Shipt Business Model: How Does Shipt App Work?

People buy groceries every day. This is something they have to do regardless of their busy schedule. There are times when people want to skip this or have someone who can do this task for them. In this scenario, online grocery apps like Shipt that deliver groceries to their doorstep is proving to be a boon.

While there are numerous apps for this purpose in the market today, Shipt is way ahead of them. The platform allows users to choose groceries online through the website or mobile app and place an order seamlessly. Along with saving a lot of time, it also provides discounts and offers.

While sometimes the experience may cost more than conventional grocery buying from supermarkets, but it is worth it. The development of online grocery delivery apps make things simply effortless for users by providing a personalised and organised experience. They don’t need to stand in a queue in the supermarket and visit the store dedicated every single day.

But what is Shipt and how does it work? How does Shipt make money? What is the business model of this app? How it all started? Why is it so popular today? In this article, we have discussed all these things in detail and in an interesting manner.

What is Shipt?

If you order your groceries online to save time and get a hassle-free experience, you probably have heard about Shipt. This is innovative grocery shopping that has made things more accessible and convenient for millions of people.

It is an on-demand grocery shopping application that delivers groceries to your home. Founded by Bill Smith in 2014, Shipt is an American firm, having its headquarters in Alabama. The Target Corporation acquired Shipt in December 2017 for $550 million.

It hit the $1 billion market valuation mark in 2018, growing tremendously and fastly. Customers can place online orders for groceries through the official website and mobile apps available for both Android and iOS.

In the on-demand economy era, Shipt has emerged out as a leader in the grocery shopping business model. It has encouraged more and more entrepreneurs to develop app like Shipt and make an impact on the lives of people and grow in the market.

As of now, Shipt is available in more than 5,000 cities in the US, with a broad network of over 50,000 shoppers delivering groceries nationwide. Nearly 80% of US households already have access to it. Along with groceries, it also delivers home products and selected electronic items.

Online grocery shopping sales in the United States from 2012 to 2021 (in billion U.S. dollars)

For further growth, Shift revamped its business model a bit last year. It was initially offering its services based on annual and monthly membership plans. The annual membership costs $99 per year, while the monthly cost is $14. Now, it is also providing a pay-per-order option so that people can order from Shipt without being a member. This has helped the company to compete with Walmart and Amazon.

For pay-per-order, consumers need to buy Shipt Passes. The passes are priced on the basis of the number of orders. For instance, it charges $10 for one order, $9 for three orders, and $8 for five orders. With the annual membership, the deliveries are free on orders above $35.

Rise in the online grocery delivery app market

The market for grocery delivery apps has witnessed massive growth over the last year because of lockdown and social distancing practices. Almost everyone was looking for ‘online grocery delivery near me’.

In 2019, online grocery sales in the US was valued at $28.6 billion. The market was growing at a CAGR of 20% for the last four years. Things completely changed after the COVID-19 pandemic and lockdowns. Buying groceries online has now become mainstream and a go-to option for consumers.

As a result, the number of consumers who use online grocery delivery services increased by three times in 2020.

This has changed the trends in the market. Food delivery apps also started integrating grocery delivery into their platform. Conventional grocery stores began to develop individual apps for their business. Those who already had apps started to improve the user experience and invest more in it. For example, Kroger released a new version of their app last year, and it increased its online sales by 92%.

Business models are also being adapted depending on the current needs of the consumers. For instance, they are now offering same-day, same-week, and scheduled delivery options.

Brief Story of Shipt: How It All Started?

Undoubtedly, Shift is one of the most prominent players in the online grocery delivery market in the US. But it didn’t experience skyrocketing growth or become a successful business overnight. Moreover, its foundation wasn’t laid in Silicon Valley or Seattle, like Amazon.

The idea behind the Shipt existed in the mind of Bill Smith. He is a high school dropout in Birmingham whose vision was to create a platform that could enable same-day grocery delivery to people. He didn’t like going to the market or supermarkets to buy things.

While there were options available for online shopping, there was none for online grocery. That’s when he thought of finding a way out for this and allow people to buy anything from any store and get it at their doorstep on the same day.

So, the exact business idea of Bill Smith was to integrate his home delivery option into the websites of retailers. He created a team of shoppers who can deliver the ordered groceries to customers.

To get things delivered to the home, the customers first needed to visit the retailer website, place an order and choose in-store pickup options. Then they needed to use the Shipt and request for a shopper to pick the grocery from the store and deliver it to their doorstep.

This was a complicated process for customers. Moreover, most of the retailers were not convinced by the idea of integrating Shipt into their websites. By then, Bill Smith had invested $3 million into Shipt and invested more over time.

When the idea didn’t work out, he had to explore more ways. He realized that people wanted a seamless experience and everything to be done from only a single platform, right from ordering to checking out. Smith then had a meeting with his team to work on a platform that can offer an integrated experience.

Also, take a look at the Online Grocery Delivery App Business – Challenges & Solutions

To confirm that people actually wanted online grocery delivery or not, he told his team to collect all the product data from stores. It was done manually. He didn’t invest much in marketing at that time. All he did was create a one minute video about the service and shared it on Facebook. Within a month, the company was able to grab 1,000 memberships. He was now sure that people really wanted such a platform, and it was an in-demand service.

When people started to use Shipt, the retailers themselves approached it to get listed on the platform. As the number of memberships increased, more retailers became partners. And the rest is history.

In 2018, the company hit the $1 billion milestones in revenue. Target Corp then acquired it. The acquisition has helped Shipt to expand in more cities and states in the US and compete with the major players like Walmart, Instacart, and Amazon. Shipt is operating as an independent firm following the acquisition.

Related Blog: Understanding the Instacart Business Model and Revenue Schemes for Your Startup!

How does Shipt work?

The working of the Shipt app takes place in a number of easy steps. To place an order online, the consumers need to complete these steps and get the selected groceries delivered to home. Here is exactly how the app works for customers:

Install the app

The first step is to download and install the Shipt app from Google Play Store or Apple App Store. After installation, register on the app with a name, email address, and strong password. Once the account is created, you can also use these credentials on the web version of Shipt. The platform also accepts orders from its website that can be browsed from any device and browser. The account creation doesn’t involve any cost.

Enable location

Following registration on the app, log in to it. Enable location to allow the app to automatically detect your location or enter the address manually where you want your groceries delivered.

Based on location, the app will show you all the nearby grocery stores available for accepting orders. Select the store from where you want to buy the products or groceries.

Membership and Passes

But how much does Shipt cost? Let’s discuss the Shipt pricing model.

The mobile app is available for free to download from both the Play Store and App Store. If you want to purchase something, you have two options- Membership and Passes.

The platform offers membership on a monthly and annual basis. While the annual membership costs only $99 per year, the monthly plan costs $14 per month. Since grocery buying is a thing that can’t be avoided, most of the people choose an annual membership, as it is cost-effective.

Also, it makes the user experience smooth as they don’t have to pay every month. With membership, the delivery charges are free for orders above $35.

On the other hand, the Shipt Passes are for those who want to buy groceries for one time or choose pay-per-delivery.

Shopping

After selecting the store, the next step is to browse all the items available in that store. For a better user experience and to make it convenient for users, the app has categorized all the items. It also shows the products available on sale or at a discount. Select the items and quantity and add these to the cart.

The app shows previously ordered products for regular users and recommends certain items that users might be looking for.

Before placing the order, you can check the list of products in the cart, price breakdown and quantity. Once done, proceed with the checkout.

Choose delivery time

At the checkout process, the app asks you about your preferred time of delivery. You can select the time slot according to your convenience, add phone number and address, and get the groceries delivered to your doorstep.

For payment, you can choose to pay using a debit/credit card. It doesn’t offer pay on delivery option yet. Shipt is now delivering the groceries on the same day of booking, but it depends on the time of placing the order and the distance of the store from your residence. The time slot options shown are for the next three days. You can choose any day from the next three.

Substitutes

Shipt grocery app comes with a substitute feature that is used when certain items selected by you are not available in the store. To resolve this issue, there is a substitute feature that provides you with three options:

• Contact me so I can choose
• Choose for me
• Do not substitute

You can select from any of the options. For example, if you have chosen cereals of a specific brand and it is out of stock at the moment, you can select cereals of another brand or allow the app to do it for you. If you want the chosen brand only, then you have to choose the ‘Do not substitute’ option.

Order delivery

Once the order is placed, the system assigns a shopper to collect the items from the store. A notification is sent to you when the shopper picks up the order. You are allowed to make changes to your orders until the items are picked up. No updates are accepted after that. The items will be delivered to your doorstep in your selected time slot.

How Does Shipt Make Money?

Coming to the Shipt business model, the platform makes money through memberships or subscriptions, sales commission, service charges, and by increasing the prices of certain items on the app. Let’s break down all the monetary sources and understand things in detail:

Subscription/membership fee

A significant part of Shipt revenue comes from the membership fee that the users pay monthly or annually. As mentioned above, it charges a $99 annual fee and a $14 monthly fee.

Moreover, if the order amount is less than $35, the customers need to pay an additional delivery fee. Customers are allowed to cancel their subscription whenever they want. For new users, it offers two weeks of free membership. This helps Shipt to acquire more customers and retain them.

Shipt Passes

There are passes available for customers who don’t own a membership, which can be used on a per-order basis. The charges are higher for the passes as compared to membership.

Service fees

The Shipt grocery delivery app charges service fees and delivery fees for collecting the products from the stores and delivering these to customers. Along with paying the shoppers for their service, it also keeps some portion of it. So, the more the number of orders, the more Shipt makes in revenue.

Sales commission

While adding a retailer as a partner on the platform, Shipt brings in a revenue-sharing agreement to the table. The retailers need to pay a commission to the company for bringing more customers to their business. A certain percentage of commission on sales is charged for every order. This is yet another way for Shipt to make high money.

Increasing prices

The cost of the products shown on the app is not always the same as available in the store. The platform keeps on increasing and decreasing the product rates on the basis of occasions and demand. Generally, the rates are nearly 15% higher on Shipt as compared to in-store rates.

This is something every marketplace does for generating more revenue. For example, if the item’s cost is $20 in the store, the app will show $23 to the customers. Once this item is purchased, Shipt will keep the additional $3.

To adjust the product rates, Shipt uses a workforce with analytical skills as well as modern technologies.

How much does Shipt pay to shoppers?

In February, there were some changes in the Shipt revenue model, and it updated the pay structure for shoppers. It pays a 7.5% commission of the total cost of the order to the shoppers, along with a $5 base fee.

So, for example, if the order total of the groceries is $100, the shopper earns $12.5 ($7.5 and $5 base fee). The total income a shopper makes per day depends on the number of orders delivered and the receipt amount.

Shipt says that a shopper earns nearly $20 per hour. If we consider an average of 40 hours of work per week, then the shopper’s monthly income will be around $3200. It is worth noting that fuel and insurance expenses are supposed to be covered by the shoppers only.

In addition, the platform also allows customers to pay a tip to the shopper. So, it works as an extra source of money for them.

Shipt Annual Revenue

Shipt had an estimated annual revenue of $1 billion in 2018. Following the acquisition of Shipt by Target, it is expanding faster in the US market and generating more revenue.  Its revenue also increased during and after the lockdown because of a surge in demand for online grocery apps.

Developing Online Grocery Delivery App like Shipt

Since the demand for grocery delivery at home is significantly growing, it makes sense to develop an app like Shipt and make an impact in the market. But what features are required in such an app, technology stack, business tools, and how much does it cost?

Required features for on-demand grocery app

User panel features:

• Sign up/sign in
• User profile creation
• Customer reviews
• Search option
• Tracking delivery status
• Managing orders
• Payment options
• Delivery scheduling

Admin panel features

• Dashboard
• Order allocation
• Payment management
• Customer management
• Shopper management
• Inventory management

Shopper panel features

• Option to accept/reject delivery request
• New delivery notifications
• Chat feature
• In-app calling
• Geo-location
• Delivery confirmation

Related Blog: How to make an Instant Shopping & Delivery App like InstaShop?

Technology Stack Required

The tech stack for an app similar to Shipt will include application and data storage, utilities, DevOps, as well as some business tools. For instance, you can use Node.js, React.js, Cloudflare, NGINX, PostgreSQL, TypeScript, Redis, React Native, GraphQL, Rails, Kafka, Go, etc.

For DevOps, you can use tools like GitHub, Docker, or Kubernetes. Business tools integration can be done using Slack, Office 365, or G Suite.

Cost of developing app like Shipt

The total cost of grocery app development will depend on a number of crucial factors. The primary factor is the mobile app development company chosen for the project. You must assign your project to a company that holds expertise in this field and have an experienced team of developers, testers, and UI/UX designers.

This is critical because cheap options can land you in problems for the long term. When the same development firm handles the production, testing, and UI/UX, you can focus on things that matter the most.

The second thing is the operating systems for which you want to develop the app. You can get it developed for Android or iOS or both. This will be another cost deciding factor.

Third, the QA team or the testers will test your app to find potential issues and bugs. They will fix these bugs after development so that you can release the app without any issues. App testing is essential because bugs can impact the app performance and user experience.

Lastly, the tech stack and web/cloud hosting will also consume the cost. Before calculating the final price, let’s break down the pricing for all the critical factors:

Development: $10,000 to $20,000
QA/testing: $2,000 to $4,000
UI/UX design: $1,500 to $3,000

Considering these factors, the overall cost of developing an app like Shipt will be somewhere between $15,000 to $40,000. The actual cost may vary depending on the features you integrate, develop for both operating systems or any one platform, and the experience of mobile app developers involved.

Wrapping up:

We hope this article about Shipt helped you learn everything about its business model, revenue model, history of the app, acquisition, how it makes money, and how much you need to invest if you are willing to develop such an online grocery delivery app.

If you have any questions, please share them with us using the comments section below.