Coronavirus (COVID-19) has projected a significant impact on the grocery industry around the globe. The pandemic has showcased a drastic surge in the demand for contactless deliveries. In an attempt to dodge exposure, millions of consumers are relying heavily on grocery delivery services. Instacart is one such prime beneficiary that witnessed the heat of this boom.
- The profit margins of the company soared for the first time as the online demand for groceries on Instacart during coronavirus broke all records.
- The daily downloads of its app increased by 218% post-February till mid-march.
- As per research conducted by The Information, coronavirus boosts Instacart’s sales as the company transacted business worth $700 million in the initial weeks of April.
- The grocery giant announced hiring 3,00,000 additional delivery personnel recently. It seeks to onboard another 2,50,000 workers to meet the demand and fulfill orders successfully, within time.
As Instacart is reaching new heights during this pandemic, many entrepreneurs take inspiration and want to launch a business or delivery app like Instacart. To draw a better understanding, let’s take a deeper look at Instacart’s customer retention strategies by dissecting its business model and revenue model.
Instacart’s 3-Tiered Customer Strategy
The Unique Selling Point (USP) of Instacart is to deliver grocery products to the customers’ doorsteps as early as possible. The business model that Instacart follows supports a 3 tier customer strategy. Not being the entity that directly maintains the inventory, the company acts as a host whereas the contractors are responsible for managing inventory and making goods available for delivery.
This unique “no-inventory” business model was an outcome of lessons that the company learned from the failure of its competitors. The 3 tier customer strategy focused on bridging the gap between consumers and contractors who are responsible for making timely delivery of goods.
Below is a detailed study of Instacart’s 3 segment consumer strategy. The key players are:
Retail Partners
Instacart has partnered with multiple registered stores that have the independence to operate under the name of their enterprise. The stores have to first enter into a special contract with Instacart to get listed on the website. Then, they can showcase the articles for purchase on Instacart’s website.
Instacart Shoppers
Instacart shoppers or delivery contractors shop for the products and later deliver them to the buyer. This segment of the 3 tier system works on a contractual basis. The Instacart shoppers are notified about the orders via a smartphone application. Upon receiving the orders, the shopping personnel collects the items from the nearest store and makes the delivery.
This segment is further divided into two categories:
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In-Store Instacart shoppers: They are employed on a part-time basis with Instacart. The in-store Instacart shoppers are designated to prepare the customers’ shopping bags or they have to make an order ready for pick up. These shoppers do not require a vehicle as they do not make deliveries but they should always have access to smartphones to track the buyer’s arrival.
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Full- Service Instacart shoppers: These shoppers are independent contractors who use the Instacart platform to shop and deliver orders for their customers.
Buyers
Buyers are the end customers who place orders for groceries using Instacart’s website or mobile application. Since multiple stores are listed on Instacart, buyers have the freedom to choose from their preferred stores. The buyers can also combine items from multiple stores and place orders.
Buyers can also schedule the date and time of deliveries respectively. Payment for the orders placed can be made online.
Decoding Instacart’s Business Model
Instacart has penned and adopted a business model that is an amalgamation of the gig-economy, eCommerce, subscription & aggregated business model.
How Instacart Grocery Delivery Works?
- The users must allow location access or manually enter their home address. The app will automatically enlist nearby local stores.
- The users can simply choose from a wide range of items, make the payment, and select date and time for delivery.
- Once the consumer has placed the order, the shopper (contractor) will receive a notification via the app. The shopper will then start collecting the articles as per the order received and prep the order for delivery.
- Payment will be initiated by the shopper by swiping the prepaid debit card issued by Instacart.
Consumers can also opt for self-pickups directly from the store. All you have to do is place an order for the grocery essentials that you require and select a pick-up time as per convenience.
Order Economics: Revenue Model Adopted By Instacart
Now that we have discussed the business model that Instacart runs on, let us learn more about the order economics of the grocery giant by enlisting the revenue streams.
Delivery Fee
Except for the first order, Instacart charges a delivery sum from customers for every order placed. The initial delivery amount is $5.99 if the order is to be delivered within 2 hours after placing it. The delivery fee for requesting a 1 hour delivery is $7.99. This may vary according to the minimum purchase requirements.
Partner Payments
Many SMEs and market leaders like Kroger have partnered with Instacart to integrate its services within the website or platform for better customer reach. Instacart earns profits by charging commissions per order and a partnership fee.
Markup Fee
Instacart earns a markup fee priced at 20% of the net cost of the item. The prices listed by some retailers (wholefoods) on Instacart are the same as their in-store prices which leaves a marginal room for profits. However, some stores like Costco list products at a 20% higher cost. The revenue generated from this set of items goes directly to Instacart.
Service Fee
Instacart charges a compulsory service fee of 5% on every order. Also, the customers have to make a mandatory 5% shopper tip for every delivery.
Membership Fee
Instacart also provides an annual membership priced at $149 known as the Instacart Express. With the membership, the customers can enjoy free deliveries for orders valued above $35, all year round.
Build A Grocery Delivery App Like Instacart
Designing and developing a grocery app like Instacart from scratch requires a lot of investment both in terms of money and time. Further, an entrepreneur has to consider factors such as addressing the pain points of customers, analyzing the strength and weaknesses of competitors, choosing a technology stack, intuitive UI/UX design & layout, necessary grocery app features to integrate, exploring monetization options, etc.
On the other hand, Growcer, a grocery software provides both ready-to-launch web portal and mobile apps, which can be customized (at an additional cost) to replicate the working of Instacart and can also adapt to any other business requirement.
Launch a grocery marketplace with Growcer
