Instacart – A Platform Thriving in a Pandemic

With quarantines and social distancing happening around the world, grocery delivery has gone from a nice to have to a necessity.

Instacart has been providing grocery delivery services since 2012 by creating a platform that connects three players – customers, grocery stores, and workers. Customers select the store they would like to purchase from on the Instacart app and the items they want delivered. Instacart workers then buy these items at the grocery store and then deliver them to the customer.

Value Creation


With the rise of Amazon and online shopping, customers now expect to be able to have anything they want delivered – including groceries. However, until recently this service wasn’t technology enabled at a large scale. This changed with Instacart which provides a platform for customers to order groceries to be delivered from a variety of stores in their area through the app and website. Through Instacart, more than 80% of U.S. households can have their groceries ordered and delivered through the service (1). This enables user to save time visiting the store and finding items as they will be delivered to their door in a few hours or less.

Grocery Stores

First, many grocery retailers don’t have the resources or internal expertise to build out an e-commerce platform of their own. Instacart has created value for these companies by investing in creating the technology that allows for online fulfillment and delivery.

Second, Instacart helps drive business to its partner store locations by making their products available on the platform. When opening Instacart, a user will see a list of available retailers in their area that Instacart has partnered with. 43% of users reported that they would order from stores they typically wouldn’t go to in person because they have teamed up with Instacart to offer grocery delivery through the platform (1).

Finally, Instacart has been making a push into the Enterprise business by developing a white-label product called Powered by Instacart. Powered by Instacart allows shoppers to place orders directly with the retailer and bypass the Instacart site. By building this product after developing its existing platform, Instacart has created additional value for retailers by allowing them to connect directly with their customers on store-branded sites while still leveraging Instacart’s technology.

Instacart Workers

Instacart has two separate employment models that provide opportunities for workers to earn money and work either flexibly or on a fixed schedule. Full-Service Shoppers are independent contractors who both purchase customers’ orders and deliver them. In-Store Shoppers are part-time employees who exclusively stay in one store buying items from orders. Both roles create jobs and value for people who work with Instacart.


Value Capture

Economies of Scale

Instacart is able to capture value by taking advantage of their economies of scale and drive efficiency in their business model. At stores that receive a high volume of orders, Instacart has stationed designated shoppers who spend their entire shift picking items. Like an assembly line, this focus on a specific task in the Instacart supply chain creates efficiency and cost savings for the business. Further, these shoppers gain a deeper understanding of the store offerings which is important when selecting substitutions for customers in the case when an item is out of stock.


Instacart charges customers several fees including that help the company capture value from its users. These include fees that are transparent for to a user – Delivery fees ($3.99 – $7.99) and service fee (5% of order). In addition, Instacart also marks up prices for some retailers. On average, prices are 15% higher compared to what would be paid in store (2). By having people become reliant on the service and integrate it into their routine, Instacart has proven that people are willing to pay for the convenience of not having to go to the grocery store. Further, price markups desensitize users to what market price is for their goods allowing Instacart to capture this difference.


Scalability and Sustainability

There are several threats to the sustainability of Instacart’s model. First, online grocery is a growing market segment making it an increasingly more attractive market for competitors to enter. Today, online grocery is only ~4% of US grocery spend. However, it is projected to be worth as much $100 billion by 2025 – or 20% of all grocery spend (2). Second, that platform is city centric and that shoppers will only ever care about grocery stores around their home. This leaves Instacart susceptible to competitors targeting individual cities through lower fees for buyers to gain market share. Third, not only does Instacart face competition from similar business models but also from the grocery stores directly. Both Whole Foods and Walmart have made big pushes into online grocery delivery. In 2018, Whole Foods pulled its stores from the Instacart platform (4) . If other stores see providing delivery services as a viable business opportunity, Instacart risks having one side of their platform disappear effectively ending their business.




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Student comments on Instacart – A Platform Thriving in a Pandemic

  1. Thank you for this post. I had never heard of Instacart and I imagine in the current situation with COVID-19, their users will probably increase dramatically in the coming weeks. I wonder if Instacart can continue its success especially as major grocery stores are offering online shopping and delivery. I wonder if Instacart can increase their offerings by focusing on supporting local businesses, who otherwise could not afford their own delivery services.

  2. I am an occasional Instacart user, and previously a Peapod user and Fresh Direct user. I love in-person grocery shopping too and now have learned to like browsing digitally on these apps. To me Instacart is great in the breadth of selection – specialty stores, bulk/membership stores, even alcohol. It is more of a fun experience, whereas Peapod and Fresh Direct are more for weekly routine purchases.

    I wonder if Amazon or Doordash or Uber would acquire Instacart. Will be interesting to discuss who would be the most ideal acquirer and whether the FCC will/should approve.

  3. I am very curious about the decision to move to Enterprise and help these retailers create their own app ordering platform. I’m slightly worried about what that would do to the Instacart brand – specifically, would you then delist that retailer from the Instacart app once they have their own app? Doesn’t that then devalue the Instacart app and brand? And if they don’t delist it, then what motivation would someone have to move over to the retailers app (unless there’s no Instacart annual fee charged to the customer – but then is this profitable for Instacart)? I’m very curious as to what knock on effects this might have

  4. Interesting read!

    Agree that a key risk to Instacart is big grocery retailers doing it on their own. I don’t see a world in which that doesn’t happen to be honest, and what could then happen on Instacart is adverse selection, where the large, at scale retailers that have enough volume to warrant their own online delivery do it on their own and Instacart is left with smaller, less known retailers that don’t have the necessary volume to warrant their own investment. Unfortunately, that would also mean fewer economies of scale for Instacart and a much more complex supply chain, which could mean the effective end of the business.

  5. I have not personally used Instacart but I wonder in a world where Amazon continues to innovate and build scale where Walmart is making a strong push and catching up by reducing it’s delivery timelines, could the space long-term have multiple players. The clear advantage Amazon has its Prime Membership that links to some many of Amazon services. Another risk is potential regulation on workers where federal or state could mandate them to have the same benefits of regular employees, something Uber and Lyft have been struggling with lately.

  6. Love it! As of last week I am now an Instacart shopper. I like your point about how price markups “desensitize” consumers to delivery fees/Instacart value capture. This makes me wonder how their markups are created – are they a flat 15% or an item by item markup? This is information they likely don’t want to share, as you say, the muddiness is accepted and part of the business model. I do wonder, however, as other players build up and perhaps new players enter, will the industry move towards increased transparency? Will service fees increase with item fees aligning across touchpoints? That is, prepared food delivery from restaurants charge the same fee for their menu items in restaurant and via delivery, but fees are baked into the service, delivery, and tip. Will groceries migrate to this model or are they inherently different?

    PS when I used Instacart I couldn’t get delivery (bc of increased demand) and instead was able to fill out an Instacart pickup. Someone shopped for me, bagged it, and then when they saw my car pull into the designated parking spot (GPS enabled on my app), they came out and put the groceries in the trunk. Now a fan.

  7. This is a great, well articulated blog! I have never used InstaCart personally but I can I clearly see the value proposition and will probably use it at some point in the future. I agree that InstaCart face a huge threat from large grocery chains that can ultimately go create their own food delivery options. I would think it may be time for InstaCart to consider a sale to companies whose services they complement (Uber for example). I’m not certain what percentage of InstaCart’s revenues come from large stores like WholeFoods and WalMart. If it’s a significant amount, InstaCart may have to pivot into service smaller sized stores that can’t afford their own delivery app or potentially focus platform building for stores that do.

  8. Thanks for sharing! I have a question regarding how they are responding to the pandemic.

    I am an Instacart customer, and I love their regular value proposition. I can see how they add even more value in the pandemic, but I am worried about the question of “What is the delivery person has COVID?” Do you know if Instacart is doing anything to ensure that their delivery people are free of the virus? Additionally, is there official guidance to tell seniors how to get groceries if they are not supposed to leave their homes?

    Thanks again for sharing!

  9. This is a very well-written blog post. I have been using Instacart for the last two years and totally agree with all the value propositions mentioned for the customers. On one hand, their white-label product ‘Powered by Instacart’ launch is an interesting concept, but on the other hand I wonder whether this product will lead to fewer economies of scale for the overall business if many enterprise businesses shift to ‘Powered by Instacart’ launch.

  10. Thanks for the interesting and timely read, Elisa! I agree with many of the sentiments expressed around whether the lift that Instacart is sure to experience with COVID-19 is sustainable long-time. On top of this, I am curious what the implications for the business are for the people they hire during the pandemic. While hourly contractors in other companies might be negatively impacted by COVID-19 can get a stopgap opportunity at Instacart during this time, I wonder how this could complicate Instacart’s ability to manage their capacity in the future.

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