Instacart says it is doing better than expected in Twin Cities

Instacart wants to set the record straight: It's doing just fine in the Twin Cities. Better than fine, in fact.

The San Francisco-based grocery-delivery service entered the Twin Cities six months ago to much fanfare, partnering with retailers such as Minneapolis-based Target Corp. and Cub Foods, the largest grocer in the region. But questions about how well it is doing here began to surface last week when BuzzFeed reported that the company was planning to dismiss its Minneapolis-based delivery drivers.

Instacart executives reached out to the Star Tribune to say a change in drivers' responsibilities was being misinterpreted as a signal that it wasn't doing well and might leave town.

"I want to make it clear that Instacart has no plans to leave the Minneapolis market," said Nilam Ganenthiran, Instacart's senior vice president of business development. "In fact, it's a very fast-growing market for us. Our business there is thriving."

He added that the Twin Cities market has grown faster than originally projected. At the same time, Instacart has found more demand for its services in the suburbs than it expected, which led to a decision to change how it organizes its workforce.

"There is a ton of demand for the service, but it's not necessarily all where we thought it would be," Ganenthiran said. "So we've optimized the way our deliveries are made."

Instacart employs workers who are independent contractors, who do both the shopping and deliveries for customers from a list of retail partners that includes Whole Foods and Costco. But it also has employees who are dedicated to just being drivers and making deliveries. Starting Sunday, Instacart will no longer have workers dedicated to the latter in the Twin Cities because that model makes more sense in more dense areas. Drivers will have the option of adding shopping to their duties or will be let go.

The change, he added, is part of the company's effort to use data science and machine learning to figure out how to most efficiently match its workforce — and keep them happy with a consistent paycheck — with variables such as which ZIP codes are placing the most orders and how long it takes to drive from a store to a customer's home.

The growing interest from the suburbs, he added, is a testament to the fact that Instacart is catching on with more consumers beyond just young professionals in the city core.

"It's the mom and dad with three kids. They have busy schedules," Ganenthiran said. "When we started, we really were known for the 40-story apartment dweller."

In the last few months, Instacart has faced increased scrutiny about whether its business model is sustainable. In December, it raised its delivery fees from $3.99 to $5.99 and its annual membership from $99 to $149. Other recent news reports noted that the firm changed its wage structure in some of its markets, which has resulted in a pay cut for some of its better-performing employees. The Minneapolis market was not affected by that wage structure change, executives said.

Three-year-old Instacart is one of a number of on-demand services such as Uber and DoorDash that have proliferated and rapidly expanded in recent years. But skeptics wonder if people are willing to pay for the luxury of delivery and whether companies can make money off the concept.

Ganenthiran would not say whether the Minneapolis market is profitable yet, but he said it's ahead of schedule in terms of sales volume. He added that Instacart's revenue has grown sixfold in the last year and noted it is planning to expand to eight more markets this year.

"Surprise, this isn't Webvan," he said, referring to a grocery delivery service that rose in the late 1990s Internet boom and then disappeared. "We'll be around a year from now."