Business

Shipt Business Model | How Does Shipt Make Money?

Daily purchase of groceries is part of everyday life. Whatever your schedule or day may have been like, you should never put this off.

The convenience of having groceries delivered by hand can be beneficial. You can order groceries online through several applications. 

Additionally, online platforms enable you to access additional discounts and offer while saving you the time to navigate aisles in a supermarket.

The groceries are delivered at no additional cost, even though this is an entirely different experience than traditional grocery shopping.

Although these applications may lack the personalization and organization offered by many other applications, they more than compensate for that. They offer a wide variety of products and produce you won’t find in a store.

The Shipt grocery delivery service delivers household essentials to your door within half an hour after selecting a time slot. 

The service provides same-day grocery delivery to specified locations, offering a wide variety of products from a wide variety of stores.

What is Shift?

Shipt is an integrated grocery, home products, and electronic delivery service in North America. 

Shipt was founded by Smith in 2014 with three million dollars of his own money, and Target bought it in 2017 for $550 million. 

Shipt Business Model | How Does Shipt Make Money? 1

Shipt generates most of its revenue through membership fees.

Shipt provides online grocery delivery services through its network of independent contractors. 

A customer visits a retailer’s website, places an order for in-store pick up, and then navigates to the Shipt platform to order a shopper to pick up the order.

How Does Shift Work?

Shipt lets you order groceries and other household items online and have them delivered straight to your house.

You can place orders using the firm’s website or mobile apps (available on Android and iOS).

A customer must first sign up for a monthly or yearly membership, which can be canceled at any time.

To fulfill orders, Shipt collaborates with small independent contractors known as shoppers.

With Shipt, you can shop at hundreds of retailers, including well-known ones like Kroger and Lidl. The firm offers services in 260 cities across the country.

Clients can specify when a delivery will take place. The Shift can deliver your order within an hour after you place it.

Shipt Business Model

Additionally, users have the option of communicating with their assigned Shopper. The availability of an item can be an advantage in certain situations, such as when one is out of stock.

Tipping your Shopper is not necessary. However, if you’re feeling generous, you can tip him or her in cash or through the app when they deliver.

Shipt follows a rigorous process to ensure you receive only the best services. 

Before taking advantage of all the benefits, you must take a few steps to ensure that your groceries arrive on time and without causing any inconvenience to the shopper, the store, or you. 

The following steps will help you understand how Shipt works. Continue reading to learn more about the details.

Download the Shipt Application

Install the Shipt app from the app store. The app is available on both iOS and Android. 

If you are using a PC or laptop to access the website, you can also sign in and create an account. 

All you need to do is provide your credentials to the application or website. Your account will be created once you enter your name, email address, and a strong password. 

You can access your account at any time using a computer or a smartphone. The account creation process is entirely free.

Add your location and choose a store.

Once you have created your account and logged in, you can either use your GPS or manually enter the address to which you want the groceries delivered.

As soon as you enter the location, you’ll see a list of stores that work with Shipt.

Whenever you come across a store where you have a membership card or reward points, you can enter that information into the system to also take advantage of those benefits.

Add products to your shopping cart.

You’ll need to choose a store from which to buy your groceries.

Browse the products you wish to purchase. Products are organized by category to make shopping even more convenient. 

Additionally, you can find out which products are on sale.

The application will present a section with recommended items based on your past purchases if you have previously used them.

Once you have decided on a product to purchase, click ‘add to cart; when you’re finished, you can review your purchases and proceed to the checkout.

Select a membership plan

If you wish to place an order, you must purchase a valid membership before downloading the application. Annual memberships are only $99 per year, while monthly memberships cost $14 per month. 

The fact that groceries are a daily necessity makes the annual plan the best option as it allows you to save a significant amount of money and also provides convenience since you won’t have to go through the hassle of paying your membership every month; instead, you just have to pay once a year.

Select a delivery time slot

Choosing the right membership plan is the first step in placing your order and checking out. 

You must then enter your phone number, confirm your delivery address, and choose a payment method. All orders must be paid for in advance with a credit card or a debit card. You must then select a delivery window. 

Most likely, you will receive your groceries the same day, but this depends entirely on your location and the time of your order. 

A delivery window is available up to three days in advance.

Receive your order

As soon as the shopper enters the store, you will receive a notification; you can make any changes to the list during this time. 

If a substitution occurs, you will receive a text message from the shopper.

When declining the offer of a drop-off and preferring to check your delivery, make sure you will be available during the delivery slot. 

Once the shopper is on his way to drop off your groceries, you will receive a text message. Groceries are typically delivered within the first two hours of the delivery slot.

How Does Shift Make Money?

Shipt earns money from subscriptions, customer service fees, delivery, and sales commissions, and selling items at a premium.

Shipt generates most of its revenue through membership fees.

Users pay a monthly or annual fee, including exclusive discounts and free shipping on orders above a certain threshold.

A monthly subscription to the service is $14. Alternatively, users can pay $99 annually to save money. 

Additionally, a free, two-week trial subscription is available to pique customers’ interest in the service and hopefully convert them to a paid plan.

Let’s take a closer look at each of these revenue streams in greater detail below.

Delivery & Service Fees

Customers will have to pay for both delivery and service fees, just like any other delivery service. 

The delivery fee covers shipping costs, whereas the service fee covers expenses such as grocery collection.

A fee is then applied to payments made to Shoppers. Generally, platforms like Shipt keep a portion of the costs.

Shipt Business Model | How Does Shipt Make Money? 2

The service costs $14 per month. Users have the option of paying $99 annually to save money. 

Furthermore, a free, two-week trial subscription is available to pique customers’ interest in the service and hopefully lead them to a paid subscription.

Users are entitled to exclusive discounts, free shipping, and other perks when their monthly or annual fee exceeds a certain amount.

Membership Fees

Shift users pay a monthly or annual membership fee, which constitutes the majority of Shipt’s revenue.

You get discounts as a member. Additionally, shipping is free for orders over $35.

Annual memberships cost $99, while monthly subscriptions cost $14. 

Shipt

It is possible to cancel the membership at any time, just like any other subscription in the modern era. A free two-week membership trial period is also available.

Sales Commission

Shipt also earns a commission from every sale made on its platform due to a revenue-sharing agreement with retailers.

It earns commissions on each product that is sold. This is accomplished through revenue-sharing agreements with its retailers.

The company retains a percentage of the sales price. The agreement with the retailer determines the amount.

Sales commissions are a percentage of the final purchase price agreed upon between the parties.

Retail is often associated with low margins, so it is reasonable to assume that its commission is in the single-digit range.

Price Markup

Shipt also makes money by raising prices during peak hours. On average, prices on the platform are 10% to 20% higher than in-store prices.

Shipt’s prices will differ from that in-store. There could be a 20% spread between these two prices.

A $10 item would cost between $11 and $12 on Shipt, so it isn’t the most expensive. 

The company almost certainly employs a team of forecasters who use statistical methods to establish ‘appropriate’ prices.

The exact percentage markup is almost certainly determined by historical sales data and its assessment of what it can charge without adversely impacting sales.

Shipt Pass

Shipt Passes are one-time delivery fees charged to consumers who do not wish to sign up for a  monthly subscription.

For $10, you can purchase a single pass. Alternatively, passes can be bought in discount packages ($27) or five packs ($40).

How to Become a Shipt Member?

Shipt is the best option if you wish to avoid the hassle of shopping for groceries in a store for hours at a time. 

You need not be worried about using an online grocery delivery service if you are a traditional shopper. 

A personal buyer from Shipt will go out and shop for you from stores that are certified by Shipt, so you can be confident in the quality of goods that arrive at your doorstep.

Shipt has a nationwide network of retail partners. All you need to do is find a participating store in your area. 

Once you’ve established your store, you’ll need to create a shopping list. 

The list will be sent to a personal buyer who will purchase each item in the store. You will be notified of any specific items are unavailable. 

Your buyer will then update your order and deliver the groceries to your home. 

The delivery time slot is chosen by you, ensuring that you will be present to confirm everything is in order. Some locations also offer pickup as an added convenience.

The only thing you need to do to use this service is to download the application from the Google Play store. 

You can choose a monthly or annual membership plan. The annual membership will save you a lot of money. 

You can try a month-long trial membership and then upgrade to an annual membership to avoid burning a hole in your pocket.

What is the pay rate for Shipt shoppers?

A new model for Shipt’s revenue and pay structure was introduced in February. Shoppers pay a commission of 7.5 percent on the total order amount, in addition to a $5 base fee.

As a result, if the order totals $100, the shopper earns $12.5 ($7.5 plus $5 base fee). The total revenue earned by a shopper in a single day depends on the number of orders delivered and the value of the receipts.

Shipt estimates that a shopper earns nearly $20 an hour. Assuming that the shopper works an average of 40 hours a week, the shopper’s monthly income will be about $3200. The shopper is expected to cover all costs associated with fuel and insurance.

Additionally, the platform allows customers to tip the shopper. Thus, it serves as an additional source of revenue for them.

Shipt Business Model

Shipt’s revenue model is composed of three distinct entities: users, shoppers, and stores.

Users of Shipt

Smartphone applications allow users to select a store and schedule pickup times for their groceries, which they pay for online.

Shoppers of Shipt

Shoppers are responsible for personalizing the mechanical plan. Shoppers can place orders through the application. A particular ordering is assigned to a shopper based on both the store’s proximity and the end-user.

Stores of Shipt

Shipt has partnered with retailers to help them grow their revenue and sales.

The following is a detailed business model for Shipt, which is centered on the entities mentioned previously. Without further ado, continue reading to dive into the details.

Key Entities of Shipt

  • Users
  • Shoppers
  • Stores

Key Activities of Shipt

  • Local market management by Shipt
  • User data management
  • Delivery management

Key Resources of Shipt

  • Technical Backend support
  • Tie-ups with local stores around the area.
  • Efficient and skillful shoppers

Cost Resources of Shipt

  • Shopper’s commission
  • Server and other management
  • Employee payment

Accessible Channels of Shipt

  • Shipt Website
  • Shipt Android App
  • IOS Application

USPs of Shipt

For Users

Having groceries delivered to your door is convenient and saves you valuable time. It could be a good option for the elderly who are unable to go out on their own.

For Shoppers

As a freelance shopper, you can put your passion for shopping to good use.

For Stores

Grocery stores can significantly increase their sales by utilizing the on-demand delivery market.

What is the Funding, Valuation, and Revenue of Shipt?

A total of $65.2 million in venture capital funding has been raised by Shipt throughout three rounds, as per Crunchbase. Among the investors are Greycroft, e.ventures, and Harbert Growth Partners.

Target acquired Shipt for $550 million in cash in December 2017. Since then, no updated valuation or revenue figures have been released.

Success Story of Shipt

Bill Smith founded Shipt in 2014, and the company has its headquarters in Birmingham, Alabama. Smith is a true entrepreneur in every sense of the word.

Smith watched his father build various businesses as a child. He was already trying to figure out how each of these businesses made money at the age of five.

Smith dropped out of high school at the age of 16 after being inspired by his father’s entrepreneurial spirit.

In the early years of the twenty-first century, that was the case. Initially, Smith opened a retail store specializing in the sale of cell phones to small businesses. 

He would eventually open a second location for his business. At one point, he earned between $4,000 and $5,000 per month from his stores alone.

He even tried to curb his academic ambitions. Before dropping out of college, Smith earned his GED and attended college for a brief time. 

It was inadequate for him to receive a traditional education.

Smith moved on to his next business venture after three years. After six years of running this small company, he created another company.

The company he founded in 2009 is called Insight Card Services. The company offered reloadable Visa prepaid cards. Green Dot Bank acquired Smith’s business in 2014, leaving Smith with millions in the bank.

As soon as he sold his business, he began looking for new opportunities. Amazon Prime’s same-day delivery capabilities were gradually expanding at the time. 

DoorDash and Uber contributed to redefining convenience.

Without a doubt, Smith wanted to be part of this ever-expanding hype train. Customers would visit any retailer’s website and have items delivered the same day (such as headphones). 

A similar service, Postmates, had been established a few years ago (in 2011).

As with other delivery platforms, Smith’s business would contract independent contractors (dubbed Shoppers) to make deliveries on its behalf.

Shipt launched its first version in Birmingham, Alabama, in November 2014. Smith invested $3 million of his own money to hire a few employees and develop the product.

Smith encountered some resistance from retailers when it came to collaborating with him and integrating Shipt’s solution. As a result, the team developed a system that allows the user to navigate to the retailer’s website, place the order, and then navigate separately to Shipt’s platform to confirm the order.

It turned out to be a complete failure. They were dissatisfied with the disintegrated experience simply because they were already familiar with all-in-one solutions like Uber. 

Because of this decision, the company was on the verge of bankruptcy.

Customer emails began arriving, however, asking when they would be able to deliver groceries. Smith and his team initially ignored this vertical.

Smith had an epiphany in January 2015. He and his wife took their new family member grocery shopping before his second child was born.

The trip turned out to be a complete nightmare, primarily due to his two children’s constant crying.

After that stressful experience, Smith walked into the firm’s office the following Monday and told his team that they would devote all their resources to building an integrated grocery delivery experience (from ordering to receiving).

Additionally, he instructed his team not to write a single line of code until 1,000 memberships had been sold. Stock in the company was gifted to each of the ten team members as a form of incentive.

Smith invested a few thousand additional dollars of his own money in a 60-second video explaining what Shipt is all about. 

It took Shipt three weeks after posting that video to Facebook to sell its 1,000th membership.

Furthermore, Birmingham was not known to be receptive to new (online) services as other cities with a progressive reputation, such as New York or San Francisco.

That was sufficient confirmation for Smith and his team. They launched the revamped version of Shipt a few months later, in May 2015. 

Soon after launching the service in Birmingham, the team expanded to other midwestern cities such as Dallas, Nashville, and Tampa.

Shipt’s focus on the midwestern region became one of the firm’s key strategic advantages, allowing it to grow without facing significant competition.

Instacart would target more affluent cities such as San Francisco, which offer a tremendous upside but are also significantly more competitive.

In early 2016, Shipt secured its first round of outside funding with a $5.2 million capital injection. At the time, Shipt was already available in 23 cities.

As a result, the team could save time when developing the supply-side (retailer) of its marketplace. 

Brands and retailers, such as Kroger and Starbucks, approach Shipt’s leadership team with partnership proposals.

In December 2017, Target announced that it would acquire Shipt for $550 million in cash. 

Shipt recently raised $40 million in a Series B round (in June 2017), valued at $200 million.

Buying the company was Target’s way of expanding its digital footprint and service offering while competing with established delivery companies like Walmart and Amazon.

Shipt will continue to operate independently. In addition to new partners, the company will be able to interact with its own stores. 

In 2018, Shipt was available in 65 percent of American households (approximately 80 million) across 180 markets.

In March 2019, Shipt announced that CEO and founder Bill Smith would resign and be replaced by Kelly Caruso, a 22-year Target veteran. This did not affect the firm’s growth trajectory.

However, Smith found Landing, a company that provides flexible memberships for fully furnished apartments.

Target has even launched a site dedicated to same-day delivery. With Shipt, customers will be able to choose from over 65,000 items and have them delivered.

Specifically, 2020 proved to be a year of high profitability for the company. Shipt (along with a  slew of other food delivery platforms) benefited greatly from the Coronavirus outbreak. 

Millions of Americans became dependent on food and grocery delivery as a result of stay-at-home orders.

Shipt added nearly 100,000 new Shoppers in response to the surge in demand,  bringing its total to 300,000. Unfortunately, not everything went according to plan.

Shipt couriers (along with two critical Instacart Shopper activists, Vanessa Bain and Sarah Clarke) began organizing in February 2020 to demand higher wages and end the fear culture. Many high-pressure Shoppers have reported being present at Shipt.

A few weeks earlier, Shipt had implemented a new compensation rate in select markets, including Philadelphia. 

Their customers claimed that the change resulted in a wage reduction of 30%, which resulted in them losing money on every order.

In April 2020, Shipt’s Shoppers protested the lack of COVID-19 safety measures and sick pay if workers contracted the disease. As a result, Shipt provided masks, gloves, and sanitation to  Shoppers.

Furthermore, they will receive a $100 bonus if they fulfill between 50 and 100 orders in a month and a $200 compensation if they complete more than 100 orders.

Shipt is now available in more than 260 markets (equivalent to more than 5000 cities) throughout the  United States. More than 1,000 employees work full-time for the company, which has offices in  Birmingham and San Francisco.

Also read, How Does Pluto TV Make Money?

Key Takeaways from Shipt Business Model

Shipt offers a unified platform for grocery, electronics, and home goods delivery. Bill Smith founded and funded the company to capitalize on the trend toward same-day delivery.

Shipt generates revenue through subscriptions. A free trial period ends, after which users must pay a  monthly or annual subscription fee to continue using the service. 

All transactions are subject to commissions and markups.

Shipt also charges a delivery fee on orders under $35. In addition, a service fee is applied to cover the costs of assembly and recruitment, training, and verification of contractors.

If you enjoyed reading this article, also read The Stitch Fix Business Model.

About the author

Madhav

Hey Folks, I am Madhav! I lead a team of Marketers at Tech Startup based in Australia. In my free time, I dissect the business models of various businesses. And if there's any free time, I cook some new Dish!