A new on-demand food delivery service, Instacart, is revolutionizing the supermarket sector. Apoorva Mehta founded Instacart in 2012 after realizing there is a gap between what online ordering and delivery services are intended and what he experienced from a grocery delivery service in San Francisco. The pickup and delivery service was still an old system; everyone was getting stuff brought to their doorsteps, but for groceries, they always had to go and select the items themselves, which inspired an idea.
In recent years, Instacart has expanded the kinds of consumer goods it offers via its platform. Through its collaborations with major corporations, Instacart revolutionized the supermarket delivery sector. In addition to food, users can also get prescription medications, office supplies, electronics, health, beauty, and wellness products, home furnishings, and sports equipment.
The amount of money obtained by Instacart demonstrates investors’ confidence in the company’s expected future. To help you understand what makes Instacart a viable firm, I will briefly discuss its business model, how it operates, and how it generates revenue, among other subjects.
Description Of The Business Model Used By Instacart
Instacart lacks a unified business model. It has five instead, one for each of the diverse markets it operates in: groceries, alcohol, drugstores, pet food, and home improvement stores. However, they all have one thing in common: they are all built on Instacart’s technology platform, including shopper and retailer apps. They all have the following operational flow:
- Customers select the store and order groceries through the Instacart app and website.
- The company sends notifications to the shoppers about the order and delivery instructions.
- The shoppers then shop at the store specified by the customer and deliver the groceries, earning commissions (or an hourly wage) from the company and tips from the customer.
Instacart’s success compared to other firms’ failures is due to its independence from inventory management. Instacart directly collaborates with the existing brick-and-mortar grocery stores and concentrates solely on delivering groceries on time. This cooperation strategy also enables Instacart to borrow goodwill from the partner stores regarding the quality of the products delivered and to cultivate its goodwill by delivering quality products.
How Does Instacart Provide Its Services To Its Clients?
Instacart offers same-day delivery service via its app-based platform. They deliver your groceries directly to your front door. In addition, the company collaborates with renowned grocers and retail partners to provide a comprehensive selection of consumer items in local stores. The company operates throughout the United States and Canada, with more than 300 participating retail brands, including Costco, Target, and even some neighborhood grocery stores. After placing your order through the site, your shopper visits the specified areas to fulfill it.
The shoppers are not Instacart platform staff. Instead, they function as independent contractors, providing them with a business model for self-employment. They obtain everything you require, contact you if replacements are necessary, and personally deliver everything to your home.
Not only do contractors enjoy several tax advantages over workers, but they are also only compensated upon delivery of an order, making them dependent on superior performance and a stellar reputation to obtain new business. After placing an order, the platform matches it with a nearby shopper who can fulfill it. If your chosen place is nearby, the shopper could deliver your order within an hour.
How Does Instacart Generate Money?
Instacart generates most of its revenue from three sources: delivery costs charged to customers for each order, service fees, and a commission fee paid by retailers for each item. Additionally, the company receives revenue from marketers and retail partners that pay to have their products prominently displayed within the app. Let’s take a look at Instacart’s revenue model to have a better idea of how the firm makes money:
1. Delivery Fees
Every time a customer places an order, Instacart will incur delivery fees. The delivery charge varies based on the city, the location, and the period. The service fee on orders might range between 5% and 10% of the entire order amount. There may also be additional fees, such as a ‘heavy’ price that applies when the weight of the products purchased exceeds a certain threshold, a bag fee, a bottle deposit fee, and an alcohol service fee. As with most delivery services, shoppers can get gratuities from their customers, which are given directly to them. Instacart operates on a surging demand paradigm. Consequently, you will spend more and wait longer for grocery delivery during peak demand hours.
In addition, Instacart provides a yearly subscription service known as Instacart Plus. This service has a price tag of $149 per year and grants consumers free delivery on purchases of at least $35. Instacart is a service that helps busy people who don’t have time to go to the grocery store by providing them with a handy alternative. Additionally, it is an excellent way to show support for local companies.
3. In-App Marketing
In addition to the delivery and service fees it charges its partner retailers, Instacart also generates revenue from product placement and marketing services. It includes prominent placement of specific products within the app and in-app advertising. Instacart permits companies and advertisers to purchase promotional slots on their sites to enhance brand visibility and sales. Targeted category and search query determine the cost of the advertisement place. The advertising system of Instacart is comparable to that of other marketplace platforms. This service provides an extra revenue stream for Instacart while enhancing the visibility of brands and advertising on the platform.
These services balance the platform’s operating costs and enable Instacart to provide its consumers with an extensive selection. As a result, it can provide an unparalleled degree of convenience and value, which has enabled it to become one of the most popular grocery delivery platforms in the United States.
4. Markup Price
A few shops on Instacart have a markup that is 15% higher than their in-store prices. Instacart receives the revenue that is generated from the markup pricing, and the customers are the ones that pay for them.
5. Instacart Express
Instacart Express is a subscription service available to existing Instacart customers. Membership benefits include Free delivery on orders of $35 or more, Reduced service fees, and No surcharges during peak delivery hours. For an annual or monthly charge, users receive unlimited free delivery. The yearly subscription is $99, while the monthly service is only $9.99.As with any current subscription service, the customer can terminate it, providing them with all the freedom they require.
However, the Express membership needs to grant the consumer superior or speedier service. It means delivery times will be identical to those of “free” users. For delivery companies, subscriptions can be a tremendously lucrative revenue stream. Not only do they create consistent revenue, but they also encourage clients to order more frequently.
6. Profit Shares
The company generates revenue from retailer commissions and fees. Each time a product is purchased through Instacart’s platform, the company receives a commission. Instacart has established varied revenue-sharing agreements with its retail partners based on the retailer’s transaction volume. It can achieve this objective due to a revenue-sharing agreement with its merchants. After that, the corporation retains a portion of the item’s total selling price as profit. The exact amount is decided by the financial parameters of the agreement reached with the store.
7. Software Services
Recently, Instacart purchased the SaaS business Foodstorm. Instacart will now begin offering software services to supermarkets and other grocery businesses, expanding beyond its core grocery delivery business through gig workers’ employment. The Instacart Platform will provide grocery stores with software administration services for e-commerce, fulfillment, advertisements, analytics, and other data. Only grocery stores with a delivery partnership with Instacart may utilize these services.
What Are The Obstacles That Instacart Faces In Running Its Business?
While Instacart’s business strategy is effective and enables it to produce sufficient revenue, it encounters the following obstacles:
1. Retaining Customers
Keeping consumers for an extended period is challenging when they all work minimal maintenance jobs. The business strategy of Instacart included an alternative for users to pay tips to other customers within the registration section of the website. It was done to boost the overall income of clients.
2. Decreasing The Delivery Time
Instacart positions its clients outside the stores with tie-ups to reduce the time needed for delivery. At whatever point a client makes a demand, he is present at the store, sparing him a significant portion of the time. It results from the need for Instacart to deliver necessities within two hours.
3. Client Trust
Customers stopped believing in Instacart after learning that the company was developing its pricing system for products, which caused them to question its reliability. These charges are higher than the prices that are seen in stores. Instacart’s business strategy quickly acknowledged the significance of the rising prices. However, a small number of users may have stopped using Instacart. Still, most users are willing to pay the increased prices to have necessities delivered to their doorstep.
4. No Longer Available In Stock
There are instances when items on the shopping list are no longer available. When this occurs, customers replace the items that are not available with similar items that are available but that they do not require. It is because the customer does not require unavailable items. As a solution to this problem, Instacart allowed customers to post notes. The company also added a mechanism to catch on items that fit this description to benefit customers.
5. Customer Deficit
Since Instacart clients are consultants with flexible schedules, managing the specialized army and delegating urgent tasks take a lot of work. To address this issue, Instacart introduced a new policy that adds a couple of dollars to a customer’s bill as delivery fees, depending on how busy its customers are. A portion of this additional cost is also provided to the clients so they can complete the form as quickly as feasible.
Other online delivery firms are Instacart’s most competitive rivals. However, it continues to develop and maintain a competitive advantage. Among its principal competitors are the following:
While DoorDash is a formidable force in the restaurant delivery market, its grocery initiatives are still in their infancy. Given its vast history in food delivery, it is reasonable to believe that it will eventually be able to carve off a sizeable portion of the market. In addition, DoorDash has the financial and personnel capabilities to launch the business quickly.
Shipt is Instacart’s primary competitor in the grocery delivery market. Although Target owns Shipt, it delivers groceries from dozens of national chains and smaller businesses. The service offers same-day delivery in many regions, which is convenient if you forget an item or are in a rush. You schedule it inside an hour-long timeframe within the application. You may even use the app to add things to your list while the personal grocery shopper is shopping. After shopping, they purchase and bring products to your house or business.
3. Amazon Fresh
Amazon prime has an excellent choice for grocery delivery with Amazon Fresh. Amazon Fresh allows you to purchase groceries and other goods for your home that Amazon may sell. The service fulfills orders from local Amazon warehouses and transports temperature-controlled containers to your location. In addition, Amazon Fresh is an excellent option for those who desire organic produce and packaged meals. Since Amazon owns Whole Foods, it can access the store’s inventory.
Boxed is comparable to warehouse clubs in the same way Thrive Market is to specialty diets. Boxed enables bulk ordering of food and other household supplies like warehouse stores. You may anticipate identical merchandise in either store. Boxed also provides online coupons to help customers take advantage of savings opportunities. Similar to Thrive Market, you must wait multiple days for shipments.
Walmart has spent years attempting to penetrate the grocery and food delivery business and is now beginning to succeed. It now provides a premium membership with numerous features.
Hungryroot is a food delivery and groceries delivery service. It’s ideal for those seeking nutritious foods and goods. Upon account creation, you must complete a quiz to help the bank determine what products and services best suit your needs. Hungryroot picks appropriate meals and groceries based on your input. It is an excellent alternative to grocery shopping because it saves time by minimizing the number of meals cooked from scratch.
What Differentiates Instacart From Its Rivals?
Despite market rivalry, Instacart maintains a significant market share for the following reasons:
1. Providing Incentives To Shoppers
To keep people working for extended periods, Instacart offers a variety of incentives. The app raises the delivery fees whenever there is a greater demand than usual in a certain region. It enables the shoppers to earn more money and encourages them to complete their deliveries more quickly.
2. Guarantee Of A Quick Delivery
Instacart guarantees that orders will be delivered within two hours, and they always keep their word. The business ensures that the customers are already positioned outside the store, allowing them to receive their orders without delays as soon as the items become available. It results in significant time savings. The placement of the order and the assignment of the order are both determined by the demand from the various stores.
3. The App’s Communication Features
The app enables direct communication between shoppers and users. It is used to resolve issues with orders. For instance, if a particular item requested is not available at the store, the shopper can quickly send a message to the user requesting a substitution or a different item. It is an excellent method for reducing complaints. It demonstrates that Instacart is a well-designed application. The app’s functionality and business strategy are integrated and optimized to improve user satisfaction. They have accomplished this by continuously enhancing their app; they listen to their clients and modify the app depending on their suggestions.
4. Consumer Management
Instacart employs several different strategies to strengthen its relationships with its clients. They have referral programs that allow existing customers to earn $5 worth of credit when they enroll a new user on the app. In addition, they have promotional offers that allow users to access deals and discounts. In addition to this, users of the app receive free delivery on their very first order, and they also have the opportunity to take advantage of several discounts on subsequent orders.
5. Retaining Personal Shoppers
Even though personal shoppers are not full-time employees and it can be not easy to retain them over time, Instacart allows them to get tips, enhancing their wages. In addition to earning via the app, shoppers can receive tips from clients and earn extra money.
Instacart has a distinct business model compared to other supermarket delivery services. They can profit by charging the client and the store for each order. This business approach also allows them to offer clients low prices. On-demand, the supermarket delivery industry has a bright future since millions upon millions of consumers want to get groceries from the comfort of their homes or office. With a deeper understanding of Instacart’s business strategy, you may develop and launch your Grocery business plan.