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One of everything at Trader Joe's
A founder who followed the normal route would have gone to Trader Joe's or Whole Foods management and tried to land a corporate partnership and access to their data. That meant paying salaries and lawyers and waiting what could be years. Walking in with nothing but the idea, they would probably have been laughed out of the room.
Instead, the founders took their YC money to Trader Joe's and bought one of every item in the store. Over a weekend they got access to a photography studio, photographed all of the produce they had bought, and wrote down the prices. On Monday morning everything was online, and anyone could order from Trader Joe's through Instacart.
A store would probably only notice once the service had grown. By then plenty of customers were already buying through it, which gave Instacart real leverage in the negotiation, because a store has little reason to shut down something its own shoppers are using. Instacart struck deals with the grocery stores after it got to scale.
Why is grocery such a hard business?
Grocery retail runs on thin margins. Industry groups such as the Food Industry Association have long reported supermarket net profit margins of only a few percent of sales. Perishable food spoils, so stores carry a constant loss on items that never sell. Delivery adds picking, packing, and driving costs on top of that.
How does Y Combinator fund its startups?
Y Combinator was founded in 2005 by Paul Graham, Jessica Livingston, Robert Morris, and Trevor Blackwell. It funds startups in batches, giving each company an investment in exchange for a small share of equity. Each batch ends with a Demo Day, where founders present to investors. Dropbox, Airbnb, and Stripe are among its best-known alumni.
Why does early scale give leverage in negotiations?
Once many customers rely on a service, a partner that shuts it out risks angering its own shoppers. Economists call the cost of losing something people already use a switching cost. Platforms that gather a large user base before approaching partners have often used this position to set terms.
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