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Instacart’s secret markups accidentally disclosed

A curious post about Instacart appeared recently on Reddit’s Boston subreddit that deserves some attention in grocery retail.

Instacart delivers groceries and other products from a range of retailers. Here in Boston, they deliver from Whole Foods, Costco, CVS, Star Market/Shaw’s, Market Basket, Russo’s, and Petco, plus some liquor and specialty stores inside the more urban parts of the area. My family and I are regular users. (You can try the service yourself with my referral link, which will get you and me both $10.)

Grocery delivery truck circa 1941
An early version of Instacart. By Jewish Historical Society of the Upper Midwest, via Wikimedia Commons.

Originally, the service didn’t disclose whether the prices were the same as in-store or different, and that changed in 2015 with clearer disclosures.

Some retailers are official partners and the prices online match what’s available in-store. But many retailers available on the platform aren’t official partners, and it’s no secret that Instacart’s prices are “15%+ higher than in?store,” as disclosed when shopping. The plus symbol leaves a lot of latitude, leaving the extent of the mark ups opaque for consumers.

Instacart Markups

That brings us to the Reddit post, which made the mark up practices much clearer.

The message writer received an Instacart delivery where the order picker accidentally left the store receipt from Market Basket. The customer compared the price he paid versus the amount Instacart charged and posted the details. I took prices from the scanned receipts and made some charts to help understand how and where they were marking up prices.

Comparison of prices charged by Market Basket vs. Instacart

It’s interesting to see how the markups vary by product, with some staples having low (and even negative) markups. Market Basket is rightfully known for having low prices, and I wonder if Instacart is using what it knows about prices in other stores to raise low in-store prices to be similar to what it sees across retailers or even across markets.

Comparison of costs at Market Basket vs. Instacart

Overall, Instacart marked up prices by 43%. Add the delivery fee ($5.99 flat) and service fee (10% and optional), and it comes to a 64% markup on groceries that cost $86.35 at Market Basket. That’s $55.30 to cover Instacart’s cost of shopping and delivery.

(Note: The service fee is separate from a tip, a change that Instacart made in late 2016, to the confusion of customers and anger of their contractor shoppers. The service fee is optional but selected as a default, and a tip is also optional but set to zero by default. And when faced with defaults, most people leave them as-is.)

Sure, it would be straightforward to make this comparison by simply looking at prices in store, but those who are paying to have groceries delivered to them probably aren’t taking the time to visit a store to observe actual prices. So, is it a good business practice to have such an opaque markup practice? That’s up for discussion and will likely get some attention from regulators as Instacart and its competitors grow.

Instacart competition

By comparison, here in Boston, Ahold Delhaize’s Peapod (referral link for $20 off) offers delivery for $7 to 10 depending on order size, a $60 order minimum, and disclosure that prices may differ from in-store at Stop & Shop or Giant. Local chain, Roche Bros., offers delivery for a $10 fee with the same prices as in-store, and no order minimum. Tipping is optional with both.  (Edit: Tipping is optional with Peapod, and Roche Bros. employees are not allowed to accept tips.)

Some more miscellaneous points:

1. The cost charged for russet potatoes looks like it might have been a mistake. Instacart charged $4.25/pound, which is a steep increase over the typical $1.00 or less per pound I pay, even at Whole Foods, and more than the $0.59/pound shown on Instacart’s Market Basket page. So if we count this as an outlier and make the markup for that item zero, Instacart still has an overall markup of 32% for the products in this order.

2. The tax is interesting. Market Basket charged $0.52 and Instacart charged $0.84. Instacart paid $0.52 to Market Basket and then collected an extra $0.32. I don’t know what the rules are, nor do I know how Instacart handles the surplus tax, but I know the details here have tripped up companies in the past.

3. A follow-up post indicates that Instacart’s CEO, Max Mullen, reached out and made adjustments to the order of $10.39, which I am guessing is mostly the high-priced potatoes.

4. Instacart just raised $400 million at a valuation of $3.4 billion.

Comments
  • I just used instacart for the first time for a Wegmans grocery order and had a negative experience from multiple perspectives:

    Shopper was seemingly unfamiliar with Wegmans and listed over 1/2 of my order as out-of-stock. Some of the o-o-s items were routinely avail in my previous shopping experiences, so I called the store after the delivery and asked about the o-o-s from my order. All of my order that was listed as o-o-s was on the store shelves except one item. And that one item could have been obtained by asking the store staff (butcher) to prepare it.

    I asked for two baking (russet)potatoes, I was brought two plastic sealed microwave potatoes. I asked for two cucumbers, I was brought 2 sealed packages of sealed cucumbers with 6 cucumbers in each package. According to my receipt, I paid for 5 containers of V-8. I ordered 4 and received 4. I asked for 1/2 lb of deli turkey, got and paid for a pound.

    I have a longer list of shopper errors but will stop here to move onto other problems.

    At the time of initial order I had removed the service fee from my order because I prefer to pay this directly to the shopper/driver. When looking for feedback to my low rating of instacart on my account the day after by order had been delivered, I found that the service fee had been added back onto my charges AFTER the delivery! This is unfathomable to me. (I called instacart and they agreed to refund it as “customer happiness $.” )

    I knew starting out that Wegmans was not a partner of instacart apropos providing in-store prices. But I was astonished to see a huge range (confusing) of mark-ups . . . no consistency that would allow me to make decisions about whether instacart is an affordable option for me in the future.

    My large order would not process on the web site. I called and was told they were experiencing system-wide problems and was advised to keep trying to process the order and to call back later if still having problems. When I called back later, I was told that large orders often/almost always will require a call to instacart
    for “manual” processing. By the time I was told this and my order was manually processed, my order had been pushed back to a delivery time that was two hours later than I had started with.

    Lots of problems with my instacart experience but the biggest issue by far was the dishonesty from the shopper (out-of-stock items), and from Instacart corporate (adding the service fee back into my order) after it had processed.

    The totality of my experience has turned me into something of a crusader to get word out there (to other consumers) about my experience with instacart. I can’t imagine that any company wants a social-media savvy angry customer like me. Their web site provides no mechanism other than the rating system to pursue problems. Contrary to what I was told by the customer service rep on the phone (when I called to have the service charge removed), no one from instacart has been in touch with me as a follow- up to my low rating.

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