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.
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.
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:
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 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:
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.
Instacart has penned and adopted a business model that is an amalgamation of the gig-economy, eCommerce, subscription & aggregated business model.
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.
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.
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.
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.
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.
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.
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.
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.
Disclaimer: The Blog has been created with consideration and care. We strive to ensure that all information is as complete, correct, comprehensible, accurate and up-to-date as possible. Despite our continuing efforts, we cannot guarantee that the information made available is complete, correct, accurate or up-to-date. We advise - the readers should not take decisions completely based on the information and views shared by FATbit on its blog, readers should do their own research to further assure themselves before taking any commercial decision. The 3rd party trademarks, logos and screenshots of the websites and mobile applications are property of their respective owners, we are not directly associated with most of them.