Instacart – A New Business Model: “Swift Delivery for Those Who Have No Time for Shopping”

In the day and age when time is essential for urbanites and every step to spend time is significant, employees have to leave home early so as to avoid heavy traffic both in the morning and in the evening.  Public transport still has not squarely met the demand on the part of those living from hand to mouth while everybody lacks the time, things have to be done quickly and people yearn for private moments when they can sit still in their homes doing things of their liking and hating to waste time on fruitless activities such as being caught in a traffic jam or standing in a very long line waiting to get to the cashier.  All these have given rise to a new business model known as the On-Demand Market where goods and services are sold on the basis of accessibility rather than ownership via platform technology to allow for access (to enable a link with suppliers via cell phones).  The type of business, meanwhile, has to rely on accurate and timely delivery.  Let’s learn more about the business called“Instacart”.

     Instacart is an on-demand groceries delivery platform which entails delivery to the customer at his doorstep, in operation particularly in big cities in the United States. Through the application of technology, groceries can be delivered to the customer within an hour, which has put the business model in the limelight.  Instacart was founded in 2012 by Apoorva Mehta (former Amazon employee) and Max Mullen.  Service was first provided in San Francisco, Mountain View and Palo Alto.  It was the year that shook global business models due to Instacart’s excellent technological application.  At present, its service-based revenue is as high as US$ 100 million while its business worth is registered at US$ 2 billion.  Forbes Magazine has listed it among America’s most promising companies.

     In the area of service, Instacart is like a market place where curstomers can place their orders for groceries through smartphone application and pay online.  Instacart works under the three-No concept, i.e. No Warehouse, No Inventory and No Truck. After an order is placed, the system will send the information to the‘Fulfillment Engine’, an intelligence system that functions as processing unit and forward the result to the“Personal Shopper” who shops for all the items on the customers’ orders as well as pays the bill through instacart’s debit card and delivers the items to the destination within the time specified.  The majority of Instacart customers are drawn from online marketing as well as word of mouth marketing involving satisfied customers who have been its service users. Meanwhile, Instacart’s revenue is derived from the following :

  1. Delivery fees: Each purchasing order exceeding $35 is charged $3.99 delivery fee for delivery within two hours or $5.99 for delivery within one hour.  For an order of less than $35, the fee increases to $7.99for two-hour delivery or $9.99 for one-hour delivery.
  2. Membership fee/Instacart Express at US$ 99 per year which includes free delivery for the whole year for subscribers.
  3. The 15% mark-up fee from the base price, which is partially used to cover the shoppers’ compensation.

     Personal Shoppers are recruited and selected from casual workers seeking a part time job. Compensation is paid by the hour of shopping on behalf of the customer the submitted the order through the application which includes tips, as well. Shoppers are required to go through a basic training and orientation to cover a range of topics such as quality and product selection techniques,  delivery process to the doorsteps, customer satisfaction techniques, etc.

     Over 300,000 product categories are available through Instacart, from sources such as Whole Foods, Safeway, Costco, and other low-cost wholesale venues that require purchases in bulk. All of which, customers are able submit orders from multiple sources through-by. Services are being provided in key areas in the U.S. ranging from SF bay area, San Jose, New York, Brooklyn, Washington DC, Philadelphia, Boston, Chicago, Austin, Seattle to Los Angeles.

     It seems Instacart’s business model is being sought out in areas where urbanites want to save the time shopping for groceries in exchange for higher buying prices, convenience and more free time to do other things of their choice. Still, business weaknesses and difficulties exist, among them shopper retention due to his/her part-time status which is in conflict with pursuing the occupation in any lengthy period of time so as to meet the ever increasing customer’s demand.  Instacart has thus come up with the so-called incentive system in solving the problem, thereby either allowing an additional channel in the application for customers to give extra tips to the personal shopper or reducing delivery time. It it important to note that punctual delivery is a challenge within all forms of business involving buying and selling of goods. For Instacart operators having no delivery trucks/vans of their own, delivery within two hours proves a big challenge.  To reduce delivery time, Instacart moves to assign the shoppers to stand by at the participating shops/stores so that they can instantly start shopping once the orders come in, among other measures.

     To close, for all wholesalers to retailers to middle-man sailors as well as various service providers, it is a crucial success factor to stay informed, be strategically updated, and develop new operating procedures to keep up with new business venues that arise on a daily basis. As customer needs are well-known for ever-changing qualities, thus Flexibility and Agility is of most importance to not only stay in business but to improve and advance and remain in an advantageous position over the long run.

Compiled by BLOG.SCGLogistics

References and Pictures nytimes.com, nextjuggernaut.com, forbes.com, geomarketing.com

Share this post