Instacart’s business model enables an easy setup for grocery stores, the comfort for customers to get their shopping delivered at home, and an additional income stream for personal shoppers. Instacart makes money by charging service fees via memberships and running performance advertising on its platform.
|Business Model Element||Analysis||Implications||Examples|
|Value Proposition||Instacart’s value proposition revolves around convenience and time-saving. For Customers, Instacart offers: – Grocery Delivery: The convenience of having groceries delivered to their doorstep. – Personal Shoppers: Access to personal shoppers who select and pack their groceries. – Wide Store Selection: Access to multiple stores in one platform. – Flexible Delivery Options: Choices for same-day or scheduled deliveries. For Retail Partners, Instacart offers: – E-commerce Integration: Integration of their store into the Instacart platform. – Increased Reach: Access to a broader customer base. Instacart simplifies grocery shopping for customers and extends the reach of retailers.||Provides customers with convenient grocery shopping options. Offers delivery, personal shoppers, a wide store selection, and flexible delivery choices. Attracts busy individuals and families seeking time-saving solutions. Attracts retailers seeking an extended online presence.||– Grocery delivery saves customers time and effort. – Personal shoppers enhance convenience. – Wide store selection caters to diverse customer needs. – Flexible delivery options accommodate varied preferences. – Retailers expand their reach and online presence.|
|Customer Segments||Instacart serves multiple customer segments, including: 1. Busy Individuals and Families: People looking for convenient grocery shopping solutions. 2. Seniors and Disabled Individuals: Those who may have difficulty shopping in-store. 3. Working Professionals: Individuals with limited time for grocery shopping. 4. Retail Partners: Grocery stores and retailers seeking an online presence. Instacart customizes its services to meet the specific needs of each segment.||Focuses on diverse customer segments, including busy individuals, seniors, working professionals, and retail partners. Customizes its services to address the unique requirements and preferences of each group. Provides a versatile platform for various grocery shopping needs.||– Serving diverse customer segments expands Instacart’s user base. – Tailoring services enhances customer satisfaction and engagement.|
|Distribution Strategy||Instacart’s distribution strategy relies on a network of personal shoppers who fulfill orders and deliver groceries. The company partners with various grocery stores and retailers to source products. Customers can access Instacart’s platform through its website and mobile app. Instacart’s website and app connect customers with personal shoppers and stores, enabling seamless order processing and delivery.||Primarily utilizes personal shoppers for order fulfillment and grocery delivery. Partners with grocery stores and retailers to source products. Offers access through its website and mobile app. Connects customers with personal shoppers and stores for convenient order processing and delivery. Ensures a seamless and efficient grocery shopping experience.||– Personal shoppers provide a human touch to the service. – Partnerships with stores offer a wide product selection. – Digital channels provide easy access to the platform. – Seamless order processing enhances customer satisfaction.|
|Revenue Streams||Instacart generates revenue through several streams: 1. Delivery Fees: Charges customers for delivery services. 2. Service Fees: Collects service fees to cover order processing and personal shopper expenses. 3. Markups on Products: May charge slightly higher prices for products compared to in-store prices. 4. Advertising and Promotions: Earns income from advertising and promotional activities on its platform. Diverse revenue streams contribute to the company’s income.||Relies on revenue streams from: 1. Delivery fees for providing delivery services. 2. Service fees to cover operational expenses. 3. Markups on products to maintain profitability. 4. Advertising and promotions income on its platform. Diversifies income sources through delivery fees, service fees, product markups, and advertising.||– Delivery fees provide revenue with each order. – Service fees cover operational costs and personal shoppers’ fees. – Product markups contribute to overall profitability. – Advertising income adds to the platform’s financial stability.|
|Marketing Strategy||Instacart’s marketing strategy involves digital advertising, promotions, and partnerships. The company uses digital marketing channels like online advertising, social media, and email marketing to reach potential customers. Instacart offers promotions, discounts, and referral programs to incentivize customer engagement and retention. Partnerships with grocery chains and retailers enhance its product selection and geographic reach.||Utilizes digital advertising, promotions, and partnerships for marketing. Targets potential customers through online advertising, social media, and email marketing. Offers promotions, discounts, and referral programs to stimulate customer engagement and loyalty. Forms strategic partnerships with grocery chains and retailers to expand its product catalog and geographic reach. Creates an enticing and rewarding grocery shopping experience for users.||– Digital marketing effectively reaches potential customers online. – Promotions and discounts encourage customer engagement and loyalty. – Partnerships broaden the product catalog and geographic coverage. – A compelling shopping experience enhances customer satisfaction.|
|Organization Structure||Instacart’s organizational structure includes teams dedicated to technology development, customer support, shopper support, marketing, and partnerships. Technology development teams focus on enhancing the platform’s features and functionality. Customer support teams assist customers with inquiries and issues. Shopper support teams engage with personal shoppers. Marketing teams promote Instacart’s services, while partnerships teams collaborate with grocery chains and retailers. This structure supports innovation, customer satisfaction, and ecosystem growth.||Employs specialized teams for technology development, customer support, shopper support, marketing, and partnerships. Enhances platform features and functionality through technology development teams. Assists customers with inquiries and issues through customer support teams. Engages with personal shoppers via shopper support teams. Promotes services through marketing teams. Collaborates with grocery chains and retailers through partnerships teams. Supports innovation, customer satisfaction, and ecosystem growth.||– Specialized teams drive innovation and platform enhancement. – Customer support builds trust and addresses customer needs. – Shopper support fosters collaboration with personal shoppers. – Marketing and partnerships teams expand the user base and ecosystem.|
|Competitive Advantage||Instacart’s competitive advantage stems from its extensive network of personal shoppers, partnerships with grocery chains, wide store selection, and focus on convenience. The company’s vast network of personal shoppers enables quick and reliable grocery deliveries. Its partnerships with grocery chains provide a wide product selection. Instacart’s emphasis on convenience sets it apart, attracting customers seeking time-saving solutions for grocery shopping.||Derives a competitive advantage from: – An extensive network of personal shoppers. – Partnerships with grocery chains for a wide product selection. – A wide store selection that caters to diverse customer needs. – A focus on convenience, attracting time-conscious shoppers. Sets itself apart in the grocery delivery industry by prioritizing speed, product variety, and convenience.||– Extensive personal shopper network ensures efficient deliveries. – Partnerships with grocery chains expand product offerings. – Wide store selection caters to various customer preferences. – Convenience is a key selling point for time-conscious shoppers.|
The Amazon of grocery: an old idea that burned almost a billion at the apex of the dot-com bubble, become commercially viable
It was June 2001, right at the burst of the dot-com bubble. A company that seemed positioned to conquer the world had filed for bankruptcy.
To gain a bit of context, at the apex of its operations Webvan had reached over 3500 employees.
It was extremely well funded, with over eight hundred million dollars in capital to kick off its operations.
To be sure, Webvan’s fundamental idea was brilliant. Become a grocery shop online, that is also why it got backed by smart money.
It IPOed in 1999, just to blow up by 2001 when the dot-com bubble burst.
It didn’t help either that by 2000 Webvan had accumulated a net loss of over $453 million and an accumulated deficit of $617 million.
Indeed, Webvan’s overall idea was great.
Today the integration between AmazonFresh and Whole Foods is proving viable.
But was it just a matter of timing? Indeed, timing mattered, and yet Webvan did have a customer base. Yet it was burning cash at incredible speed.
Bad timing, bad execution framework (money spent upfront without validating the market from time to time) did the trick.
Startups, by nature, have a low chance of success. And a key to increasing those chances is to stay alive, long enough.
That calls for a gradual market validation, where a company needs to start from where the market already exists.
Many successful startups that survived bad timing, had started with a market-entry and go-to-market strategy where they validated a smaller market first, then expanded on it slowly, as a new ecosystem would form.
“What we want to do is to make a leapfrog product, that is way smarter that any mobile device has ever been, and super easy to use, this is what iPhone is.”
That business platform would set the stage for Instacart.
The lessons learned through the web era would become the business playbook for startups for decades to come.
The execution of this playbook brought the development of platform business models. Platforms are initially asset-light, as all they care about is mastering a core interaction and growing from there.
This lean playbook would help Instacart slowly validate a market, that was ready, by 2012, for the concept of grocery online.
And while Instacart could have spent its resources on building massive warehouses, it instead started from the simplest possible way: build an App that connected customers with established retailers.
Instacart would make a slight markup by charging a delivery fee. As the story goes, its founder, Mehta, had the idea from Instacart when he was a kid in Canada, where he had to take the bus in the cold Canadian winter to pick up groceries.
Mehta would later move to Seattle, where he worked for several companies until 2008-2010 he worked in Fulfillment Optimization for Amazon, where he delivered packages quickly and efficiently to customers.
As he got bored by the experience, he resigned after two years in the job and set out to build his own company.
Yet, in those two years when he had moved to San Francisco, Mehta claimed he had started 20 companies, none of which succeeded.
At a certain point, he also tried to build an ad network for social gaming companies.
He spent a year developing a social network for lawyers, which eventually left him behind, as he lost interest in the project.
By 2012, Mehta had developed this app to connect customers to popular established retailers as the web had become fully viable. It was time to push on growth.
To hack his way through the program, Mehta started to reach out to Y-Combinator (YC) partners to see if any of them would be interested in his idea and perhaps let him in late. Yet, as the story goes, none let him in.
And one of the YC partners, Garry Tan, told him:
“You could submit a late application, but it will be nearly impossible to get you in now.”
What to do? Mehta had an idea. Rather than pitch Instacart, he sent a six-pack of beers to Garry Tan, which unbeknownst to him, was trying the app built by Mehta.
When he received it, Garry Tan set up a meeting with Mehta to understand how Instacart worked.
As Mehta presented Instacart to YC partners, he would finally be accepted into the program. It was the only case ever accepted, even though application deadlines had passed. That is how Instacart started its growth journey.
Amazon takes over Whole Foods and goes all in with Amazon Fresh
The future took an interesting turn when Mehta’s Instacart, at the height of its expansion, would find the toughest competitor, his once employer, Amazon.
To gain a bit of context, Instacart’s most important customer and partner were Whole Foods. Indeed, in 2016, Whole Foods announced a multi-year delivery deal with Instacart, and the effect of the deal, made:
“Instacart the exclusive delivery partner for Whole Foods’ perishables business.”
However, by 2017, Amazon would make a big move, as it bought Whole Foods for almost $14 billion.
As Amazon sneaked in, it also slowly removed Instacart from the Whole Foods partnership.
The paradox is that as Amazon took over the grocery market, it also created a sense of urgency for executives in the industry, thus prompting many of them to jump on Instacart’s boat.
Instacart’s mission, key players, and value propositions
Instacart’s mission “is to create a world where everyone has access to the food they love and more time to enjoy it together.”
At the same time, Instacart leverages personal shoppers who pick and deliver items for customers.
Instacart key players and value propositions
Customers shopping via Instacart primarily love the comfort of having groceries delivered to their homes.
As a user reviewing the app put it:
“I love ordering from my phone. The cost of delivery and tip is worth me not having to leave house and put miles on my vehicle or deal with aggravation of crowded stores.”
At the same time, as Instacart makes money also via service charges is not always more convenient to shop on Instacart as prices might be higher for what you actually pay in the retail stores.
Grocery stores, retailers
Grocery stores and retailers might use Instacart as they can get more exposure for their products, and if they don’t have a dedicated last-mile delivery service organized internally, with Instacart, they can set it up cheaply and quickly.
Understanding the role of Shoppers
Instacart has two main categories of shoppers for which the value proposition is that of earning some extra bucks while working flexibly.
Just as platforms like Uber enable anyone to become a driver.
In short, in-store shoppers receive Instacart customers’ orders through an app on their smartphone and then shop and stage the groceries in-store.
Full-service shoppers receive orders from Instacart through an app on their smartphone, then shop and deliver groceries to the customer’s door.
How does Instacart make money?
The customers’ workflow is straightforward:
- They can shop at their favorite local grocery store.
- Schedule a delivery.
- Get groceries delivered.
As Instacart closes deals and partnerships with retail partners, those partners price their products on the Instacart marketplace. Instacart will make money in a few ways.
In terms of fees, Instacart has a few kinds of fees.
Delivery fees will change based on the time the order needs to be delivered and how large the order is. Delivery fees are higher during busy times. Delivery fees start at $3.99. Instacart Express members get free delivery on orders over $35.
The heavy order fee applies when certain heavy items (like cases of beverages and pet food) are applied.
A 5% (or $2 minimum) service fee applies to non-alcohol items for non-Express customers.
Alcohol service fee
The fee covers the additional cost associated with ensuring compliant delivery of alcohol products and ID verification application.
Instacart Express Membership
Instacart Express is a membership option for customers who want to use Instacart regularly. With a flat annual cost or a low monthly fee, customers have unlimited free deliveries for all orders over $35.
Instacart Express benefits comprise:
- $0 delivery fees on orders of $35 or more (typically $3.99-$7.99 for non-Express).
- Reduced service fees (typically 5% for non-Express).
- No busy pricing fees during peak delivery hours.
- Shop at a variety of stores with free delivery on the entire order.
The annual membership is $99.
As the story goes, once a partner asked what it would cost to be featured on the platform, and from there, they realized Mehta realized Instacart could make an extra revenue stream with advertising on the platform.
As specified by Instacart, the prices that you find in its marketplace might not be the same compared to what you find in the stores.
Indeed, Instacart might apply markups, so generating revenues from that, which is used to bear the cost of personal shoppers.
- Instacart was founded as an attempt to enable grocery shopping online finally. And this idea would become viable by the 2010s when Mehta, a former Amazon employee, eventually built an app to connect customers with retail groceries.
- As Instacart grew, it also proved how viable the idea was, and among its key client there were Whole Foods. However, as Amazon bought Whole Foods in 2016, it also slowly pushed out Instacart.
- Instacart’s business model enables an easy setup for grocery stores, the comfort for customers to get their shopping delivered at home, and an additional income stream for personal shoppers. Instacart makes money by charging service fees via memberships and running performance advertising on its platform.
- Origin and Background: Instacart was founded as an online grocery shopping platform, addressing the need for convenient grocery delivery. It emerged as a commercially viable solution in the 2010s, tapping into changing consumer preferences and technological advancements.
- Webvan’s Failure: The early 2000s saw the failure of Webvan, a similar concept that aimed to bring groceries online. Despite a brilliant idea and substantial funding, Webvan’s bad timing and poor execution led to bankruptcy.
- Platform Business Model: Instacart’s success can be attributed to its platform business model. Platforms focus on mastering core interactions and gradually growing from there. Instacart started by connecting customers to established retailers through an app, leveraging personal shoppers for delivery.
- Gradual Market Validation: Instacart’s strategy involved starting with a smaller market and gradually expanding as the ecosystem formed. This approach increased survival chances and allowed the company to adapt to changing market dynamics.
- Amazon’s Entry: Amazon’s entry into the grocery market with AmazonFresh and the acquisition of Whole Foods posed a significant challenge to Instacart’s dominance. However, this also prompted other retailers to partner with Instacart to compete.
- Mission and Value Propositions: Instacart’s mission is to provide access to food and save customers’ time. The platform enrolls various grocery stores, allowing customers to shop for perishable products. Personal shoppers pick and deliver items, offering flexibility and convenience.
- Key Players and Value Propositions:
- Customers: Value convenience and delivery to their homes. Some may find the cost of delivery and service fees worth avoiding the hassle of in-store shopping.
- Grocery Stores, Retailers: Gain exposure and set up cost-effective delivery services through Instacart’s platform.
- In-Store Shoppers: Shop and stage groceries in stores, while full-service shoppers deliver orders to customers’ doors.
- Revenue Streams:
- Fees: Instacart charges various fees to customers, including delivery fees, heavy fees for certain items, service fees, and alcohol service fees. The Instacart Express membership offers unlimited free deliveries for a yearly or monthly fee.
- Advertising: Instacart generates revenue through advertising opportunities on its platform.
- Price Markup: Instacart may apply markups on prices in its marketplace compared to in-store prices, generating revenue to cover personal shopper costs.
- Competition: Instacart faced competition from Amazon’s acquisition of Whole Foods and Amazon Fresh. However, it managed to partner with other retailers like Costco and Walmart to maintain its presence.
- Success Factors: Instacart’s success can be attributed to its platform approach, gradual market validation, and adaptable business model. It responded to changing industry dynamics and customer preferences, which helped it thrive in the competitive online grocery space.
- Impact and Valuation: Instacart’s successful execution and growth led to its valuation as a decacorn, reaching around $14 billion after a funding round in June 2020.
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