InstaCart Business Model: How InstaCart Makes Money

Published On:Wednesday 22-Jul-2020

Instacart Business Model allows easy access to the grocery stores and facilitates the customers by delivering their groceries at their doorstep in a limited time. The services charges and advertisements help instacart to earn and grow their business.

Instacart is an old concept which lost almost 1 billion at the rise of the dot-com bubble and yet became commercially feasible and operational.

Journey to success

In June 2001, after the three years of operations, Dot Com Company was filed for bankruptcy. At that time, over 3500 employees were working at the Webvan.

To launch various operations, the Webvan funded about eight hundred million dollars, which was really big. The Webvan aimed to become the best online grocery store and deliver the products to their customers in a minimum period; that is how it got promoted and gained market value.

In 1999 Webvan quickly become public, but in 2001 it busted.

So the company became helpless and didn’t make a profit, however, earned a loss of about $617 million. The business idea of Webvan was best? But how?

In 2007, Amazon started amazon fresh to deliver grocery to amazon prime members, and then in 2017, they did investments with Whole Foods. The incorporation between whole foods and amazon fresh is operational to date.

It is all because of time that although Webvan had buyers and customers, yet it was bankrupted in no time.

During The dot com bubble, excessive internet-related companies had bet the massive growth of the use of the internet. But they still use business playbooks for sketching the business plans and expanding their business.

Though Webvan had an outclass business plan and had high venture funds of over eight hundred million dollars, it still busted and failed.

It is all the timing; doing things at the wrong times brings bad luck. In the case of Webvan, an inadequate execution framework resulted in failure and indebtedness.

If a company needs to be present before the market, then it requires gradual market validation. Many companies started at bad times but flourished due to their perfect market-entry and market strategies, which helped them expand their business and grow.

It takes many years to build up a business platform, and the platform that helped Webvan to reach the heights would come in 2007 when Steve jobs at the Cupertino stage declared that “all we want to make a leapfrog product that is smarter than mobile, and it is easy to use, this is the iPhone.”

The Back story of Instacart

In the future, the web era will help the business playbook to become the originator and initiator. The implementation of this playbook resulted in the growth of platform business models. Initially, platforms have fewer capital assets than their operations, as they all want the core interaction to gain the value of their platform and achieve favorable results.

Through this lean product playbook, in 2012, instacart penetrated the market as an online grocery store. Instead of spending a lot of money on building massive warehouses, instacart built an app to access their customers and retailers easily.

The instacart earned money and increased their markup through the delivery charges. The concept of instacart was of Mehta, the founder of instacart. He got inspiration from his childhood when he had to stand in the ques to take the groceries in winter.

Later he moved to Seattle, where he worked for companies, and in 2008-2010 he worked for amazon as fulfillment optimizations. Mehta receives the order and afterward delivers the order at the customer’s hand.

After earning the experience of two years, he left the job and started his own company. Meanwhile, he had to move to San Francisco. Mehta initiated 20 companies, but none worked, all failed.

After some time, Mehta did other works such as started an ad network for social gaming companies and initiated a social network for lawyers from one about one year. But nothing worked; everything busted.

When in 2012, the web became famous worldwide, Mehta decided to expand his business, so for this, he developed an app to connect the customers to their retailers.

But unluckily, Mehta failed to apply for the Y-Combinator acceleration program on deadline. But he didn’t lose his hope. No matter the time was gone, He kept planning to enter the program.

To pave his path and enter the program, Mehta often contacted y-combinator partners, but no one considered him and his idea.

Then a YC partner, Garry Tan, asked him that he will never be able to enter the company.

Yet Mehta didn’t stop; he continued his efforts, so instead of presenting his idea, Mehta bribed Garry tan with six-packs of beers to convince him to build the app with Mehta. The strategy of Mehta worked, and Garry Tan set up a meeting with him to know his program and work altogether.

Gary Tan liked his work and accepted his application, and so Mehta became the first person ever whose application was accepted even after the target date. That’s how Mehta began his journey of development.

Amazon Fresh and Whole Foods

The future took an exciting twist when Mehta instacart became most popular and gave competition to a company in which he was once employed, that is Amazon

As a background, whole foods became the most perishable partner of Mehta’s instacart. The whole foods and Mehta’s instacart remain partners for a long time, and in 2016 whole foods announced a multiyear delivery plan with instacart, which gave another height to Mehta’s instacart.

But in 2017, amazon played a trick. They snatched whole foods from instacart for almost $14 million, so instacart and whole foods no more remained partners.

The conflict is that amazon became the king of the online grocery market, and other companies in this industry like Costco and Walmart combined with instacart.


Customers of instacart place orders to deliver groceries at their doorstep and enjoy their comfort zone. Most of the happy users reviewed that they are satisfied by the services, and it is terrific that they receive the grocery by sitting at home without paying for the fuels in vehicles or dealing with the crowded areas.

You might find instacart expensive because they add service charges, which increase the prices of grocery as compare to retail prices.

The grocery retailers

For retailers, Instacart has become a way to earn extra money within feasible working hours. Mehta’s instacart promotes their products and increase their exposure. Because the retailers typically do not provide delivery services to their customers, which instacart has provided them at cheap rates.

What is the role of shoppers?

Shoppers are the individuals who are involved in the shopping of delivery of products. Instacart introduces two types of shoppers that can earn extra money by working smoothly. Instacart encourages and motivates people to become their shoppers and provide them an excellent chance to earn extra bucks.

In-store shoppers

They are the part-time workers of instacart, and they have the responsibility of packing the products for delivery. They have access to the app through their smartphone, but they do not deliver the stuff.

Full-service shoppers

These are the shoppers who are responsible for shopping and delivering the order. They have access to both smartphones and vehicles.

How does Mehta’s instacart make money?

The customer’s workflow is simple.

  • They just have to select a store and place an order through instacart.
  • The customer pays online and places an order
  • Through the app, the shoppers in the vicinity will receive the notification of order.
  • They will then collect the grocery from the selected store. And then, they will pay to the store through the prepaid debit card.
  • Then the grocery will be delivered to the customers at home.

Shoppers are paid hourly for their services, And sometimes companies tip them.

Instacart does not charge any of the stores affiliated with them. But instacart has other means of making their revenue.


Instacart has the following types of fees

  1. Delivery fee

Orders which are below $35 may have delivery fee ranging from $3.99 to $9.99. The delivery fee depends upon how soon the customers want to receive their order and how big the order is.

  1. Heavy fee

The heavy fee applies when you buy a big and overweight product like pet food and beverages. If the weight of items is greater than 50lbs, then you have to bear the heavy fee.

  1. Service fee

A service fee is a 2% to 5% endowment or donation provided by the non-express customers.

Alcohol service fee

This is an additional cost offered to the customers who buy alcohol-related products.

Instacart Express membership

The instacart membership is for those who want to become their regular customers. It offers low annual and monthly costs and free deliveries even at the order above $35.

The benefits provided by instacart express are

  • No, deliver charges at the order of more than $35.
  • Lower service charges
  • charge no extra money at the peak delivery hours.
  • No charges for any kind of order.

Instacart offers the annual membership at $99 for the one year, with many delivery benefits.

Promotion and marketing

When one of the partners of Mehta’s instacart asked Mehta that how much they have to pay for getting into this platform, at that time, Mehta decided to make extra money through marketing and advertisement.

Through advertisement, instacart earned a revenue of $14 billion in June 2020, which made it a decacorn.

Markup cost

Instacart earns through markup because they get the product cheaper than the market rates. Instacart uses this money to pay shoppers.

Key takeaways of instacart business model

Instacart was made with the purpose of online grocery shopping. It was founded by Mehta, a former employee of Amazon, and in 2010 became popular.

Over time, instacart flourished and proved that practicable and useful their idea was. Whole foods were are important clients of instacart later, which was purchased by the amazon, which pressed instacart.

Instacart is viable and provides an ease to its customers by delivering the grocery at their doorstep and also served as an income source for the shoppers. Instacart itself earns through service fees, membership, advertising, and marketing, etc.

Challenges and their solutions

Along with the tremendous success instacart has to face some problems:

  1. As instacart was the part-time job for the shoppers, so it became complicated for them to retain the shoppers. Instacart found a solution to it that it allowed users to tip the shoppers during their checkout.
  2. Another challenge faced by instacart was the delivery time. To make the customers, it was essential to deliver the products on time, so the company placed the shoppers outside the stores, which improved the delivery time and saved the time of shoppers.
  3. When the product is out of stock from any store, it creates a problem for the company to deal with the customer’s needs. But instacart found a smart solution to this too. They added the option of often out of stock in their app and made their purchasing process more efficient and systematic.

Final verdict

The business of online shopping has a bright future because, according to the eCommerce trends in 2020, the expected increase of online grocery shopping is from 15% to 25%, and in 2021 it will increase to 73%.

Over time Mehta instacart has earned great market value and success. According to Forbes, instacart had revenue of $1.9 billion along with 500,000+ satisfied customers. Usually, a customer pays $95 per order and uses the service twice a month. However, instacart express customers place the order more than four times per month.

Instacart is planning to expand its business to other cities in the US. This company has become the most dominant market in the US and Canada.

So now, you can create your app base on a similar business model. If you find it difficult and challenging, then you can ask us in the comment section below.

Click to rate this post!
[Total: 2 Average: 5]