How does Instacart make money? – Instacart’s Business Model

Grocery shopping is a major chore. Sometimes it’s even a hassle. Wouldn’t it be nice to have groceries delivered to your home without having to leave the comfort of the couch? That’s why Instacart launched, to change the grocery shopping experience. Instacart is a grocery delivery service that allows you to order online from a variety of stores and have a personal shopper pick out your groceries and deliver them to you.

You might wonder how Instacart makes money. In this article, we explore how Instacart makes money through its platform, how it was founded, and its current valuation.

What is Instacart?

Instacart is a grocery delivery service that now has over 2,000 US and Canadian retailers and delivers within one hour. It has completely transformed the way people shop and deliver groceries. ​Instacart works with a variety of grocery stores in several cities, including Chicago, San Francisco, and New York City.

The money-making secret of Instacart is that they charge a commission, delivery fees, and service fees. This system worked just fine until COVID-19 came along and caused a lockdown in 2020. The company was able to make $1.5 billion in revenue before the lockdown.

How does Instacart make money?
Launch Date:June 2012
CEO:Fidji Simo
Founders:Apoorva Mehta, Max Mullen, Brandon Leonardo
Headquarters:San Francisco, CA
Website:https://www.instacart.com/
Business:Grocery Delivery

How does Instacart work?

Instacart is an on-demand grocery delivery service with thousands of stores available through the iOS and Android app as well as its website. The grocery delivery service partners with more than 500 retailers, allowing their customers to shop for food from 40,000 local grocers to chain stores.

Instacart is a perfect way to earn some extra money. With this service, you can order items online and have them delivered to your doorstep at the exact time you ask. When you place an order from a local store, a so-called personal shopper gets the items and delivers them to your doorstep.

Instacart has two types of shoppers:

  • Full-service shoppers- If you are an independent contractor who receives orders on their smartphone app, you need to have a car to shop and deliver groceries. You are a full-service shopper.
  • In-store shoppers- Instacart has an interesting strategy here. A lot of it involves part-time employees who shop and bag your order themselves. Unlike in-store shoppers, these employees need a vehicle. They don’t deliver orders like store employees do (though they can).
How does Instacart make money?
  • Once a shopper has accepted an order, he or she gets a notification on their phone. The person then picks up the goods from the store and delivers them to you. Instacart shoppers make money from their deliveries and from tips if they choose to receive them.
  • Within one hour or over a week, you can schedule your delivery date.
  • Additionally, if you choose to have your contactless delivery left at your door, you’ll receive notifications about when the shopper will arrive. You can also leave instructions with them during checkout and avoid any confusion.
  • In addition, Instacart offers a curbside pickup service. You can order groceries from the app, choose the pickup time and location, and a shopper will prepare the order. After you arrive at the store, let them know using the Instacart app, and they will bring the groceries to your car.
  • If something runs out of stock, you can choose your replacement option using Instacart’s features.
  • Grocers can boost customer satisfaction and loyalty by using instant messaging. These simple and powerful tools help build relationships between the shopper and the store and boost the shopper’s need for products.

How does Instacart make money? 

Instacart makes money through a wide range of sources. We get our commission and fees from deliveries, and we make money from Instacart Express, advertising in the app, and other income sources.

  1. Revenue Share-

Instacart operates on a commission system. They get a certain percentage of the price each client pays for an item, and that amount is dependent on what they’ve agreed with the retailer. The price in this marketplace doesn’t always match the prices of the store. You’ll sometimes see a markup, or an item that is sold at a higher price and generates revenue.

  1. Charges & Fees-

Instacart charges various types of fees based on certain services.

  • Service fee: A service fee is a small fee that helps cover a wide range of operational costs. This kind of fee does not go to the shoppers, it is for support on the platform. The fee can range from 5% to 10%. [or] Service fees do not go to the shoppers, they help cover a wide range of operational costs, including insurance, shopper operations, background checks, and customer care. The fee ranges from 5% to 10%. For example, the service fee for alcohol covers costs like delivery and ID verification. Similarly, premium members pay a lower service fee, and those who order pickup have no service fee.
  • Delivery fee: Instacart charges a delivery fee for each order, and it varies depending on what you buy and how fast you want it. The minimum order for delivery is $10 and we charge $3.99 – $7.99 for same-day orders. Premium membership gives you free deliveries on orders $35 and up.
  • Pickup fee: Instacart works with brands to make deliveries. They do this by charging both a delivery fee and a pickup fee. The pickup fee is the same as the delivery fee for “Pickup” orders.
  • Bag and Bottle Deposit fee: Apart from all the fees, Instacart can reap profits off of certain taxes modeled after those of a physical store. This includes sales tax, San Fransisco Healthy tax, and sugary beverage tax. Instacart charges higher prices during periods of high demand. This is similar to services like Uber or Lyft, which charge more when demand is high or the weather is bad.
  • Instacart Express- A Premium Subscription Service: In addition to its regular services, Instacart also offers a subscription service called Instacart Express. Members of this service enjoy unlimited free deliveries for all orders $35 or more and a low monthly fee. Instacart Express is $99 annually or $9.99 monthly. This modern-day subscription service can be canceled or modified at any time. 

With express membership, you can enjoy:

  • Free delivery on orders $35 and above.
  • No fees.
  • No surge pricing during peak hours.
  • Free 2-hour grocery delivery in as little as 1 hour.
  • Personalized service with the convenience of fast grocery delivery in 1 hour.

Of course, there’s a downside to the success of subscription services. It means customers are ordering more in an era when customers are demanding more convenience. Instacart not only benefits from the Express subscription in terms of revenue, but it also encourages customers to shop more when they see how convenient it is.

  1. In-app Advertising-

This company, based in Fransisco, is a marketplace that has all sorts of retailers. This includes grocery stores that have been flourishing lately. Instacart is now making money through advertisements that are on this platform.

Retailers on any marketplace must purchase ads in order to increase sales of their products. For example, sellers of brands can pay to place ads for their own products.

Ad pricing varies depending on the category and search terms. It can depend on a set budget, so advertisers don’t go over their limits.

How much is Instacart worth? (Valuation and Revenue)

Instacart doesn’t release its finances. However, according to Crunchbase, there are some estimates that Instacart will succeed financially in 2021. In March 2021, Instacart raised $265 million from funding. The new valuation is at $39 billion.

Instacart has taken a lot of capital from big-name investors, such as Andreessen Horowitz, Sequoia, D1 Capital Partners, and Fidelity and T. Rowe Price.

Instacart is experiencing rapid growth. The company is also doing well despite many challenges. Sooner or later, Instacart can again scale up its revenue in the growing market.

What is the founding story of Instacart? 

Instacart started in 2012 when Apoorva Mehta, Max Mullen, and Brandon Leonardo decided to create an online grocery delivery service. They set up shop in San Francisco with the goal of providing their customers with groceries at low prices. 

Mehta is from India and moved to Canada in 2000. He pursued engineering at UW and worked at Blackberry and Qualcomm. In 2008, he joined Amazon as a supply chain engineer and developed their fulfilment system. In 2012, he left Amazon because he felt the urge to do something different.

After trying and failing with 20 different start-ups, Mehta came up with an idea for a grocery shopping app. He partnered with Mullen and Leonardo and together they started coding the app. The idea was later introduced as Instacart. Unfortunately, the process of getting funding for this start-up was not easy. In particular, they struggled to find a start-up accelerator that would accept them. With hard work and a focus on the “personal shopper” concept, they were able to launch their app into the market.

The team received $120,000 in funding from Y Combinator and some strong investors such as Andreessen Horowitz, Sequoia Capital, and others. The app is available for both iPhone and Android users. Amazon and eBay announced same-day delivery in the meantime. Instacart is also promoting quick shopping services.

If you liked reading this article, make sure to check out our article on how Venmo makes money!