The Instacart Business Model: How the App Works and Why It's Successful (2023)

Last updated May 25, 2022

The hilarious idea of ​​being able to order groceries from one of your favorite stores with just one click has caught almost everyone's attention. This fascinating idea kept Instacart alive for almost a decade. The #1 Online Grocery Store is a simple app founded in 2012 by Apoorva Metha and Max Mullen.

What exactly is Instacart?

Imagine you have to go to a grocery store and search for more than 30 minutes to find everything you need and then realize that certain items are not in the store. The next option is to go to another store a few 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 at all your favorite stores in one place. The icing on the cake is that you don't even have to leave the house or the couch. That's the power of on-demand apps. The app is connected to major supermarkets and pharmacies in the US and allows the creation of a virtual shopping cart. Once you have selected all the items you want, a personal shopper will place and fulfill your order. The best part is that your order will be delivered within 2 hours.

If necessary, you can contact OyelabsDevelopment of a food delivery app.

Instacart believes that every experience can be enhanced with technology, and that's exactly what the company has been doing since its inception in 2012. The company makes grocery shopping simpler and actually makes it enjoyable and efficient. DamnedCreate an app like InstacartYou need to understand how such applications work and the whole process of launching such applications successfully.

The company's headquarters are in San Francisco, California. It exists in regions of Canada and the United States including the San Francisco Bay Area, Brooklyn, San Jose, Washington DC, New York City, Los Angeles, Austin, Seattle, Chicago, Philadelphia and Boston. Due to its exponential growth and popularity, the company successfully raised $2.3 million in seed capital in October 2012. As of November 2018, the company was valued at $7.87 billion. In addition aRelationshipAccording to Statista, about 85 percent of US households and 60 percent of Canadians use the Instacart app for shopping. This is a testament to the popularity of the app.

To fully understand how a company really works, we need to understand the value the company offers, the functionality of the application, the business model and the revenue model.

How the company works

Instacart has taken all the benefits of an on-demand setup and applied it to their business. They operate in several major regions of the United States, covering over 25,000 supermarkets. Users of the app can buy over 300,000 items in these supermarkets, specialty shops and pharmacies. Stores they carry include: Safeway, Costco, CVS, ALDI, Publix, Kroger, Whole Foods, Albertsons, Sam's Club, Sprouts, Wegmans and many more.

The entire business concept is in the hands of 3 employees:

• user
• single buyer
• specialty shop

Together these elements and the intermediary, the application, form a company. Without this complete ecosystem, the application cannot function properly. The good news for a company like Instacart is that it doesn't have a grocery store and doesn't employ repeat customers as its core business is surrounded by the platform it provides.

Users use the platform to shop for groceries with ease, and shoppers get a revenue stream and the flexibility to work from anywhere. As for the branches, they gain an additional user base and a way to reach more customers than brick-and-mortar stores.

You also need to know how prices are set in your application.Instacart-prijsmodelA good reference for better insights.

Business - the heart of the Business Model Canvas

Before founding a company, the most important aspects that every CEO considers form the basis of the Business Model Canvas. It is the foundation of a company and identifies the structure and philosophy behind it. That is why the business model canvas is also referred to as the heart of the company. Even when a company needs to make an important decision or make changes to its corporate structure, Canvas can help you understand the pillars of your business.

Company value proposition

The idea behind founding Instacart was not to make money or just start a business. Instacart was born out of a need for users to be able to shop without having to go to crowded stores. The reason for starting a business is to differentiate it from other competitors in the market. Your business needs to fill an unmet market need. This need to fulfill the unfulfilled expectations of the market becomes your value proposition because everything you do to achieve this goal will set you apart. Instacart's value proposition includes unique features that set it apart:

• Well-known supermarket chain
• No warehousing and storage needed
• multiple inventory sources
• Will be shipped immediately within two hours
• Employees who want to work flexibly without having a full-time job
• Possibility to shop in several stores in one place

Elements: customer segment

The entire Instacart ecosystem is built around three customer segments: users, shoppers, and store owners. They must harmonize with each other in order to meet the needs of all customers. Each group of customers interacts with the application in different ways and all derive different benefits from the application. We will look at each of these customer segments individually to understand how we can meet their needs and engage them in the ecosystem.

user

A user is someone willing to make a purchase through an app. They are an important part of the ecosystem because they create demand for products. Without this need, the role of other customer groups becomes redundant. User roles include:

• These people use the app to shop in multiple stores at the same time.
• They make online payments, which are then paid out to stores and buyers. So, they are the ones generating revenue from the app.
• Users are asked to enter their address into the app, which is then used to find stores near them.
• The app is easily accessible on mobile phones, laptops and desktops.
• Once an order is placed, buyers are notified immediately to ensure the process runs smoothly.
• The app allows users to plan their shopping lists in advance and plan future orders.
• You also have the option to schedule recurring orders.

These users buy fresh, organic groceries from more than 25,000 stores, including Whole Foods and Safeway. They also get access to discounts and offers they wouldn't otherwise have access to.

treasurer

If it's the users who create the needs for the app, it's the buyers who fill those needs. They are usually flexible workers who work on an hourly basis. Here's how buyers can contribute to the app:

• They start working as soon as they get a notification on their phone about a user-generated order.
• These buyers are close to the store to ensure they can pick up their order without wasting any time.
• There are two types of buyers: full-service buyers and in-store buyers. The former buys items in stores and ships them to users' homes. In-store shoppers are busy at Instacart and stores. They stay in the store and make sure the order is ready for pickup.
• Buyers are paid by the hour and can earn $5-10 per order.
• You get paid through the app, but you also get tips.

shopkeeper

These are quote makers in the app. Retailers are partnering with Instacart to enable them to sell groceries through the app. You benefit from the popularity of the app and can reach a wider audience. The app also allows these owners to advertise their businesses on the app.

Instacart business model

With a market share of 68.8% in the US, Instacart is largely due to the company's unique business model. While many companies have implemented an on-demand model, few have been able to run it smoothly. Instacart understands the needs of the industry and has aligned its business model with these needs. It works the same way:

order processing

1. The process begins with the user's purchasing needs.
2. These users shop for groceries through the app by selecting their current location. They then use online payment methods to order items in all the surrounding shops.
3. The order is then communicated to the customer, who manually starts collecting the items.
4. The personal shopper then delivers the groceries to the customer's specified address.
5. The user can then give the customer a tip if desired.

In addition, the app offers flexibility as consumers can also pick up their items in store. In this case, the customer will pick up all the items for you and when you arrive at the store, your order will be waiting for you. Wondering how Instacart makes money? The best thing about the app is how it handles money and communication. You can give hints via the app. If you do so, tip and money will be collected with the order. At the end of the week, the customer receives their share of the money.

Related reading:List of Instacart features

Instacart revenue model

One of the most important aspects to consider before starting a business is the source of income. Without a regular inflow of capital, no company can operate in the long term. This money must exceed the fixed recurring costs incurred by the business or the business will end up losing money. Sustainability is an important factor in keeping your business running over the long term, and your sales contribute to sustainability and efficiency.

When it comes to Instacart, the company generates revenue across multiple channels, benefiting users and stores. Here are Instacart's revenue streams:

Porto

All orders placed through Instacart incur a certain amount for shipping. These costs vary depending on the period in which the user needs the product. For orders over $35, users pay $3.99 for two-hour delivery and $5.99 for one-hour delivery. If the order value is less than $35, the fee is $7.99 for two-hour delivery and $9.99 for one-hour delivery. These delivery costs are shared between the store and the company.

Instacart Express Membership

Instacart also offers its customers the option of using annual memberships. For just $99 per year, users get unlimited replenishment for one year on all orders over $35

Payments from Food Partners

Instacart offers supermarkets a portal to sell their products. In return, they charge these partners a fee. The cost is calculated based on the turnover of the store. For each order, Instacart receives about 3% of the amount as compensation for processing payments, processing orders, and promoting the shop.

top-up price

In many cases, the price calculated in the app is comparable to the price in the store. In some cases, however, these prices can be up to 15% higher than retail. This surcharge is usually charged to specific stores or specific products as needed. The additional fees charged for these products go directly to Instacart, which is then used to pay buyers.

resettlement costs

These are the additional revenue methods employed by the company. These are often used to advertise businesses and in turn charge them for their services. For example, when you open the app, you'll see certain ads, and some stores are also always at the top. This is due to the placement fees these stores pay to Instacart.

according to a reportAssetsInstacart made $4.29 per order in Chicago, $6.96 in Atlanta, and $2.45 in San Francisco, while losing money per order in New York City and the Bay Area.

What sets Instacart apart from the competition

Personal shopper reservationsWhile shoppers don't have full-time jobs and can be difficult to retain long-term, Instacart allows them to earn tips that increase their income. Buyers can not only earn money via the app, they can even get tips directly from customers and thus earn additional money.

Customer relationships-Instacart uses different approaches to improve relationships with customers. They have promotional offers that allow users to take advantage of deals and discounts, and a referral program where existing customers get $5 credit when they sign up a new user to the app. In addition, users of the app can benefit from free shipping on their first order and have a chance to win multiple offers on their next order.

Fast Delivery Guarantee –Instacart promises up to 2 hours delivery and they keep their word. The company ensures that customers are already outside the store so they can collect their orders as soon as they arrive. That saves a lot of time. Determine order placement and order distribution according to the needs of different stores.

Incentives for buyers– Buyers are untrustworthy freelancers. Instacart offers various incentives to enable them to work longer. When demand in an area is higher than usual, the app increases delivery costs, allowing shoppers to earn more and incentivize them to work faster.

Communication via the appThe app allows buyers to communicate directly with users. This can be used to troubleshoot order-related issues. For example, if a certain item is not available in the store, the customer can simply message the user and ask them to replace that item with another item or to buy a replacement item. This is a good thing to reduce discomfort. In addition, any delays can be communicated.

All this makes Instacart a well thought out app. Application and business model functionality is seamless and optimized to maximize customer satisfaction. They do this by continually improving their apps; they listen to their customers and customize their apps based on user suggestions.

In order for each application to remain relevant, continuous further development is required. At a time when everything is changing, Instacart has managed to improve its business model and now has more customers than ever before. The current pandemic has changed everyone's life and Instacart has been able to thrive amidst this change. Compared to the same period last year, sales increased by 30%. That means now is the perfect time to get into the industry. Early adopters will be the ones who will benefit from this change, not only during the pandemic but also for years to come.

Frequently asked questions (FAQs) about the Instacart business model