Operating in some of the major cities of USA, Instacart provides grocery on-demand and delivers it to the doorstep of customers. It makes use of high end technology to facilitate the business and due to their efficient network, customers get the delivery of groceries in as little as an hour, due to which customers find it highly convenient and easy.
Instacart has grown prominently in the on-demand delivery industry and it is backed by entrepreneurs who are enthusiastic about its growth and rely on the sharing economy model to facilitate the operation of its business. In this article, you will have a clear understanding about the factors that drive Instacart, the operating model and also the basis on which Instacart is valued at $2 billion.
An overview of the founders and funding of Instacart
Instacart started its operations in 2012 and is one of the latest companies to conquer the markets using complex technology. It is one of the most advanced players in the on-demand sector and Instacart has received huge funds to expand its business and operate across all major cities in the USA. Read on to know more about some astonishing facts regarding Instacart:
- It was started together by Apoorva Mehta and Max Mullen.
- Till date, investor funding received by Instacart stands at $275 million.
- Instacart is presently valued at $2+ billion.
- The operating revenue of Instacart is $100 million.
- Instacart is based in San Francisco, California, USA.
The massive funding towards Instacart denotes the trust and hopes investors have pinned on this start-up and its growth. Listed below are some of the prominent features of Instacart that are responsible for the brand value of Instacart.
- Presently operating in major regions of the USA such as SF Bay Area, San Jose, NYC, Philadelphia, Austin, Washington DC, Seattle, Chicago, Los Angeles and Boston.
- Boasts of a large inventory comprising of more than 300,000 items including products of Whole Foods, Costco and Safeway, which allows customers to choose across different stores based on their preferences in a single order.
- Users can connect in a crowdsourced market environment where they can get in touch with the personal shoppers that deliver the products.
Value Proposition of Instacart
- Collaborate with the supermarkets.
- Hire part-time workers who have their own cars.
- Massive inventory
- Efficient and super-fast delivery
- Eliminate warehousing
- Delivery trucks should not have any catchy content on it
Customer base of Instacart under three broad categories
1. User Segment
- Orders made usually from the App and they can order across multiple grocery stores.
- Orders can be made even from laptop or desktop systems.
- Online payment is made towards their shopping and users also have an option to tip their shopper beforehand.
- Users get to choose from stores in their vicinity and can purchase products from multiple stores in the same order.
- Delivery of the products can be pre-scheduled based on the convenience of the user.
2. Shopper Segment
- Orders placed are seen by shoppers on their app.
- The location of shoppers is usually close to stores so that the delivery time is less.
- On receiving the notification, they pick the items from supermarkets and deliver it to users.
- Their pay includes an hourly pay and the tips generally paid by the customer.
3. Store Segment
- Instacart has tied-up with the leading supermarkets in their areas of operation.
- It is a win-win situation as the supermarkets are able to generate better revenues due to Instacart.
A 4-step methodology about the functioning of Instacart
- Users shop for their required products and make an online payment from their Instacart account.
- Orders placed are received by shoppers who in turn collect the products from supermarkets.
- Shoppers pay for the products in supermarkets using their prepaid debit card provided by Instacart.
- On collecting the products from supermarkets, shoppers deliver the products to users at the address as mentioned by customers.
The tips paid by the customers towards shoppers while making payments online are transferred to the shoppers and it will be calculated on a monthly basis. The tips accumulated will be paid towards the end of the month to shoppers along with the salary. In case of cash on delivery models, the shopper gets the tips paid instantly.
Sources of revenue for Instacart
All orders above $35 are charged a delivery charge of $3.99 for 2 hour delivery and if the 1 hour delivery is chosen, the delivery charge is $5.99.
For orders below $35, the 1 hour delivery charge is $9.99 and a 2 hour delivery would cost $7.99.
Membership charges towards Instacart Express
The annual membership program by Instacart, known as Instacart Express, is for $99 and users who purchase an Instacart Express membership get all deliveries without any delivery charges for the next one year. However, there are a few terms and conditions associated with the membership.
Increase in mark-up prices
Although some supermarkets offer their goods at the same price as listed in the store, some products on Instacart have increased the mark-up prices by over 15% when compared to the prices at which the products are offered in stores. Due to the increase in mark-up price, Instacart is able to pay for the shoppers and also end up with fair margins.
How does the customer base of Instacart grow?
- Social Media Marketing
- First delivery free
- Word of mouth advertising
- Promotional offers
How does Instacart recruit shoppers?
The process starts by inviting applications for shoppers who are willing to work in their free time. The recruitment team then looks into the application and then schedules interviews for the applicants that pass the screening test. Once they pass the interview, appropriate training is provided after which, they start delivering the products.
Common challenges faced by Instacart and solutions
Retention of shoppers
Shoppers working for Instacart are hired on a part time basis and hence, they do not stick around for long. Due to this, Instacart has provided the option to customers to include a tip in their orders so that shoppers are able to make extra money.
Cut down the delivery time
To start with, even the 2 hour window was insufficient for Instacart shoppers to deliver the orders. As a move to cut down the delivery time, Instacart placed shoppers in close vicinity of supermarkets so that they are able to respond quickly and deliver orders at the earliest possible time.
Instacart shoppers work on a part-time basis and hence, managing the workforce is tedious for Instacart. To solve this issue, Instacart started a “busy pricing” system, where customers would have to pay a surcharge if the shoppers are busy. In the surcharge paid by customers, a partial payout is made to shoppers so that they get motivated and deliver faster.
Building Customer Trust
When customers realized that Instacart is using different mark-up prices, customers lost their trust. Instacart immediately changed the prices back to in-store prices. Although a few customers stopped using Instacart, others found that getting the groceries delivered to their house was convenient and worth the higher prices charged.
Wrong delivery by shoppers
There are chances where in the shopper delivers the wrong item. Instacart has a team to resolve such issues. Once you get in touch with them and inform them about the wrong delivery, a refund is issued.
Ordered product not in stock
The ordered items might not be in stock. In such conditions, the shopper delivers a product that is similar. However, there is a possibility that the customer might not want an equivalent product. To avoid such problems, customers are given an option to tag products that are frequently out of stock so that other customers can order accordingly.
What is the future of Instacart?
Due to the super-fast delivery by Instacart, it offers an unparalleled level of convenience to customers. A large number of users prefer shopping with Instacart as they are able to receive products at their doorstep. Instacart is cash rich, all thanks to the $275 million funding it received, enabling it to expand rapidly across other cities in the USA.
It might eventually turn out to be one of the most promising companies in the USA and you could draw inspiration from the business model of Instacart to start your own on-demand business. This said, it is about time to work on your plans and start a business if you have a concrete plan.