Instacart is an on demand platform for delivering groceries and other goods from the best super markets around you. Once an order is placed via an app, a free lance shopper (some are employees) is notified to proceed to shop for and deliver goods to the customer. The company has expanded rapidly ever since it was founded in 2012 and currently serves several cities including 21 metros in 20 states. It has also raised $275M from investors such as Whole foods, American Express Ventures and Andreesen Horowhitz, valuing it at $2B.
There are several ways Instacart is able to create value for its customers, shoppers and the super markets it sources goods from.
- By not having to visit the super market, customers can save ample time by ordering straight from their smart phones or a web application.
- The groceries can be delivered within 1 hour or even at a later date
- The technical capabilities of the application allow for, among many other useful features, quick searches, recommendations, descriptions of products, show of discounted items and tracking orders/history.
- This setup can be especially useful for the elderly or people with poor health who finds the process of getting to the super market, shopping for goods and then carrying them back too tiring
- Ability to combine orders from different super markets
- Crowdsourced model to help users connect with shoppers and delivery personnel
- Shoppers gain since they are flexible to work at any hour, any day and for any duration they desire
- Supermarkets get more visibility via the Instacart app which can result in their increasing revenues
- Supermarkets are able to showcase their best selling products
Instacart reported revenues of $100M in 2015 – this is generated via several different sources
- Customers pay a delivery fee that varies in the following way
- Variable fee that’s dependent on urgency of delivery. E.g $5.99 for a one hour delivery, $3.99 for 2 hour or greater delivery
- Variable fee that’s dependent on minimum order size. E.g $9.99 for a one hour delivery, 7.99 for 2 hour or greater delivery for orders less than $35.
- Monthly/ yearly subscription fee. E.g $99 for annual membership for free deliveries
- Grocery retailers pay a fee that is based on volume of orders generated via the app.
- Consumer packaged goods partners pay a fee to Instacart for promoting their products.
- Some products are marked up (indicated) by ~10-15% on the app vs at the actual store and that difference goes to Instacart.
The operating model
While I do have concerns in scaling the operating model since, as opposed to Uber where not much employee training (driving is a common skill) is required, Instacart needs to ensure its temporary workers are well trained (to pick out groceries that aren’t too ripe or too raw) in order to maintain high ratings. However, with scale there is also a significant opportunity for Instacart as when more people start ordering, the shoppers and delivery personnel will become more efficient due to serving larger volumes at once, enabling the company to cut down on its costs. Another advantage of the operating model is that Instacart doesn’t hold any inventory since all the items on its listings are in the super markets and hence the company can avoid heavy capital expenditures in warehouses. Also, taking advantage of the crowd sourced model to connect users with shoppers/ drivers, Instacart doesn’t need to have any trucks/ cars for the delivery of goods.
Overall I believe the company has been on a great track since its start and given the basis and model on which it has been founded, there is a high chance of it emerging as a winner eventually.