How does Instacart make money?

By   |   Verified by Andrew Boyd   |   Updated 21st June 2021

How Instacart makes money
  • Instacart partners with local, regional, and national chains to deliver customers their groceries within hours.
  • Instacart has captured 50% of the online grocery delivery market since March 2020.
  • With competition heating up, Instacart is looking for growth outside North America.

In 2020, more than 10% of groceries were purchased online, with millions of people relying on delivery services to get their food supplies. Instacart works with grocery chain retailers across the United States and Canada, getting groceries to their customers within hours of placing an order.

As North America's leading brand in the grocery delivery space, it has been estimated that Instacart, still a private company, pulled in revenue of over $1.5 billion in 2020, with a total valuation of $39 billion. Of course, a company that large has several sources of income – this article explains Instacart’s various revenue streams.

What does Instacart do?

Founded in 2012 by Apoorva Mehta (CEO), Brandon Leonardo, and Max Mullen, and headquartered in San Francisco, Instacart got its start after being accepted to the Y Combinator development hub, with an initial funding allocation of $120,000.

The Instacart app launched in 2012 and was initially only available to iOS users. However, the company soon launched an Android experience in 2014.

In recent years, Instacart has evolved to deliver a wider variety of consumer goods through its platform. In addition to groceries, users can order consumer goods such as prescriptions, office supplies, electronics, health, beauty and wellness goods, home decor, and sports equipment.

Instacart is currently available in more than 5,500 stores, allowing them to reach more than 85% of all US and 70% of Canadian households.

Users have the option of ordering deliveries from more than 5,000 retail locations across North America. As a result, Instacart is the most profitable consumer delivery company in the US, with a market share of 57% in the grocery delivery space as of April 2021.

How does Instacart work?

Instacart offers consumers a food delivery and pick-up service managed through its in-app platform. In addition, the company works with leading grocers and retail partners to offer a diverse lineup of consumer goods available from stores around your local area.

The company operates across the US and Canada, with more than 300 participating retail brands, from the likes of Costco, Target, and even some locally-owned grocery stores. After placing your order through the platform, your personal shopper visits your selected locations and fills your order.

They get everything you need, message you if there is a need for replacements, and personally deliver everything to your home. The shoppers are not employees of the Instacart platform. Instead, they operate as independent contractors, giving them a self-employed business model.

Not only do contractors get several tax breaks over employees, but they also get paid when they deliver an order, making them reliant on providing top performance and an excellent reputation to get new business.

After placing your order, the platform connects it to an available shopper close to your location. If the location you selected is close by, the shopper could have your order at your doorstep within an hour.

How Instacart makes money

Instacart makes money through revenue sharing, delivery fees, mark-ups on prices, premium subscription fees, and in-app advertising.

Revenue sharing

Instacart charges a commission on every order they process from clients. However, the commission comes from the retailer, not the app user.

Instacart has a revenue-sharing agreement with its retail partners, with variable rates negotiated depending on the retailer's transaction volumes.

Delivery fees

Instacart charges delivery fees to the consumer whenever they place an order. The delivery fee is variable, depending on the city, location, and timeframe. According to their website, the standard delivery fees for orders above $35 are $3.99 for a scheduled or 2 hour delivery and $5.99 for a 1 hour delivery. Orders below $35 are charged at $7.99 for a scheduled or 2 hour delivery, and $9.99 for a 1 hour delivery.

The service charge on orders can equate to anywhere from 5% to 10% of the total order value. There may also be additional fees charged including a ‘heavy’ fee, which comes into play whenever the items ordered surpasses a specified weight limit, a bag fee, a bottle deposit fee, and an alcohol service fee.

Like most delivery services, shoppers can receive tips from their customers, which go directly to the shoppers.

Like ride sharing platforms Lyft and Uber, Instacart operates on a surge demand model. So, you'll pay more to get your groceries and wait longer for delivery during peak demand hours of the day, week, or month.

Instacart Express

The Instacart Express model gives consumers a subscription service for regular users. You get unlimited free delivery of your orders in return for a monthly or annual fee paid upfront. The monthly membership is $9.99, and the yearly membership fee is $99.

The benefits for the consumer include the following.

  • No delivery fee on any orders $35 or more.
  • Reduced service charges
  • No demand surge pricing

In-app ads

With nearly ten million Instacart cart users, the company has access to consumers throughout North America, giving them the opportunity to make money through in-app advertising. Sellers and brands can purchase advertising space on the platform, giving them direct access to their consumer base.

This in-app advertising is highly targeted, allowing Instacart to earn revenue from a similar advertising model used by market leaders like Amazon and Etsy. Some of the leading brands advertising on the platform include Mars and Coca-Cola.

Instacart charges undisclosed rates to advertisers, depending on the brand's size, the advertising space they want, and the duration of the ad campaign. In some cases, Instacart charges a ‘cost-per-click’ payment model, which dictates that if a consumer clicks on an ad, the company advertising is charged a fee. Advertisers also bid on search terms typed into the Instacart platform by users when filling out their shopping lists.

Future growth engine

In the coming years, Instacart plans to grow both its user base and its partner merchant network. Instacart understands it needs to diversify and increase its reach to get more consumers onto its platform, specifically in terms of what goods they offer. The coronavirus pandemic showed the company the tremendous demand its users have for other consumer goods beyond just groceries, and Instacart has already started to capitalize on this – the company recently started offering more types of consumer goods from its participating partner network – and it aims to continue doing so.

Instacart’s new Priority Delivery service, offered across 15 large U.S. cities, will guarantee grocery deliveries within 30 minutes.

Furthermore, Instacart has shown signals of wanting to expand internationally. In May 2021, Instacart appointed two new product leaders, with the specific goal of developing beyond North America. With this kind of commitment, there is no doubt that Instacart is devoted to becoming a global leader in the e-commerce market.

Competitors

Instacart's biggest competitors include other online delivery services. However, it continues to innovate and stay ahead of the competition. While Instacart is the market leader in Northern America, it faces pressure on its market share from Shipt, FreshDirect, Amazon Fresh, Postmates, Peapod, and Walmart Grocery.