellers find each other. For example, Amazon has aggregated consumers of all kinds to go to their site for online shopping. Amazon also has a 3rd Party offering where companies that sell goods list their products on Amazon’s site.
However, when the customer goes onto the Amazon site, they don’t know what organization they are purchasing the product from and that organization does not get to control the customer experience; it is the Amazon customer experience no matter what, and it is undifferentiated.
At a basic level, where does commoditization of retailers come from? Being undifferentiated.
This is why we have seen organizations like Nike avoid being sold on Amazon. They do not control their own customers experience, nor acquire the incremental data to better understand the customer purchasing their product. They do not get to differentiate themselves. If they do sell on 3rd party marketplaces like Amazon, it can lead to commoditization of their brand.
This isn’t to say aggregator marketplaces are inherently bad, just different. They enable businesses to access customers they wouldn’t have been able to otherwise, so it begins to be a different game that the company is playing where it trades control of customer experience for reach and access to more customers.
If we think of this in the agriculture context, it begins to illustrate why marketplaces don’t work in a relationship-heavy, geography-constrained business of input selling.
Instacart Overview (Brief)
Instacart is closely aligned with an aggregator marketplace model.
Instacart aggregates consumers who want their groceries delivered, along with grocery stores that want to access the aggregated demand of grocery buyers plus 3rd party deliverers that are paid on a per-delivery basis.
A consumer logs into the application and can select specific products from Wal-Mart, or Safeway or Krogers to to order from.
A deliverer then goes and picks these products and then delivers them to the consumer.
Instacart then makes money in the following ways:
Instacart charges a commission on every order they process from clients. This commission comes from the retailer, not the app user.
Instacart charges delivery fees to the consumer whenever they place an order. The delivery fee is variable, depending on the city, location, and timeframe. Instacart also has a subscription service for consumers that enables free delivery.
I application advertising which is quickly becoming the primary revenue generator.
It’s important to note that revenue generators #1 and #2 are not positive profit generators for the business. Those generators are core to their value proposition to their consumer customers though. Instacart, without the addition of advertising is not one that would do well in public markets.
From Bloomberg (emphasis mine):
When Instacart starts trading on the Nasdaq, investors won’t be betting on a grocery-delivery company. They’ll be betting on a data and advertising business. The company, best known for its army of gig-economy workers filling grocery orders, has spent years building up its ad division — a higher-margin operation that capitalizes on a trove of shopping data. That evolution helped add sizzle to the IPO, which priced at the top end of its marketed range Monday. Now Instacart will test public investors’ appetite for its new model.
This in part sets the stage for the challenges that GROWERS will run into.
GROWERS currently has four different product offerings in the market for farmers, retailers, and input manufacturers:
We will focus on two today: RALLY and the GROWERS APP.
According to their website, GROWERS RALLY is a software that provides retailers with efficient sales management software for the retailers’ staff. This is a business where retailers pay an annual fee for this software to sit on top of their ERP software to deliver workflow tools for retail staff. GROWERS CONNECT is a marketing function that allows retailers to build text message campaigns to send to their customer and prospect lists. This is an extension of RALLY.
GROWERS APP is a platform allowing growers to access product pricing from all retailers they buy ag inputs from in one, digital place.
According to GROWERS:
The App was developed to address the inefficiencies in the conventional input procurement process, which typically involves contacting multiple retailers, collecting pricing information, and manually comparing prices before making a purchase. By leveraging The GROWERS App, farmers and retailers can streamline this process by enabling farmers to submit their input requests within the platform, share them with retailers, and receive, compare, select, and purchase their inputs seamlessly in one place. This results in increased efficiency for farmers and empowers retailers to serve farmers in a modern, digitally enabled manner.
RALLY Can make sense for retailers. The aim is to empower retailers and their staff to be able to better manage the sales process. This product has a competitive nature with the likes of AgVend or Bushel for example.
The APP is where things get trickier— there is a marketplace dynamic to it because, like Instacart, they are attempting to aggregate farmers who are looking for specific products from any retailer. This endeavor commoditizes any retailer focusing on being a value-added service provider and contributes to influence erosion.
The effort isn’t inherently bad; it just brings about specific implications that a retailer needs to manage around.
Source: GROWERS Presentation
The way the APP works like this:
A farmer signs up to become a user of the application.
They then log in and input the products they are looking to purchase in the quantities and SKUs they would like to purchase them in.
Then the farmer selects which retails they would like to send the product request to for pricing.
The retailer(s) has/have a deadline to get back to the farmer product requester in.
The farmer then selects which retailer they would like to purchase the product from and agree to the payment and delivery terms.
The retailer then executes the sales.
The retailer then likely pays a specific take rate to growers for the lead generation.
It’s like a farmer being able to send out a standardized tender request.
In the presentation linked earlier, Steven astutely points out customer segmentation— some farmers will want this approach to purchasing inputs, and I think he’s right. However, what stands out to me with GROWERS’ efforts is not so much whether it is good or bad for the retailer, but whether GROWERS can successfully generate enough revenue to be a profitable business from this approach.
Remember, Instacart’s unit economics are not positive on the service itself— and granted much of this stems from the picker/delivery needs, I think the same dynamics will play out in agriculture.
Diving into the Hurdles GROWERS Will Need to Overcome
Objection of managing different customer bases as a retailer with different software
Customer acquisition and retention
Number of customers that want to purchase this way.
Search Functionality and Product Recall
Farmer experience and ad volume