How Instacart works : The Complete revenue and business model

Instacart is an on-demand grocery delivery platform facilitating doorstep deliveries of groceries and other home essentials in major cities of USA. The technology driven business model of Instacart boosts of delivering groceries to customers in as little as 1 hour, making it one of the most promising and futuristic company of USA which is based on sharing economy model.

This grocery delivery startup has become so famous in the on-demand sector that a lot of budding entrepreneurs are interested to learn more about Instacart business model and understand its overall working in order to develop the next big thing in the sharing economy. This post from Juggernaut will show you how Instacart works and makes money along with some interesting facts and figures about this $2 billion valuation company.

Founders, Funding received, Facts and Timeline

Instacart was founded in year 2012. It is one of the most recent technology developments which has shaken the world by its business model. Being considered as a leader in on-demand economy, Instacart has received massive funding to expand its grocery delivery operations all across USA. Here are few facts about Instacart:

Founded by: Apoorva Mehta (CEO / Founder) and Max Mullen (Co-Founder)

Funding received: $275 million (Till the mid of year 2015)

Company Valuation: $2 Billion. (As per Jan 2015)

Revenue: $100 million (As of Jan 2015).

Headquarters: San Francisco, California, USA.

The amount of funding received by Instacart clearly shows the trust of investors in this start-up and its projected future. To understand what makes Instacart a promising company, let me quickly take you through the salient features and the value propositions of Instacart. Thereafter, we’ll move on to understand Instacart’s core working and its customer segments.

Salient Features of Instacart:
Available in major areas of the USA including SF Bay Area, San Jose, NYC, Brooklyn, Washington DC, Philadelphia, Boston, Chicago, Austin, Seattle and Los Angeles.
A collection of over 300,000 items from several stores such as Whole Foods, Safeway or Costco enabling customers to place orders from their favourite store or to mix items from different stores into one order.
Crowdsourced Marketplace model with users being connected to personal shoppers who shop for ordered items and deliver them to the customers.

Value Proposition:
Tie-ups with existing supermarkets
Willing part time workers and their cars
Vast inventory
Extremely quick delivery
No warehouses
No shiny delivery trucks

Instacart’s 3 Customer Segments Explained:

Users:

They have an app from where they can order groceries by choosing one or more stores.
They can even order from a desktop or laptop using a web based interface.
Users pay online for their order and can tip their shopper in advance during check out.
Option to shop from any of the available stores in their area. An order can even be placed by combining items from different stores.
Users can schedule orders for a specific day and time.

Shoppers:
Shoppers receive orders on their smartphones.
Shoppers are stationed near the stores in order to save time.
They pick up the ordered items manually and deliver it to the customer.
Apart from the per hour pay, shoppers often get a tip from customers.

Stores:
Instacart has tie-ups with major superstores in various cities.
These stores have been able to increase their revenue through online sales via Instacart.
Instacart Business Model Canvas [Image: changes done] The 4 step model about How Instacart Works:
A customer places his order for groceries and pays online to instacart.
A personal shopper receives the order and starts collecting items as mentioned in the order.
Shopper pays the bill through Instacart’s prepaid debit card which is accepted at the store.
The shopper then goes to deliver the groceries to the customer as per the address mentioned in the order.
Any tip paid in cash at the time of delivery directly goes to the shopper and the tip paid to shopper during checkout gets accumulated in his Instacart account and is paid at the end of the week along with the salary.

Instacart revenue model – How it makes money?
Delivery Fee
Every order processed by Instacart which is above the value of $35 attracts a standard delivery fee of $3.99 for a scheduled or 2 hour delivery and $5.99 for a 1 hour delivery.

Orders under $35 value are charged at $7.99 for a scheduled or 2 hour delivery and $9.99 for a 1 hour delivery.

Membership Fee (Instacart Express)
Instacart offers an annual membership by the name ‘Instacart Express’ priced at $99. Users having this membership can get free delivery of groceries for full 1 year with few terms and conditions.
Mark up prices (15%+ more)
Some stores selling their products on Instacart offer the same prices as their in-store prices but few stores listed on Instacart have a mark-up of 15%+more from their in-store prices. The revenue from these mark-up prices goes to Instacart which helps them pay the shoppers.

How Instacart finds customers?

Word of Mouth Advertising
Internet Marketing
Free first delivery
Various offers

The process of Recruiting Shoppers:
Application are invited from individuals who want to earn money by shopping in their free time.
Applications are processed by the recruitment team and a face to face, one on one interview is scheduled.
Proper training is provided to selected individuals before they are ready to shop and deliver groceries.

Key Problems and Solutions:

Shopper Retention : As all shoppers work part time, it is difficult to retain them for a long time. To enhance the earnings of shoppers, Instacart added an option to pay tip to a shopper in the check-out section of the website.
Reduce Delivery time : Delivering groceries within 2 hours was a challenge for Instacart. To reduce the delivery time, Instacart places its shoppers outside the stores where it has tie-ups. Whenever a shopper receives an order, he is already at the store saving him 50% of the time.
Shopper Shortage : As Instacart shoppers work as freelancers with flexible schedules, it is difficult to manage the freelancers fleet and assign instant tasks to them. To deal with this problem, Instacart introduced a “busy pricing” policy by which it adds few dollars as delivery charges to a customer’s bill depending on how busy its shoppers are. A part of this additional price is also paid to the shoppers so that they can work as quick as they can.
Customer Trust : Customers lost their trust in Instacart when they came to know that the company is putting up its own pricing for products. These prices are marked up from the in-store prices. Instacart soon admitted to the marked up prices. However, few uses might have stopped using Instacart due to this, but majority are ready to pay the mark-up prices in order to get groceries at their door step.
Wrong item Delivery possibilities : Sometimes a shopper picks up the wrong item and delivers it. To handle all such issues, Instacart has a dedicated support team which can be reached over the phone or through email. Refund is processed if the personal shopper misses an item in the order list.
Out of stock items : Sometimes, Items in the shopping list go out of stock. In such cases, shoppers replace the non-available items with similar items that are available, which might not be wanted by the customer. To deal with this problem, Instacart allowed customers to add notes and they also added a “often out of stock” button on such items for the reference of customers.

The Future:

Grocery delivery business has a great future as more people want the most easy and convenient way to buy grocery items. Promising delivery within 2 hours, instacart has become a powerful solution in the US and with $275 million funding, it is ready to take on other cities in the USA as well as expand outside the country. Forbes has ranked Instacart at the Number 1 spot in the list of America’s most promising company.

So now you know how Instacart works. This amazing technology can be used to create a similar business model in the on-demand segment. If you are dreaming to make the next big thing in this world, then this is the time to take action.