A Guide to Instacart Business Model and Revenue Streams
The demand for grocery delivery has surged by multiple times over in a matter of weeks since coronavirus has enforced worldwide lockdowns. Although the administrations around the world are lifting the lockdowns in a bid to avert economic losses, consumers are still preferring home delivery of retail products including grocery, food, medicine, cosmetics and apparel. This development implies a notable shift of trends from the traditional brick and mortar stores to mobile based on-demand businesses. Instacart business model lies at the core of these emerging trends.
Instacart has been operating since 2012. It facilitates consumers by delivering them grocery at their doorsteps saving their time and cost to visit a store. However, it provides services in the US only. The on-demand grocery delivery provider has several competitors in various regions of the US. Shipt and Postmates are the most notable ones.
In light of the current situation with people too scared to step out of their houses, the need for an on-demand service like Instacart has never been greater. For budding entrepreneurs, this may just be the next big thing and their ticket to climb the ladder in the sharing economy. But to do so they need to understand the Instacart Business model and how it facilitated this startup to rise to a valuation of almost $14 billion.
How Instacart started?
Apoorva Metha who is the founder and chief executive of the San Francisco delivery startup Instacart had 20 failed startups under his belt before the launch of Instacart’s technology-centric business model in 2012. While living in San Francisco the former Amazon Engineer discovered a gap in the grocery delivery service. The consumers had to leave their houses to purchase the groceries while everything else was being delivered to their doorstep. This made Apoorva realize that while a lot had changed in regards to the delivery services, the grocery shopping was still the same.
With an innovative idea in mind, Apoorva developed the Instacart application and in just two years Instacart gained $40 million and began providing services in 17 different locations within the U.S and Canada. In regards to funding, Instacart has raised twelve rounds of funding from notable investors like Andreessen Horowitz, Sequoia Capital and Perkins since 2012. According to Crunchbase, Instacart has raised a total of $2.1 Billion in funding over 12 rounds.
Here are a few other Instacart facts and stats:
- Headquarters: San Francisco, California, USA
- Revenue: Approximately $2 billion
- Company Valuation: $13.7 billion
- Number of states Instacart Operates in: 50
- Total customer: 500,000
- Number of investors: 31 (D1 Capital Partners and DST Global most recent)
The above figures plus the many rounds of funding clearly reveal the worth of Instacart and the level of trust that the investors have in the success of the startup.
How Instacart Works?
For aspiring entrepreneurs who want to build a business model that is similar to Instacart in the on-demand segment, it is essential to know the workings behind this innovative technology. So, let us first understand how Instacart actually works:
- A customer first chooses and selects a store to order the groceries required by using the Instacart app.
- The customer has to make the payment online.
- The company then sends the notification to the Instacart shopper app of a nearby personal shopper in the vicinity.
- The shopper is provided with the instructions for the grocery delivery.
- The Shoppers use their own vehicles to reach the store mentioned by the customers and shop for the items mentioned in the order.
- The shoppers make the payment through a prepaid debit card that is given by Instacart as they have partnered with the particular store.
- The Shopper then delivers the groceries to the Customer’s doorstep.
- The Shoppers earn money through the per hour’s income, the commissions by the Instacart company and the tips provided by the customers.
Instacart Business Model
At the time when Instacart was launched in 2012; companies like Peapod and Amazon fresh had already been providing the services of grocery delivery. However, what made Instacart different and more successful from these companies was its unique business model, revenue model and the value propositions involved in the making of these models.
- Making tie-ups with already existing stores and supermarkets
- Superior online grocery ordering platform
- Willing part-time workers and their cars
- Vast Inventory
- Extremely quick delivery
- No warehouses
- No delivery trucks
The biggest value proposition that Instacart offers is that the costumers can order online from their favorite local food store without having to leave their homes. Moreover, in the beginning what made Instacart different from its competitors like Amazon, Postmates and Shipt was its Unique Selling Point (USP) of quick delivery time. Instacart’s competitors were quick to match this fast delivery time and make changes to their business strategy.
Apart from speed, application simplicity and customer service one of the main differentiators is the Instacart’s three-tiered Customer Strategy. Instead of being the central point of managing and maintaining inventory, Instacart company acts as a host while the contractors are responsible for management and grocery delivery.
These are the individuals who place the grocery orders online. They can place these orders through a desktop, laptop or mobiles through a web-based interface.
These are the individuals who receive the grocery orders through the Instacart application. They deliver the groceries to the customer’s doorstep. For the Shoppers, this is another way to earn part-time revenue and carry out deliveries within a flexible working schedule. Instacart employs two kinds of shoppers.
- In-Store Instacart Shoppers
- Full-Service Instacart Shoppers
In-Store shoppers are employed on a part-time basis. They are responsible for preparing the customer’s shopping bag or making an order ready for pickup. The Full-Service Instacart Shoppers are the independent contractors who are responsible for both shopping and delivery of orders.
The Retail partners
These are the retail stores that have tied up with Instacart and receive revenues from the purchases. Through Instacart the stores get a chance to increase their customer loyalty as well the revenue through online sales.
Instacart Revenue Model – How Does Instacart make Money?
For an entrepreneur, after all the careful planning, securing funds and making a well-developed app, the next step is creating a constant revenue source. So how does a successful startup like Instacart generate revenues? Instacart does not charge any commission to any of its partner stores rather it has other multiple revenue streams.
Mark Up Prices
Some stores that Instacart have partnered up with have goods with markup prices of more than 15%. The revenue generated from these markups goes directly to Instacart. It helps Instacart pay the Shoppers as remuneration.
Instacart Delivery fee is one of the primary sources for the revenue generation. A standard delivery fee of $3.99 is charged by Instacart for orders above $35 which are scheduled for a 2-hour delivery. $5.99 is charged for orders that are scheduled for a 1-hour delivery.
Service Fees and Tips
Recently Instacart has changed its service charge to 5%. It has also made a 5% tip mandatory for customers to pay to the shoppers.
Like other on-demand applications, Instacart application employs the use of algorithms to determine the demand for a particular slot. This demand rises highly during popular delivery times. The higher the demand, the greater the delivery charge.
Instacart uses an annual subscription plan and offers ‘Instacart Express membership’ at $99. It also offers monthly membership where the customer is charged $9.99 per month on the same day. Instacart membership allows the customers various home delivery privileges.
Key Takeaways from Instacart Business Model
New aspiring entrepreneurs who are looking to build their startup based on the Instacart Business Model should not only follow the Instacart strategy but also learn from the problems that Instacart has had to face.
- Shopper retention is a major factor for every growing business. Instacart found it challenging to retain its part-time shoppers and found a unique solution to this problem. Instacart added the option of tipping the shoppers in the checkout area of the application.
- Every business needs a Time-efficient Business Strategy. To keeps its reputation of meeting the 2-hour delivery time, Instacart started placing its shoppers outside the stores.
- Every business needs Customer trust to prosper. Despite a few hurdles, Instacart has successfully gained the customers’ trust such that the customers are even ready to pay the extra mark up prices.
- One important strategy to learn from the Instacart business is to let customers know the problems ahead of time. Sometimes the items ordered may be missing or out of stock. Instacart dealt with this problem by adding an ‘often out of stock’ option in the Instacart app for efficient purchasing.
Want to build an app like Instacart?
“On any given day in March and April 2020, the equivalent of a US city was coming online for the first time on Instacart”, says Nilam Ganenthrian, the president of Instacart.
Due to the unprecedented situation caused by the COVID-19 outrage and the ensuing social distancing, grocers are experiencing record-breaking sales and online app downloads. For entrepreneurs, this is the perfect time to develop and deploy an app like Instacart. Entrepreneurs should act quickly before this small window of opportunity closes and they miss their chance to make a mark in the sharing economy.
We have an experience of over a decade in planning, developing, deploying and maintaining applications with successful launch of startups. Now that you have understood the Instacart business model, contact us and share your innovative business model with us. You are just a step away from the realization of your business model.