Instacart Business Model: How The App Works & Why It is Successful
Instacart Business Model: How The App Works & Why It is Successful
Last Updated on May 25, 2022
The intriguing thought of ordering groceries from any of your favorite stores with just a click catches almost everyone’s eye. This intriguing thought is what has kept Instacart going strong for nearly a decade. The online grocery leader is a simple app that started with Apoorva Metha and Max Mullen in the year 2012. The mere idea behind the app was to allow customers to buy groceries from multiple stores without the hassle of going to each store individually.
What Is Instacart Anyway
Imagine having to go to a grocery store, searching for everything you need for more than thirty minutes only to realize that some of the items are not available in the store. The next alternative is to go to another store that is minutes away and waste more time there.
Your time is precious, and Instacart understands that. This on-demand grocery app is designed to make sure you can shop from all of your favorite stores in one single place. The cherry on top is that you won’t even have to step a foot out of your house or even move from the couch. This is the power of an on-demand app. The app has tied up with major supermarkets and pharmacies in the USA and it allows you to create a virtual shopping cart. Once you have selected all the items you want, an order is placed which is then fulfilled by a personal shopper. The best part is that your order will reach you in under 2 hours.
You can reach out to Oyelabs for on-demand grocery delivery app development.
Instacart believes that any experience can be improved with the help of technology, and it has done exactly that since its inception in the year 2012. The company has simplified the grocery shopping experience, it has even made it enjoyable and efficient. To make an app like Instacart you need to understand how such an app works and the complete process to successfully launch such an app.
The company has its headquarters in San Francisco, California. It has its presence in Canada and USA areas including the San Francisco Bay Area, Brooklyn, San Jose, Washington DC, NYC, Los Angeles, Austin, Seattle, Chicago, Philadelphia, and Boston. Because of its exponential growth and popularity, the company successfully gained $2.3 Million Seed Investment in October 2012. As of November 2018, the company valuation was at $7.87 billion. Additionally, a report by Statista claims that around 85% of USA households and 60% of Canadians use the Instacart app to buy their groceries. This is enough to show the popularity that the app has.
To fully comprehend how the company actually works we will need to understand the value the company offers, the features of the app, its business model, and its revenue model.
How The Company Works
Instacart has implemented all of the plus points of an on-demand setup and implemented it into their company. They operate in multiple major areas in the USA and cover more than 25,000 grocery stores. Users of the app are able to buy more than 300,000 items from these supermarkets, specialty shops, and pharmacies. The stores they cover include- Safeway, Costco, CVS, ALDI, Publix, Kroger, Whole Foods, Albertsons, Sam’s Club, Sprouts, Wegmans and many more.
The entire business concept lies in the hands of 3 contributors:
- Personal Shoppers
These elements and the mediator i.e. the app combine to make the company what it is. Without this complete ecosystem, the app can’t successfully function. One relief for a company like Instacart is that it does not own any grocery store, nor do they permanently employ shoppers, their main business is surrounded by the platform they offer.
The users use the platform to buy groceries at their convenience and shoppers get a source of income as well as the flexibility to work whenever they want. As far as stores are concerned, they get an added user base and a way to reach more customers than their physical stores ever can.
You should also know how the pricing will be set on your app, the Instacart pricing model is a good reference to gain better insights.
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The Heart Of The Business- Business Model Canvas
Before starting any company, the main aspects every CEO thinks of form the basis of a Business Model Canvas. It is fundamental to a company and identifies the structure as well as the idea behind the company. This is why the business model canvas is referred to as the heart of a business. Additionally, whenever a company needs to make major decisions or make any changes in the company structure, a canvas will help you understand what the company’s backbone is.
Value Proposition Of The Company
The idea behind creating Instacart was not to earn money or to just open a company. The reason why Instacart was born was the need to fulfill the grocery requirements of users without the hassle of going to a crowded store. The why behind a company’s inception is what sets it apart from other competitors in the market. Your company needs to fulfill a need in the market that has not been catered to yet. This need to fulfill an unfulfilled desire in the market becomes your value proposition; because everything you do to fulfill this will set you apart. The value proposition of Instacart includes the unique features that set it apart:
- A well-established network of well-known supermarkets
- No need for warehousing and storage
- Multiple sources of inventory
- Instant delivery within two hours
- Workers willing to work flexibly without having full-time employment
- The ability to shop from multiple stores at one place
The Elements: Customer Segments
The entire ecosystem of Instacart depends on its three customer segments i.e. the users, the shoppers, and the store owners. There needs to be a harmony between them, in order to fulfill the needs of all customers. Each set of customers interacts with the app in different ways and all of them gain different benefits from the app. We will understand each of these customers segments separately to understand how we can satisfy their needs and keep them involved in the ecosystem.
Users are the people who show a willingness to buy groceries from the app. They are a crucial part of the ecosystem as they create the demand for the products. Without this demand, the role of other customer segments will become redundant. The role of a user includes:
- These people use the app to buy groceries from multiple stores at once.
- They make online payment which then goes to the stores and shoppers. Hence, they are the ones that create the revenue on the app.
- Users are asked to put their address on the app, which is then used to find stores near them.
- The app is easily accessible on mobiles, laptops, and desktops.
- Once the order is made, the shoppers are informed immediately in order to make the process smooth.
- The app allows users to pre-plan their grocery lists and schedule orders for a later date.
- You can also decide to schedule recurring orders.
These users get fresh and organic groceries from 25,000 plus stores including Whole Foods and Safeway. They also receive discounts and offers that they would otherwise not receive.
If users are the ones that create demand on the app, then shoppers are the ones fulfilling these demands. They are generally flexible workers that work on an hourly basis. Here’s how the shoppers contribute on the app:
- They start working as soon as they receive a notification on their phones regarding order generation from a user.
- These shoppers are located near the stores to make sure that they can collect the groceries without wasting any time.
- There are two types of shoppers- Full-service shoppers and in-store shoppers. The former one shops the items from the store as well as deliver them to the user’s houses. In-store shoppers are employed by both Instacart and shops. They stay in the store and make sure that the order is ready for pick-up.
- Shoppers are paid on an hourly basis and can earn from $5-10 per order.
- They get paid from the app, but they can earn through tips as well.
These are the supply creators on the app. Store owners partner with Instacart and allow them to sell their groceries via the app. They benefit from the popularity of the app and can reach a wider audience. The app also allows these owners to promote their store on the app.
The Instacart Business Model
Instacart holds a 68.8% market share in the USA and its popularity is majorly because of its unique business model of the company. Although many companies have implemented the on-demand model, only some have been able to execute it seamlessly. Instacart understood the needs of the industry and molded it to form its business model. The way it does the same:
The Process Of Order Fulfilment
- The process starts with the grocery requirement of the user.
- These users go on the app to buy groceries by selecting their current location. They then go on and order items from any and all stores near them using online payment methods.
- The order is then communicated to the shopper who starts gathering items manually.
- The personal shopper then goes to deliver the groceries to the customers at their mentioned address.
- The user can then tip the shopper if they wish to.
Apart from this, the app provides flexibility as it also allows the consumers to pick up their orders from the store. In this case, a shopper will collect all the items for you and whenever you reach the store your order will be ready for you. Want to know how Instacart makes money? The best part of the app is how the money and communication aspect is handled. You are allowed to give tips via the app. If you do, the tip, as well as the money per order gets accumulated. By the end of the week, the shopper gets his share of the money transferred to him.
Related Read: Instacart Features List
Instacart Revenue Model
One of the main aspects to consider before starting a business is its revenue stream. Any business cannot function for long if there isn’t regular money coming in. This money needs to be more than the fixed recurring costs the company makes, otherwise, the company will end up making losses. Sustainability is a major factor in keeping your business going for a long, and your revenue aids sustainability with efficiency.
When it comes to Instacart, the company generates its revenue from multiple channels, it earns from its users as well as the stores. Following are the revenue channels for Instacart:
All orders fulfilled via Instacart carry a certain amount of delivery charges. These charges vary depending on the time-period in which the user requires products. If the order adds up to be more than $35, then users are charged $3.99 for a delivery time of 2 hours and $5.99 for a delivery time of an hour. If the order value is less than $35 then charges become $7.99 for a 2-hour delivery and $9.99 for 1-hour delivery. These delivery charges get distributed between the store as well as the company.
Instacart Express Membership
Instacart also allows its customers to avail an annual membership. By just paying $99 for a year, users can get unlimited delivery for an entire year on all orders above $35
Payments From Grocery Partners
Instacart provides a portal for grocery stores to sell their products. In return for the same, they charge a fee from these partners. The charges are calculated on the basis of the sales made by the store. On each order, Instacart gets around 3% of the amount as a charge for handling payments, processing orders, and promoting the store.
In many cases, the prices charged on the app are similar to the prices charged in the store. But in some cases, these prices can be 15% higher than their in-store prices. This mark-up charge is generally added to certain stores or to certain products depending on their demand. The extra amount charged on these products directly goes to Instacart which is then used to pay the shoppers.
These are additional revenue methods adopted by the company. These are generally used to promote the stores and in turn charge them for the services. For example, when you open the app, you see certain ads, additionally, some stores always appear on the top. This is because of the placement charges that these stores pay to Instacart.
According to a report by Fortune, Instacart manages to earn $4.29 per order in Chicago, $6.96 in Atlanta $2.45 in San Francisco whereas it loses money per order in New York City and the Bay Area.
What Sets Instacart Apart From Its Competitors
Retaining personal shoppers- Although the shoppers are not full-time employed and it can get challenging to retain them for a long period, Instacart allows them to get tips which in turn increases their earnings. The shoppers don’t just earn from the app, they can even get tips directly from the customers and earn extra money.
Customer relationship- Instacart uses various schemes to improve its relations with the customers. They have promotional offers that allow users to avail deals and discounts, they also have referral programs where existing customers can earn $5 worth credit when they get a new user enrolled on the app. On top of this, users on the app get their first order with free delivery and a chance to avail multiple offers on their subsequent orders.
Assurety of fast delivery- Instacart promises 2-hour maximum delivery and they deliver on their promise. The company makes sure that the shoppers are already positioned outside the store allowing them to collect items as soon as the order comes without delays. This saves a lot of time. The placement and order assignment is decided based on demand from different stores.
Incentives to shoppers– Shoppers are freelancers who cannot be trusted. In order to make them work longer, Instacart provides various incentives. Whenever an area has more demand than usual, the app increases the delivery charges which allows the shoppers to earn more, it also incentivizes them to work faster.
Communication on the app- The app allows shoppers to communicate directly with the users. This can be used to solve order related issues. For example, if a particular item ordered is not available at the store, the shopper can easily message the user asking them to either change the item with something else or get a substitute. This is a great thing to reduce complaints. It can also be used to communicate about any delays.
All this leads to the point that Instacart is a well thought off app. The functionalities on the app as well as the business model is seamless and optimized to maximize customer satisfaction. They have done this by constantly improving their app; they listen to their customers and alter their app based on the recommendations of the users.
Constant evolution is necessary to keep any app relevant. At a time when everything is changing, Instacart has managed to evolve its business model and is now gaining more customers than ever. The current pandemic has changed the lives of everyone, and Instacart has been able to successfully evolve with this change. It has seen a 30% increase in sales in comparison to the same period last year. This means that this is the right time to step into the industry. The early adopters will be the ones reaping benefit from this change not just during the pandemic but also in the years to come.
Frequently Asked Questions For Instacart Business Model(FAQs)
There are many apps like Instacart available in the market, such as, Doordash, Grubhub, Fresh Direct, Walmart, Peapod to name a few.
To create a custom app like Instacart, the budget is around $25,000 to $40,000. The cost might vary depending on your feature requirements. A readymade grocery app may cost you approximately $10,000.
Yes, Oyelabs does offer a readymade grocery app solution to clients looking for quick grocery app launch. Apart from buying a readymade solution, you can opt for Subscription based SaaS app solution, GoodGrocers, where you pay a monthly fee to take your grocery business online. You can get in touch with us for more information.
Instacart earns money by charging fee on delivery, Instacart Express Membership. Commissions from partner sellers and markup prices are other sources of revenue for the grocery delivery app.
Instacart offers same-day delivery for customers who need groceries. Normally, a few-hours window is offered to these customers.