Uncovering the Secrets of the Grocery Delivery Industry: How Apps Like Instacart Work

Since there’s a constant appeal for transportation apps in the digital world, we’ve decided to spend some time talking about local delivery apps. By local delivery apps we mean grocery and food delivery platforms that connect users with local stores and restaurants and handle delivery. 

One of the brightest examples of a local delivery app is Instacart. It delivers groceries and household essentials from stores and since recently offers a premade meal delivery. Instacart experienced explosive growth in 2017, expanding to more than 150 new markets, starting operations in Canada, and striking deals with dozens of retail chains. In the latest funding round, Instacart raised $200 million at a valuation of $4.2 billion. 

In general, online food delivery seems to be a pretty lucrative business segment. Revenue from online food delivery increased by 17% from 2017 to 2018, reaching $82.7 million according to Statista

Let’s take a closer look at how the Instacart app works. We’ll also discuss what approaches an on-demand delivery service should take to improve their service and win more loyal customers.

A quick look at how Instacart works

Instacart is an on-demand service that delivers food from grocery stores right to users’ doorsteps on the same day.

Instacart app UI


It works like this:

  1. A user opens the Instacart mobile app, chooses grocery stores, and makes an order. The order includes delivery instructions such as parking locations, gate information, and any markers on a user’s home that can help the personal shopper find the best entrance. The user pays for their order through the mobile app and the money is transferred to a preloaded payment card supplied by Instacart. 

  2. Information about the order is sent to the system. After processing, Instacart sends a message to a shopper that includes a shopping list alongside detailed delivery instructions. 

  3. The shopper goes to the store, picks up all the items on the user’s shopping list, and pays with the preloaded card. If some items are unavailable, the difference is returned to the user.

  4. The shopper delivers the order to the user, who checks that everything has been delivered. Sometimes shoppers receive tips from users. 

Read also: Three Types of On-Demand Food Delivery Platforms – Pros and Cons

To provide high-quality service, Instacart needs to ensure collaboration among three customer segments: consumers, shoppers, and stores. To encourage all three of these parties to use and collaborate with your local delivery business, you should define the right incentives. Then use information about their incentives to attract users to your grocery delivery service. 

1. Consumers place orders through the main app. The goal of this app is to provide a convenient way to order and pay for food. The main incentive for consumers to use this app is the convenience of buying groceries. To attract customers to the platform, Instacart offers coupons. 

2. Shoppers, or delivery workers, have a separate app where they can see order details and keep an eye on their income. In contrast with Shipt, the Instacart shopper app can’t be downloaded directly through app markets. To download the app, a prospective shopper needs to enter their phone number in a special form on the website. After that, Instacart sends a link to download the Shopper app. 

There are two types of shoppers on Instacart: in-store shoppers and full-service shoppers. Full-service shoppers are independent contractors that shop and deliver orders, while in-store shoppers are part-time employees that shop orders within a store and don’t deliver to users. 
Instacart encourages personal shoppers to work with the company by offering flexible schedules and additional income in the form of tips from customers and weekly payments. 

3.Stores. Instacart has established partnerships with major retailers and small grocery shops in various cities. By establishing partnerships with delivery companies, shop owners get brand visibility and additional income. 

Instacart business model

[Instacart business model canvas]

Read also: How We Built an Online Shopping and Delivery Platform

Market overview

Local delivery apps can be divided into three categories:

  • Apps that deliver restaurant food and groceries. Postmates and Glovo are great examples of such apps.

  • Apps that deliver only food from restaurants. Uber Eats, Grubhub, Delivery Hero, and Caviar fall into this category.

  • Apps that deliver only groceries. Shipt, AmazonFresh, and FreshDirect fall into this category. Thrive Market is another app that stands out from delivery apps by offering only fresh food from organic grocery stores.

The popularity of delivery applications can be proven not only by statistics but also by the number of major tech players that have invested in local delivery applications.

Amazon and Google are jumping into grocery and product delivery with their Amazon Prime and Shopping Express services. AmazonFresh is an add-on for Amazon Prime that costs $14.99 per month. This service delivers groceries, household supplies, medicine, pet care products, and baby essentials. Prime Air will employ unmanned vehicles or drones that can ship items in about 30 minutes. Using unmanned aircraft to deliver packages is a strategy that’s still being tested, but it will likely be put into service once the Federal Aviation Administration grants permission. Google’s Express offers items in many categories, including groceries, medicine, household supplies, electronics, etc.

Taxi booking apps are also looking to implement local delivery services. One of the delivery options that Uber has launched is Uber Eats, which previously was known as UberFresh. The idea is to deliver fast food from local restaurants in about 10 minutes. Menus and participating restaurants vary weekly.

Uber Eats UI

[Uber Eats ]

Uber Eats operates in many countries and cities worldwide, offering a convenient way to order and pay for food from local restaurants. Users simply select their location and stand at the curb waiting for the Uber delivery to arrive. According to New York Magazine’s Kevin Roose, the objective for Uber is to outgrow its car service roots and become an enormous company providing all kinds of transportation and logistics services to people in the cities it serves.

Gett is another taxi app that offers on-demand delivery services. Gett riders can pre-book cars and request any product to be delivered to their pick-up location. Gett can deliver clothes straight from the dry cleaner or flowers and champagne for a date. 

Taxi companies challenge not only Amazon’s and Google’s product delivery systems but also local delivery startups like Instacart and Postmates. 

Food delivery startups also show the viability of this business idea. Just Eat is a food delivery platform based in London that operates in 14 countries in the Americas, Asia, Oceania, and Europe. The company reached £553 million in revenue in 2018.

Postmates handles delivery of products from both stores and restaurants and works in more than one hundred cities across the US. When a user places an order, a local courier purchases and delivers the product from the closest restaurant or store where it’s available. Instacart serves roughly the same cities as Postmates but focuses more narrowly on grocery shopping. 

Grubhub is a US-based company operating in more than 900 cities that provides meals and catering delivery and enables users to rate the food they’ve ordered. In 2017, Grubhub’s total revenue reached $683 million.

Grubhub UI

[Grubhub ]

Even though the market seems pretty crowded, there are still a lot of areas without any real competition for a local delivery business. If you’re looking to enter one of these markets, you’ll need to know a few things about local delivery app development.

Where does product data come from?

If you have a warehouse, it isn’t a big problem to keep a list of your inventory on hand. Most startups, however, don’t have that. Apps that work with restaurants, like Jinn, just have links to menus that users can access from the app. In this case, startups need to establish partnerships with each restaurant they deliver from to get access to up-to-date menus and scrumptious food pics for the app.

However, if you want to develop an app like Instacart, consider that mobile apps that deal with product delivery from grocery stores have a much more difficult problem to solve. The best way to get data about what a store has in stock would be to tap directly into that store’s inventory system. 
Instacart assembled their initial product databases for stores manually by purchasing every single product from a store and taking photos of them in their office. 

If you don’t feel like buying every single item at the supermarket, you can look for product images and nutritional information posted on online grocery sellers’ sites. For instance, Syndigo maintains a database of product information for consumer packaged goods in the US. Their E-commerce Database captures over 150 attributes per product and can deliver information to your site or mobile app.

Sometimes, menus that restaurants post online are outdated, showing inaccurate prices or items that are no longer offered. It’s important for delivery apps to make sure that every item listed is in stock and has the correct price.

Some services establish partnerships with restaurants and stores, in which case local delivery companies have no need to upload data about updated prices since item data is added by restaurants and stores themselves. Postmates has a network of more than 25,000 partners. For convenience, the company enables partners to upload menu photos to the app via their Partner accounts. Those who haven’t established a partnership with Postmates can send menus to Postmates by email. All images are checked by the Postmates team.

Read also: Two Biggest Problems for Meal Delivery Apps Like Postmates and How to Solve Them

How much money do local delivery apps make?

Every delivery app has a different pricing scheme. Income for your on-demand grocery delivery app can come from upcharging for items or from commission charged to restaurants in exchange for the delivery service. This strategy means you get more profit as your business expands.

For marketing purposes, though, you might want to make your delivery app completely free, with no upcharges, tips, or fees. You can always increase the fees later when your delivery app has gotten some traction.

Instacart has three revenue streams. First, it charges delivery fees. For orders of $35 or more, the fee is $3.99 for a scheduled or 2-hour delivery and $5.99 for a 1-hour delivery. Orders under this price have $7.99 and $9.99 delivery fees respectively. Instacart Express costs $99 annually and let users forget about delivery fees.

With AmazonFresh, all orders under the local free shipping threshold have a $9.99 delivery fee. In Dallas and Denver, users receive free shipping on orders of $35 or more before tax. All other regions receive free shipping on orders of $50 or more before tax.

Previously, Uber riders delivered food for a $4.99 flat fee. In August 2018, however, Uber announced that the fee would range from $2 to $8 according to the distance from the restaurant to the delivery point. A sliding Max Booking Fee filter appeared in the app to let customers decide how much they want to pay.

Grubhub has two revenue streams. The first is commission from each order, which ranges from 5% to 15%. Additionally, Grubhub offers paid promotions so restaurants can appear at the top of search results for a period of time. 

The Postmates delivery fee is $1.99 to $3.99 for Partner Merchants and $5.99 to $9.99 for other merchants. In addition, there’s a percentage-based service fee. With Postmates Unlimited, which costs $9.99 per month, users have no delivery fees on all orders over $15. 

Postmates UI


DoorDash supports Apple Pay and has a $5 to $8 delivery fee. Prices may vary between what you pay in restaurants and what you pay for delivery. Merchants affiliated with the DoorDash network have to pay commission to help cover the costs of the company’s delivery fleet, so they may raise the prices on certain menu items.

Read also: Logistics App Development Technologies

In summary, developing a local delivery app may seem like a challenge given the particularities of a two-sided marketplace where demand and supply can fluctuate and need to be scaled at the same time. However, if you concentrate on developing a mobile app for a small underserved market, you have a chance to scale your business faster and see amazing results.

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