Instacart hit $2.8B in revenue in 2023, up 12% year-over-year.

The company's revenue mix has evolved significantly since its 2012 founding, when it operated purely as a grocery delivery marketplace. By 2021, advertising and CPG partnerships generated approximately $550M (30% of top-line revenue) at 80% margins, while marketplace take rates from grocery partners contributed the remaining 70% at lower margins.

Instacart has established itself as the leading third-party grocery delivery platform with 29% market share, behind only Walmart (38%) but ahead of Amazon (20%). The company generates revenue through a 5-8% take rate from grocery partners, delivery fees from consumers, and increasingly through high-margin advertising placements from CPG brands.

Instacart was founded in 2012 by Apoorva Mehta, Max Mullen, and Brandon Leonardo as a mobile app connecting customers with personal shoppers who would pick and deliver groceries from local stores.

Instacart found product-market fit as a same-day grocery delivery service for busy urban professionals in San Francisco who wanted the convenience of grocery delivery without having to plan days in advance. The company initially launched by sending shoppers into uncooperative supermarkets to manually shop for customers, focusing on 2-hour delivery windows.

The core product allows customers to browse inventory from local grocery stores through the Instacart app or website, create shopping lists, and schedule delivery. Personal shoppers receive orders through their own app, shop for the items in-store, and deliver them to the customer's door. Customers can communicate with shoppers in real-time about substitutions or additions.

Over time, Instacart expanded beyond its core delivery service to include curbside pickup options and a membership program called Instacart+ that offers free delivery on orders over $35. The platform now integrates directly with over 1,500 retail chains across 85,000 stores, allowing customers to shop from multiple stores in a single order while maintaining real-time inventory visibility.

Instacart is a four-sided marketplace connecting consumers, retailers, gig workers, and advertisers in the grocery delivery space. The company generates revenue through multiple streams: delivery fees ($3.99-$7.99 per order), service fees (5-15% of order value), Instacart+ subscriptions ($99/year), and increasingly through high-margin CPG advertising partnerships.

The company's core model involves partnering with existing grocery stores rather than building its own infrastructure, allowing for rapid scaling with minimal capital expenditure. Instacart "arms the rebels" by providing traditional grocers with an online presence to compete against Amazon, charging them a 5-8% take rate while providing access to Instacart's customer base.

A key competitive advantage is Instacart's ownership of the customer interface, which it leverages to generate high-margin advertising revenue (~80% margins) from CPG brands seeking premium placement. This advertising business represented about 30% of revenue in 2021, demonstrating successful diversification beyond pure marketplace fees.

The company's strategy increasingly focuses on becoming a software business, developing vertical SaaS solutions for merchants, a shopping super-app for consumers, and fintech products for gig workers - all while maintaining its position as the largest third-party grocery delivery marketplace in the US.

Instacart operates in the online grocery delivery market, competing across both marketplace and infrastructure segments while facing pressure from vertically integrated retailers and quick commerce startups.

Amazon (through Whole Foods) and Walmart dominate with 20% and 38% market share respectively, leveraging their existing retail infrastructure and customer relationships. These players benefit from controlling their supply chain and having established customer relationships. Walmart particularly excels with its extensive store network enabling both delivery and pickup options.

DoorDash and Uber Eats entered grocery delivery in 2020, each capturing roughly 5% market share by leveraging their existing courier networks and restaurant delivery customer base. These platforms partner with retailers like Aldi and Sprouts, replicating Instacart's marketplace model but with the advantage of cross-selling to their food delivery customers.

GoPuff pioneered the dark store model in the US, generating $1B in revenue in 2021 through convenience-focused deliveries from its own micro-fulfillment centers. While this vertical integration promises better unit economics through supply chain control, the model requires significant capital investment in warehouses and inventory.

The competitive dynamics are shifting as Instacart moves beyond pure marketplace operations into retail technology, offering software solutions to help grocers improve their margins. This positions them uniquely against both pure-play delivery companies and traditional retailers, though requires building new capabilities in enterprise software sales and support.

Instacart has tailwinds from the continued shift to online grocery shopping and has the opportunity to expand into adjacent markets through its evolution into a retail technology platform.

The U.S. grocery market is $1.5 trillion, with online penetration currently at just 10% but growing at 11% annually. COVID accelerated adoption by pulling forward demand by a decade, establishing new consumer behaviors around online grocery shopping. As the market leader with 29% share of online grocery (behind only Walmart at 38%), Instacart is well-positioned to capture this secular growth.

Instacart is leveraging its position as the interface between consumers and grocers to build high-margin revenue streams. Its advertising business, which gives CPG brands premium placement in search results and feeds, generated approximately $550M in 2021 (30% of revenue) at 80% margins. The company is expanding its enterprise software offerings to help grocers manage their digital operations, positioning itself as a critical technology partner rather than just a delivery service.

Beyond grocery, Instacart has the opportunity to become the technology backbone for all brick-and-mortar retail. Its four-sided marketplace connecting consumers, suppliers, gig workers and advertisers can be extended to other retail categories. The company is already building vertical SaaS tools for merchants, consumer shopping apps, and fintech products for gig workers. This positions Instacart to capture value across the entire retail technology stack, similar to how Shopify powers online commerce.

Grocery retailer disintermediation: As Instacart's retail partners build their own delivery capabilities and digital infrastructure, they may reduce reliance on Instacart's marketplace or negotiate lower take rates. The company's pivot toward high-margin retail software and advertising revenue could be undermined if major grocers develop competing solutions or partner with other technology providers. Walmart's success with its own delivery platform demonstrates this risk.

Post-pandemic demand normalization: With online grocery penetration settling around 10% post-COVID and prices up 14% year-over-year, Instacart faces decelerating growth as consumers become more price-sensitive. The company's high take rates (20%) and delivery fees make it challenging to retain price-conscious customers in an inflationary environment.

Multi-vertical delivery competition: As Uber and DoorDash leverage their existing courier networks to rapidly expand into grocery delivery, they can potentially undercut Instacart's economics. Their established user bases and ability to bundle multiple services (food, grocery, convenience) pose a threat to Instacart's market leadership, especially given both competitors have quickly captured 5% market share each.