Below is my take from reading Instacart’s anticipated prospectus.

What Do They Do? How Do They Make Money?

The best way to describe Instacart is that it is the Uber of grocery delivery. The company was founded in 2012 with a mission to bring online grocery shopping to consumers. Consumers browse for what they want and place an order. After that, a shopper will shop the ordered items from partner retailers/grocers and deliver them to the end destination. Plain and simple.

Like Uber, Instacart is a multi-sided network that connects consumers (orderers), shoppers and retailers with one another. Even though to get this type of business off the ground and scale it is highly challenging, once at scale, the business will have unit economics advantages and an effective barrier to entry against new comers. And at scale is exactly what Instacart is:

• Gross transaction volume (GTV) increased from $5.1 billion in the year ending December 31, 2019 to $28.9 billion in 2022. For reference, even Uber only has about $6 billion in annualized New Vertical bookings, which includes groceries. Also, revenue grew from $215 million to $2.55 billion in the same period.
• 1,400 retail partners including Costco, Aldi, Kroger, Publix, Wegman, Bestbuy and Walgreens. These partners help Instacart reach allegedly thousands of households in the US. However, there is a certain level of concentration risk as three customers accounted for 43% and 38% of Instacart’s GTV and revenue in the first half of 2023 respectively. Any cancellation or disrupted partnership would materially affect Instacart’s business.
• 7.7 monthly active orderers, including the 5.5 million valuable Instacart+ members. More on this later.
• 600,000 shoppers who work 9 hours a week on average, including 4.5 hours actually spent on shopping. Two thirds of these shoppers are female while half are parents.

Let’s talk money. The delivery platform has two primary streams of revenue. The first is transaction revenue. Every time an end user places an order on Instacart, the firm earns a delivery fee and a service fee which varies based on multiple factors (distance, surge pricing, items in question). Instacart then pays shoppers their cut and any tips that end-users generously gave. To be clear, tips are not included in the company’s financial statements.

End users can avoid delivery fees and lower service fees if they subscribe to Instacart+, which costs $10/month or $100/year, and have a minimum order of $35. Subscription fees are recorded under transaction revenue. Unsurprisingly, Instacart+ members are more active and valuable, generating more than 6 times in GTV than non-members and more than half of the company’s GTV in the first 6 months of 2023. Retaining and growing this loyal customer base will be critical to Instacart in the future.

In addition to fees from end-users, Instacart also charges retailers for additional businesses and brand awareness. The prospectus doesn’t reveal how much merchant fees make up of GTV, but I don’t think it’s too high. Grocery is a low-margin business. As a result, Instacart doesn’t want to overcharge and ruin relationships with retailers and grocers.

In the first six months of 2023, transaction revenue averaged 7.2% of GTV, up from 6.3% a year ago. The increase indicates that not only does Instacart grow GTV, but it also becomes better at monetizing the transactions it processes.

The other stream of revenue is advertising. If you have the attention of 7.7 million monthly active users, that’s a great asset to monetize. For Instacart, advertising is a valuable tool that helps the platform reach profitability; a sentiment so coveted by investors these days. In the last twelve months ending