Instacart Business Model | How Does Instacart Make Money?

The daily tasks and necessities of people have changed incredibly with the development of technology. 

Whether you call it a busy lifestyle or the hassle of going to groceries shop, the demand for online grocery shopping has exploded in recent times.

It resulted in the rise of on-demand grocery delivery and ordering platforms such as Instacart.

One of such online demand and delivery platforms for groceries is Instacart. Instacart is an insanely popular on-demand grocery delivery platform in the USA and Canada. 

The main aim of Grocery delivery platforms is to increase sales online and help them boost their revenues. They are developing effective strategies for building an online store that will increase customer satisfaction while also increasing sales.

The spending of peoples on grocery spending is increasing rapidly. It is presumed that by 2023, online sales will triple to approximately $74 billion. Grocery retailers must recognize that convenience is a primary driver of online grocery sales growth.

Also, the demand for online grocery services will increase significantly as many digital natives demand online grocery services. 

And, contrary to popular belief, entering the online grocery business is not nearly as difficult as it appears.

With Instacart, it has been insanely easy to start selling and delivering groceries online.

The platform indeed helps both customers and sellers and its delivery partners in various ways to save money and run their business efficiently. 

With Instacart eDelivery and the ease with which your dream business can be established in a matter of hours. It is critical because over a third of people prefer to shop for groceries online;

This figure is expected to grow in the coming years. There is no such person who does not anticipate taking advantage of this delivery option.

1. What is Instacart?

Instacart is an online delivery platform that partners with shoppers to deliver groceries within hours of an order being placed. 

The company has established relationships with over 500 retailers throughout the United States and Canada to help you get your groceries delivered in no time.

Instacart earns money through commissions, delivery fees, a premium subscription service, and in-app advertising.

Instacart, which was founded in 2012, is headquartered in San Francisco. The platform has grown to become the market leader in grocery delivery in North America. It has raised over $2.7 billion in funding and has a market capitalization of $39 billion when writing this article.

2. How Does Instacart Work?

Instacart has combined the Uber and Airbnb operating models to create its model that incorporates sharing, partnerships, and a brand image. 

It incorporates Instacart’s three-tier customer strategy, which helps it to streamline its operation.

Instacart is a grocery delivery and pickup platform that enables you to shop online for groceries from local stores.

The company has over 500 retail partners throughout the United States and Canada, including ALDI, Costco, Kroger, and Sprouts.

Once you place an order on Instacart, a so-called personal shopper will collect and deliver your groceries in less than an hour.

These shoppers are not full-time employees, but rather independent contractors or freelancers paid based on their deliveries.

Once a user places his/her order on Instacart, the shopper nearby shoppers get a notification on their app and can accept or decline the request.

Once the shopper accepts the order, the shopper drives to the grocery store, picks up the items at the counter, and delivers them to the customer’s address.

You can schedule deliveries up to an hour in advance. Alternatively, you can place orders for deliveries over a week on Instacart.

Since Instacart does not store or sell groceries, the shopper will notify users via the app if an item they’ve purchased is out of stock or unavailable.

They will then work with the customer to find an appropriate replacement.

Customers can access the platform through Instacart’s website or the company’s Android and iOS smartphone apps.

2.1 Business Model of Instacart 

The Instacart business model is a hybrid of Airbnb and Uber business models. Let us understand the Instacart business strategy to understand better how Instacart operates and is successful.

As is the case with other business aggregators, the Instacart business model is in three-tier. 

Let’s dive in to determine which segments are covered by the business model of Instacart:

2.1.1 Users of Instacart

The term “users” refers to the end customers of groceries who place orders through Instacart’s application and website. 

They select the most appropriate store, place an order for groceries, write delivery instructions such as delivery time and day, etc., pay for the groceries, and even tip the shoppers at the checkout.

  • Users can use the app to place orders for groceries from local grocery delivery services.
  • They can place the order via a web-based interface on their desktop, laptop, or tablet.
  • Users can schedule orders and pay for them online during the checkout process.

2.1.2 Stores of Instacart

Instacart’s main partners are stores from where the shoppers purchase Groceries. Unlike Uber, these partners are listed under their names, and users can select their preferred store.

Instacart has special agreements with these stores in which it assists them in increasing their income via online sales via Instacart.

  • Instacart has partnered with the majority of cities’ supermarkets.
  • Online sales enable stores to generate significant revenue.
  • It enables them to expand their business reach by meeting increased customer demand.

2.1.3 Shoppers or Contractors

Shoppers are the people who perform the buying and delivery of groceries to the users. 

Shoppers are hired on a contract basis and may also work part-time.

They obtain orders from their mobile app and complete the work assigned to them by the company under the company’s name.

  • Customers’ orders are communicated to delivery providers.
  • Providers strategically located near grocery delivery stores ensure that customers save time.
  • They collect orders from stores and deliver them directly to customers’ homes.
  • Apart from the basic wage, they are compensated by customers for successful deliveries.

Instacart caters to two types of customers:

2.1.4 In-Store Shoppers

These shoppers work part-time for Instacart and are responsible for hand-picking customers’ orders in-store and bagging them for pickup.

They must also have regular access to a smartphone but do not need a car because they do not deliver them.

2.1.5 Full-Service Shoppers

There are contract employees who shop for and collect orders for customers. These contractors must always have access to a vehicle and a smartphone.

3. How Does Instacart Make Money?

Instacart generates revenue from commissions from its partners, a premium subscription package, delivery fees, and advertisements inside the app.

Instacart Business Model

Let’s take a closer look at each of these in the following segment.

3.1 Commissions

Any time a product is sold via the Instacart app or website, the company earns a commission. It accomplishes this through a revenue-sharing deal with its retailers.

Instacart keeps a portion of the sale price of the groceries. The exact percentage is determined by the agreement done with the supplier.

In some cases, Instacart will sell the item at a higher price on purpose. The so-called price markup will be expressed on the Instacart app and provides the company an additional benefit.

Costco, Kroger, and more than 165 other small and large businesses have partnered with Instacart to integrate its service into their platform/website.

The revenue of Instacart is calculated on per-order profits and commissions, which vary in the contract of every partner platform.

3.2 Markup Pricing

Some items in certain stores carry a 20% markup price than the actual price. Instacart, not the stores, takes the revenue generated from markup prices.

Instacart platform includes dynamic pricing for the groceries that increases the delivery charge as demand for that delivery slot increases.

3.3 Instacart Express

Customers who sign up for the Instacart online grocery delivery service can also sign up for Instacart Express. 

Customers get free shipping on all orders, whether they pay annually or monthly with an Instacart Express subscription.

It costs $99 to join the club every year, just $9.99 a month to stay on as a member. Membership benefits include:

  • No shipping cost on orders equivalent to $35 or more.
  • Flat 25% discount on service fees
  • No Markup pricing even in surge hours.

You can cancel the subscription plan whenever you want if you don’t need it. This feature allows users to have all the flexibility they need.

Although the Express membership doesn’t offer customers a better or quicker service, they provide them with extra resources. To put it another way, delivery times are the same for free users and premium users.

3.4 Delivery Fees

Whenever you place an order for groceries on Instacart, the platform charges service and delivery fees. Delivery charges begin at $3.99 and can reach $9.99, calculated based on the number of items ordered and the delivery slot.

The service fee is between 5% and 10%. Additional fees include a markup charge, a bottle deposit, and a bag fee.

You need to pay additional charges if your order exceeds a defined weight threshold or requires a subsequent deposit.

Instacart charges a surge charge like Uber and Lyft during the peak and difficult hours when making the delivery is difficult than the normal situation. Some conditions for surge charges can be the time when it is raining or some other incident.

3.5 In-app Advertising

Instacart’s platform functions as a marketplace bringing together sellers (i.e., retailers), buyers, and shoppers who perform delivery for customers and sellers.

Instacart numerous features include the fact that it leverages the customer volume it has to sell additional services.

One of these services is the purchase of ads on the platform by other sellers or brands. These advertisements provide advertisers with increased exposure on the platform, increasing their chances of making a sale.

Companies such as Amazon, Etsy, and the Wish App are popular companies that run their ad on Instacart.

Instacart recently acquired a comparable advertising system. Advertisers on the platform, including Coca-Cola and Mars, can purchase promotional spots in exchange for increased visibility.

The amount to advertise Instacart varies according to the categories and search terms targeted by an advertiser. Advertisers can create a budget before initiating ads to avoid overspending.

4. What are the Charges of Instacart to Deliver Groceries?

When you order groceries through the Instacart application or website, the following fees apply.

Charges for Delivery:

As is the case with Amazon, Flipkart, and many other websites, the first purchase will be free of shipping charges. 

If you purchase “Instacart Express Membership” for $99 per year or $9.99 per month, you will receive free delivery on all purchases over $35.

If you do not have an Instacart express membership and require same-day delivery on orders below  $35, you need to pay a delivery charge of $3.99.

Charges for Groceries:

The price of groceries is not set by Instacart at all. The partner retailers and shop decides the price of groceries showcased on Instacart.

Additionally, you will not always be able to take advantage of all of the store’s specials. 

While sales on Instacart are no longer available to you, a special section of coupons for your preferred store may still be available, which you can browse and purchase conveniently.

Tips & Gratuities:

The majority of people do not want to leave their homes right now, and because the Instacart shoppers are assisting them, the company pays roughly 20% of the tip to their shoppers.

5. How to Earn Money as an Instacart Shopper?

You can sign up for Instacart shopper and start with Instacart to pick and deliver groceries to earn money with Instacart. However, there are some criteria to become an Instacart shopper. Here is the list of criteria you need to have to become an Instacart shopper.

  • You must be at least 18 years of age.
  • Must be able to lift a minimum of 30 pounds.
  • Have access to a smartphone.
  • Have a Savings Account.

To start earning money with Instacart, you can follow the below steps:

  • Install the Instacart shopper application on your smartphone.
  • Attend a face-to-face orientation (on-boarding process).
  • Complete the required paperwork and background check.
  • Create an account with your Instacart payment card.

The question now is how much money do Instacart shoppers earn? (In-store shopper vs. full-time shopper)

Instacart pays full-time shoppers on a per-order basis. Instacart estimates future earnings and guarantees that shoppers will earn at least $5 per batch of deliveries and $7 to $10 per batch of full-service deliveries (shop and deliver) on every order.

Additionally, the company states that the amount paid for a given batch of orders is determined by the number of items, the type of items, the driving distance, and the amount of shopping and distribution effort required.

Additionally, full-time shoppers frequently earn tips when making deliveries.

For in-store shoppers, a fixed hourly wage is in effect that varies by location. They are paid via direct deposit weekly or monthly, depending on the terms of their contract.

6. What is Instacart Business Model?

Instacart is one of the most popular platforms for investors due to its stable business model and rapid growth,

Recently, the online grocery giant raised $2.7 billion, bringing its valuation to $39 billion.

Additionally, the Statista report indicates that approximately 85 percent of households in the United States and approximately 70 percent of households in Canada prefer Instacart for their grocery shopping.

According to a Forbes survey, Instacart has over 500,000 customers and has raised approximately $2 billion in revenue.

The average Instacart user places two orders per month and spends approximately $95 per order.

Instacart operates on a highly scalable business model that allows delivery providers to earn money by offering their services for free.

Simultaneously, customers can save time by having groceries delivered to their doorstep and avoid the hassle of going out.

Instacart business model is a synthesis of aggregators’ sharing, online, e-commerce, and subscription business models. It follows a straightforward format as follows:

  • Customers order groceries through the Instacart app or website after perusing the platform’s list of available stores.
  • Customers’ orders are communicated to grocery delivery stores, along with delivery instructions.
  • The delivery provider picks up the parcel and delivers it to the customer’s location, earning commission and tip along the way.

Instacart’s success is large because it is not reliant on inventory management.

The company has a direct relationship with supermarkets. Its primary objective is to provide superior grocery delivery service to customers, establishing it as a market leader in a competitive market.

7. What is the Value Proposition of Instacart?

The value proposition of Instagram are listed below:

  • Partnerships with supermarkets.
  • Dedicated workers.
  • Independent contractors and part-time employees.
  • Massive investor base.
  • Precise delivery service.

8. What are the Expenses of Instacart?

Instacart’s direct expenses are mentioned as follows:

8.1 Marketing & Branding Costs

Instacart offers free shipping on the first order and offers in-app coupons and other discounts to entice new customers.

This is done to increase the mouth-to-mouth marketing of the brand. People are highly likely to share about things they get for free.

In the case of Instacart, the free delivery works as same. Though Instacart pays its shoppers for the delivery, it doesn’t charge customers on their first orders. 

Advertisement and promotion costs are also included in marketing costs.

8.2 Technological Set-Up Running Costs

The platform’s success is entirely dependent on its application and website. The operating costs of the technological setup are the expenses incurred to maintain and manage the application and website.

8.3 Commission Based Payments To Shoppers

Full-time shoppers earn commissions on each order they complete.

8.4 Salaries To Employees

These costs include the wages paid to permanent employees as well as the wages paid to part-time shoppers.

9. Success Story of Instacart

Apoorva Mehta (CEO), Max Mullen, and Brandon Leonardo co-founded Instacart in 2012 in San Francisco.

Mehta was born in India and raised in Canada. He currently serves as the CEO of Instacart.

Mehta enrolled at the University of Waterloo to earn his engineering degree. Before joining Amazon in 2008, he served as a design engineer for Blackberry and Qualcomm.

He spent two years at Amazon as a supply chain engineer, where he assisted in creating the company’s fulfillment system.

However, he became dissatisfied with his work after a while and began finding new challenges.

Mehta packed his belongings and relocated from Seattle to San Francisco, being dissatisfied with his work.

He attempted to found over 20 businesses over the next two years, including a social network for lawyers and a food-related Groupon.

Regrettably, none of the concepts took worked as per his expectation. 

Fortunately for Mehta, he finally discovered a problem domain that piqued his interest. The grocery shopping experience has stayed consistent for the last few decades.

He started developing the iPhone application that would become Instacart with his two co-founders.

The trio chose Y Combinator to help them get their startup off the ground. Regrettably, they came up just short of the term’s deadline.

Mehta, unfazed by his previous mistakes, reached out to the accelerator’s leadership team through his contacts in Silicon Valley.

Garry Tan, a program partner, told him that admission would be “nearly impossible.”

Mehta, ever the optimist, continued by sending Tan a six-pack of beer via the Instacart app. Y Combinator eventually accepted the team, but not immediately.

Upon induction, the incubator team put him to the test using the Instacart app to order 200 two-liter soda bottles for dinner.

The shopper assigned to it called Mehta to inform him that she could not fit the delivery into her vehicle just before the delivery of the order.

Mehta posed as an Uber driver and assisted the shopper in completing the remaining bottles rather than abandoning the order.

The Y Combinator team agreed to accept Instacart into its software, impressed by his entrepreneurial tenacity and inventiveness.

Mehta and his team got to work with $120,000 in funding and a large network of investors.

The team launched Instacart a few weeks later, in August 2012. Instacart was only available on iOS in its early days as the team felt that iPhone users were the most valuable customers.

Amazon and eBay had just introduced same-day shipping at the same time, which was widely regarded as a game-changer in the supply chain room.

Meanwhile, Instacart launched intending to deliver groceries almost immediately, within an hour of placing the order.

This resulted in near-instant demand, which the company immediately capitalized on.

Instacart had previously raised two rounds of funding totaling $2.3 million in seed funding and $8.5 million in Series A funding led by Sequoia Capital, Khosla Ventures Opendoor’s lead investor, Canaan Partners, SVAngel, and Paul Buchheit, the founder of Gmail.

Sequoia’s investment, in particular, was seen as a significant vote of confidence. The Menlo Park-based venture capital firm squandered tens of millions of dollars funding Webvan. This dot-com company promised to deliver groceries within 30 minutes to any customer within range.

After three years of service, the company was forced to file for bankruptcy and became a poster child for the massive losses suffered by many investors in the late 1990s.

Sequoia believed and continues to believe that Instacart’s condition is in no way equivalent to that of Webvan.

The primary explanation is widespread mobile adoption, enabling Instacart shoppers to receive instant updates if an order requires fulfillment.

Additionally, due to the rise of platforms such as Uber or Doordash, consumers have become more accustomed to ordering through their smartphones.

Instacart fully capitalized on the surge. Two years after its founding, the company operated in nearly 20 cities in the United States.

It grew its marketplace through aggressive promotional strategies, such as offering consumers a $20 discount on their first order or offering shoppers a $50 bonus for quickly completing deals.

The company entered into agreements with some of the country’s largest retailers and manufacturers, including KraftHeinz, PepsiCo, Kroger’s, and Whole Foods Market.

The relationship with Whole Foods, in particular, was both a blessing and a hindrance.

The company’s sizable customer base was appreciative of the added convenience provided by online grocery ordering.

According to some surveys, Whole Foods sales accounted for more than a third of all Instacart purchases at one point.

The two parties agreed to a three-year extension of their relationship in early 2016. Instacart was granted exclusive distribution rights for Whole Foods Market products under the terms of the agreement.

Meanwhile, Instacart assigned some of its staff to assist with packaging in Whole Foods stores.

Several stores also designated storage areas and check-out lanes exclusively for Instacart, which enhanced the pick-up process.

Regrettably, the fruitful collaboration ended abruptly. Amazon purchased Whole Foods Market in 2017 for a reported $13.7 billion.

The relationship was dissolved after just a year. This meant emphasizing diversification for Instacart.

Within a year, they increased their retail partners from 200 to 350 and their shopper base from 32,000 to over 70,000.

Simultaneously, the company began to experience less financial loss – to the detriment of its customers.

Payments for orders became increasingly inconsistent, rendering many order requests ineffective.

The company launched several new app features, including an on-demand queue, which required shoppers to consent to a job in seconds without reading the payment terms.

And if they refused an excessive number of these deals, they will be demoted.

Instacart faced another uproar in 2018 after it was discovered to reduce tip payouts. Simply put, the company pocketed a portion (and in some cases, all) of the tips received.

Instacart decided to alter its tipping rules and the rationale behind its ordering queues following an outpouring of public outrage.

Nonetheless, Instacart has been and continues to be the subject of several legal challenges over its treatment of contract employees.

Apart from small settlements, the corporation has not faced significant legal consequences so far.

However, a 2020 California court ruling that required Uber and Lyft to identify their drivers as employees could spell trouble for Instacart in the future.

Legal challenges to this law’s enforcement could prolong its implementation for years.

Despite these setbacks, Instacart continues to expand at a breakneck rate. Recent pandemics of coronavirus have driven the company’s development to unprecedented levels.

Instacart’s generated a revenue of $1,500 million in 2020.

Additionally, in April 2020, the company earned its first profit, earning $10 million on its own. To keep up with demand, the company expanded its customer base from 180,000 to 500,000, with the target of reaching 750,000.

In recent years, Instacart has moved its emphasis away from groceries, which historically have a lower profit margin, and toward selling various products.

This puts them directly in competition with Postmates and Target-owned Shipt.

Today, Instacart operates in over 5,500 locations, reaching 85 percent of all households in the United States and 70 percent of households in Canada.

Instacart delivers from over 30,000 locations in North America, making it the de facto leader in the $1.3 trillion grocery delivery industry.

10. What is the Funding of Instacart?

According to Crunchbase, Instacart has raised a total of $2.7 billion in venture capital funding over 17 rounds.

The company’s value soared to $39 billion during its most recent funding round, announced in March 2021.

Among the notable investors in Instacart are Sequoia Capital, Andreessen Horowitz, Tiger Global Management, Kleiner Perkins, Thrive Capital, General Catalyst, and DST Global.

11. What is the Revenue and Valuation of Instacart?

Instacart, like many other fast-growing startups, does not publish its sales or profit figures publicly.

Forbes estimated Instacart’s annual sales to be about $2 billion in 2017.

According to internal sources, The Information revealed that the organization lost more than $300 million in 2019.

As per businessapps, Instacart generated a total of $1500 million in 2020 and is currently valued at $39 billion after raising $2.7 billion in funds.

12. What are the Unique Features of the Instacart App?

Product search makes it easier for shoppers to find what they’re looking for on the home page itself.

Instacart emphasizes the most critical products so that you can filter results based on price and color.

A filtered product search enables you to maximize visibility and expand buying choices through your entire inventory.

12.2 User Profile

This feature enables customers to enter their address and billing details and establish future buying preferences.

Order history, vouchers, loyalty discounts, and gift cards should be available for full customer service.

12.3 Checkout

This functionality contains the following capabilities:

  • Local supermarket products and whole foods can be viewed and edited.
  • Apply any coupon codes that might be available.
  • Decide on a tip amount for the shopper or delivery person.
  • Choose a delivery plan, including the date.
  • Include payment and contact information.
  • Pay for the order and check it.

12.4 In-app Payment

This function is to provide as many payment options as possible to customers. Money, credit or debit cards, wallets, vouchers, coupons, and gift cards are all acceptable forms of payment.

When the order is issued, give the customer an invoice and add the order record to the order history.

12.5 Track Orders

Enable its customers to monitor their order’s delivery and position using GPS tracker (tracking technologies) or any other location-based app solution.

It enables them to be content without worry and go about their day, thus strengthening the bond of confidence.

12.6 Admin Panel

This role assists the administrator in managing their business activities, such as

  • Take care of shoppers and clients.
  • Keep an eye on the region and monitor distribution orders.
  • Accounts for shoppers may be activated and deactivated.
  • Manage retail locations and business associates.
  • Create service reports.

12.7 Shopper Panel

Each approved shopper will receive a notification to the website or mobile apps’ shopper panel to monitor the Instacart account, indicate availability, and track earnings.

It enables shoppers to maintain an organized record of their regular, weekly, and monthly orders.

12.8 Product Recommendation

Instagram makes product recommendations to customers based on their previous shopping behavior.

Because more than half of smartphone users are likely to purchase products based on relevant product recommendations.

13. What are the Pros and Cons of Using Instacart?

Pros of InstacartCons of Instacart
Simple and easy to usePrices for services and products are slightly higher than in-store prices
Grocery delivery services make it convenient for you and your family to get groceries delivered to your house.There are no coupons, discounts, cashback, or special offers available like other online shopping platforms.
Available in the United States of America, Canada, and San FranciscoFees not included
Several local grocery store chains to choose from
Customers and drivers are courteous.
Access to a variety of local businesses as well as a distribution window
Grocery delivery services on a same-day basis

14. What is the Future of Instacart?

When it comes to online grocery shopping, Instacart is the biggest threat to Amazon and Google.

The company’s one-hour delivery guarantee has established it as a powerful solution in the United States and Canada. With a $2.7 billion funding round, there is no going back for Instacart.

The evolution of the aggregator business model and the employment of part-time shoppers have even increased shopper confidence (workers).

The company has already been ranked as America’s most promising startup. We’ll have to wait and see what the future holds.

15. Final Thoughts about Instacart Business Model

Online grocery shopping is growing in popularity due to increased customer demand, up to speed with consumers.

According to Nielson’s research, one-fourth of online shoppers now shop for groceries online, and 55% intend to do so in the future.

And to meet market demand, grocery stores are expanding their operations online with the assistance of an app development firm.

A unique business model and approach, such as Instacart, can help you grow your business and adapt to changing market conditions. It is worthwhile to implement the Instacart business model when launching an online delivery service.

You can purchase a ready-to-use app like Instacart for a low-cost online grocery business launcher.

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