Dive Brief:

• Instacart is offering new customers in Texas and the Midwest free delivery for a year on orders of $35 and up, according to Quartz. The service, known as InstaCart Express, normally sells for $149 per year.
• Instacart is hoping to attract customers and retain them for the long term. Flat-fee delivery programs have proven quite popular: Around 50% of U.S. consumers belong to Amazon Prime’s $99 per year service, and 90% of first-year subscribers renew for a second year.
• All of Instacart’s markets where the service has been in place 18 months or more — about half of its total markets — are profitable for the company.   

Dive Insight:

Instacart’s growth has been plagued by missteps, including an ever-changing business model and poor employee relations. Last month, the company settled a class action lawsuit brought by workers upset with its tipping policy, job classification, failure to pay business expenses, and other practices. Some of these missteps are typical for a young company, but many wounds were self-inflicted, and proved to be unnecessary distractions for a fast-growing business.

Now it seems Instacart may have once and for all settled on a consistent model. CEO Apoorva Mehta compared the model to a “flywheel,” meaning the system generates its own inertia. In this case, low prices and a fixed service fee attract customers and drive sales volume, which attracts more sellers and increases efficiencies, which in turn leads to even lower prices.

Its model established, Instacart now wants to bring in as many customers as it can to its segment. In a competitive e-commerce services market that includes expanding players like Shipt, Postmates, and Amazon Prime, grabbing market share is critical for survival. Although offering a $149 service for free leaves a lot of money on the table, the company stands to make that back many times over if customers decide to stick with the grocery delivery service.

The question is, can Instacart withstand the leader in fixed-rate ordering and delivery — Amazon Prime? Instacart has a solid head start with dozens of markets and retail partners, as well as $400 million in new financing after receiving an updated $3.4 billion valuation. But Amazon has millions of built-in Prime members it can leverage in the markets, not to mention the capital to move upmarket very quickly.