What is Instacart?
Instacart is an on-demand application to order groceries and other home essentials online. They provide facilities for doorstep delivery in major cities of the USA. The business is completely technology-driven, providing customers with their orders in less than one hour. This makes Instacart the most promising company of the USA, which is based on sharing economy.
The Instacart business became so popular that it created curiosity among other entrepreneurs to learn more about this business model, how it works and what is its revenue model. All they wanted was to get an idea about how to bring up another big thing in the sharing economy. In this post, we have mentioned almost every aspect of the business.
Founders, Funding received, Facts and Timeline
Instacart was founded in 2012. It is just like the Uber business model that influenced all the budding entrepreneurs. Being considered as a leader in the on-demand economy, Instacart has received massive funding to expand its grocery delivery operations.
Facts about Instacart:
Instacart was founded by Apoorva Mehta (CEO/Founder) and Max Mullen (Co-Founder). They received a funding of $275 million (until the mid of the year 2015). The company valuation was $2 billion (as per Jan 2015), and the revenue generated was $100 million (as of Jan 2015). It is headquartered in San Francisco, California, USA.
The following graphic will help you understand the quick growth of Instacart. The amount of funding Instacart received showed that investors did trust in the growth of the business in the near future.
To know what makes Instacart such a promising company, let us look at some salient features and value propositions of the grocery delivery giant:
- 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 favorite store or to mix items from different stores into one order.
- Crowd-sourced marketplace model with users being connected to personal shoppers who shop for ordered items and deliver them to the customers.
Value Proposition:
The business had tie-ups with existing supermarkets along with willing part-time workers and their cars. As they had a vast inventory, they were covering a number of options for the customers, and they promised extremely quick delivery options. To make this idea work, they invested entirely, in developing the application and had no warehouses to spend their investment on. The shoppers were to deliver the groceries in their own cars; therefore, no shiny delivery trucks were needed.
Customer Segments of Instacart:
Users:
- They have an app to order groceries by choosing from listed stores.
- They can order from a desktop or laptop using a web-based interface as well.
- Users pay for their order online and can tip their shopper during check out.
- Option to shop from any of the available stores across 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.
The 4-step Model About How Instacart Works:
- A customer places an order for groceries and pays online on Instacart application.
- A personal shopper receives the order and starts collecting items as mentioned in the order.
- The 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 given to shopper during checkout is 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-hours delivery and $5.99 for a 1-hour delivery. Orders under $35 value are charged at $7.99 for a scheduled or 2-hours 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 1 complete year with few terms and conditions.
- Markup Prices (15%+ more)
Some stores sell their products on Instacart at the same price as their in-store price but few stores listed on Instacart have a markup of 15% more from their in-store prices. The revenue from these markup 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:
Applications are invited from individuals who want to earn money by shopping in their free time. Then these applications are processed by the recruitment team and a face-to-face interview is scheduled. Proper training is provided to selected individuals before they are ready to shop and deliver groceries.
Key Problems and Solutions in the Instacart Business Model:
- Shopper Retention: As all the 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 a tip to a shopper in the checkout 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 50% of the time.
- Shopper Shortage: As Instacart shoppers work as freelancers with flexible schedules, it is difficult to manage 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 quickly as they can.
- Customer Trust: Customers lost their trust in Instacart when they came to know that the company is putting up own pricing of the products. These prices are marked up from the in-store prices. Instacart soon admitted to the marked up prices. However, few users might have stopped using Instacart due to this, but the majority are ready to pay the mark-up prices in order to get groceries at their doorsteps.
- 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: Occasionally, items in the shopping list go out of stock. In such cases, shoppers replace the unavailable items with similar items that are available, which might not be required by the customer. To deal with such issues, Instacart allowed customers to add notes and they added an “often out of stock” button on such items for the reference of customers.
The Future of Instacart
When the business is all about consumer convenience then its future is always bright. This grocery delivery business has a great future as well because people want an 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. This shows how prominent the business is and how well developed it will be in the coming years.
