McNellis: Partying Like It’s 1999

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Instacart clearly thinks serving this minuscule group with an easily replicable service is a great business model. It could be right—at least a few other Internet geniuses are jumping into the business. Just as Instacart has started in San Francisco, AmazonFresh began its home grocery-delivery business in Seattle and is now open for business in Los Angeles. And the field seems to be attracting new competitors.

[contextly_sidebar id=”83934a8324cd7672f830f6bda2b509e6″]On the other hand, Wal-Mart Stores Inc., arguably the world’s savviest retailer, announced in June that it is not expanding grocery home-delivery trials because of doubts over whether sufficient consumer demand exists.

Home delivery has been around as long as grocery stores have existed. But the service has been an accommodation to favored customers, a small loss leader, akin to selling Thanksgiving turkeys below cost to pull customers in the door. Consumer demand aside, it could be that Wal-Mart quickly understood that no profit exists in home delivery. At a minimum, they know it means the loss of all the highly profitable impulse buying we do when shopping.

Thus, the very idea of massively scaling up home-grocery delivery makes me wonder if Silicon Valley is once again partying like it’s 1999, inhaling the nitrous and blowing up the New Year’s balloons.

In fairness, I should disclose that if I think it is a bad idea, you should probably rush out to buy the stock. I have been wrong so many times about new retail concepts that I’m almost a reliable counter-indicator. I thought Starbucks would never last, that Noah’s Bagels would go nationwide (it tanked), that no one would ever pay good money for bottled water and, more recently, that a woman’s store devoted solely to yoga clothes (LuluLemon) was crazy.

But great idea or irrational exuberance, looming over this rush to bring groceries direct to your front door is a small matter of precedent: Home delivery on a major scale has been tried before, with catastrophic results. Before it imploded in 2001, Webvan roared through $375 million in investor money like an Atlas missile burning liquid oxygen. Interestingly, the world’s most successful venture capital firm, Sequoia Capital, was Webvan’s lead investor and is now Instacart’s principal backer. George Santayana famously opined, “Those who cannot remember the past are condemned to repeat it.” This time around, those who lived the past are repeating it—at least to the tune of $8.5 million.

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