Instacart delivers pricing transparency
Instacart, the popular grocery delivery service, has partnered with more than half the retailers on its platform to guarantee its prices are the same as the ones a shopper gets in-store.
In a blog post, Instacart, available in 12 major cities, said it’s heard customers were seeking greater transparency around its prices. With Instacart’s "fully transparent model," a badge now appears on participating store sites explaining how prices compare.
In most cases, the badge will read, "Prices are same as in-store," meaning that the prices for that store’s items on Instacart are, on average, the same as the prices that retailer regularly charges in their physical stores. Instacart claims most prices are the same. For stores where the Instacart prices represent a markup, the badge reads, "May be higher than in-store." Clicking on the badge shows more detailed information, including an estimate of the average price difference.
In addition, a new Store Prices page explains who actually sets the prices that users will see on Instacart. In most cases, that is the retailer.
"One of the reasons that people use Instacart is because a lot of the prices have been the same as in the store and they can just pay a delivery fee," CEO Apoorva Mehta told Re/Code. "What we’re doing is making sure that everyone is aware of which stores are like that so they can make more informed decisions themselves."
Re/code noted the move comes as Instacart has shifted less on making money from markups to making deals with grocers to take a cut of sales.
Bill Bishop of the research firm, Brick Meets Click, said retailers will face some pressure to pay any fees involved to gain the extra online shopper business and also make sure their prices "are seen as competitive in the marketplace." But he added that competitive alternatives from Uber Essentials, Google Express, Amazon’s same-day delivery and others could soon arrive.
Among the majors, Whole Foods already had such a partnership with Instacart, while Costco hasn’t signed on. In Manhattan, for example, Costco’s prices are 15 percent higher using Instacart, according to a new disclosure on the site.
Discussion Questions
How important is a promise of “same price as in-store” for e-grocery services such as Instacart? Are retailers better off using third-party services for home delivery of groceries than doing it themselves?
Poll
BrainTrust
David Dorf
The promise of the same price as in-store is important to consumers. No one wants to feel ripped off. With the same pricing consumers pay for the added service of delivery, something that’s fair and easy to understand.
Until a retailer realizes a large percentage of its sales from grocery delivery, it makes sense to use a third party rather than incur the cost of doing it itself. There are too many logistics and costs involved.
Price transparency is important to consumers in all aspects of retail. Building trust was a good move for Instacart and the associated retailers.
It makes sense for retailers to let third-party delivery services take the early risks, then when delivery takes off the retailers can consider taking the service in-house. Of course in the meantime it’s important to monitor the quality of the third-party service to protect the brand.
Not sure why anyone would agree to pay more. Online has taught customers to pay less on its race to the bottom. At least Instacart charges a delivery fee … For now.
I first have to declare that I have never used a home delivery grocery service. But if I were going to, the price comparison feature would be very important. I understand the need to make a profit but I would like to understand if the profit is coming from the sale of the goods or the delivery charge. Just reading that I pay more for goods I have delivered from Costco would raise a red flag for me.
The new Instacart model is the wave of the future for fast-moving goods. The exception will be Amazon, which vertically integrated at scale.
Pushing the vendors (Whole Foods, Fairway, etc.) to pay a percentage for the incremental online business essentially splits the cost of the middle man. The shopper pays a delivery charge and the supplier pays a kind of vig. Ultimately this makes a lot of sense for shoppers, because their delivered baskets can include items from every store on their shopping route. In dense metro areas, I could see a big demand for this.
This all comes down to trust between shoppers and service providers. If Instacart states that prices will be the same as in-store, then they need to ensure they are or they will erode shopper trust. If their prices are going to be higher, then they need to be clear with consumers about that fact and explain why it is the case. There could easily be a case where a retailer changes the price in-store and Instacart may not be able to respond sufficiently quickly to incorporate the price change. In this situation it would be in Instacart’s best interest to offer a post-transaction credit to the shopper if the price in store is lower than the price they charged.
There is a lot of value to having someone else pick up groceries and deliver them to a shopper’s home for them but someone has to cover the cost of the service. Shoppers potentially could become confused as to why a delivery company charges them a delivery fee plus a markup on the groceries unless the delivery company is very clear as to why they are operating in this manner. Clear communication is absolutely essential and Instacart has to build customer loyalty through a positive customer experience.
Kudos to Instacart as they are doing what they should be doing, eradicating the key barrier to buy with them.
Instacart launched in my area not too long ago and every person I know (myself included) pulled back on the buy button when the prices were digested. Asking people to pay a delivery fee is one thing, but BOTH a delivery fee and higher prices is too much for all but a slim slice of the average grocery buyer.
As far as using third parties, I vote yes. Not many U.S. retailers are set up for the operational complexities of delivery. Many are still feeling a bit burned from trying this out last time it was the trend.
It’s interesting to me that this controversy has been raging since the dawn of online grocery retailing. In the early days of Peapod, Streamline, and the infamous Webvan, supermarket operators fretted about how to compete online, since the publication of a Web price might “out” their zone pricing policies at stores in different neighborhoods. That is, IF their shoppers were diligent about checking up.
Price transparency is an unavoidable reality in today’s all-line market, but it does not demand a lowest-price or price-match policy. Instacart has choices—it can position itself as a luxury or value service provider; it can compete on price, or speed for that matter. The decision defines whether it caters to a narrower, possibly more profitable customer base or attempts to attract a mass market with slimmer margins. I have a hunch its investors are clamoring for scale.
Supermarket operators with online delivery or click-and-collect offerings face their own challenges with respect to price consistency. They may choose to be transparent about pick-and-delivery charges; or try to subsidize them within the product cost; or try to justify absorbing them within larger baskets.
As we dig into this topic, a word of caution: Let’s not try to understand this decision based solely upon our theoretical beliefs about a monolithic shopper. Individuals and their purchase occasions have varying priorities. Convenience is a form of value that some will pay for. A price-match claim may impress shareholders, but it may not be what every shopper cares about most every time.
I think this is a smart move for Instacart for two reasons. First, shoppers want transparent pricing. If they’re paying more, they need to know that. This could create more loyal customers for Instacart.
Second, this could work to get Costco closer to a partnership with Instacart. If that retailer is the only (or one of few retailers) that doesn’t have the same prices in-store and via Instacart, then that could lead to less sales from the service. If shoppers have other options, then they might just take them instead of willingly paying more than they could be if they just made a trip to the store.
This is a key promise. However, the article notes that it is an “average” same price as in-store. All prices should be the same as in-store and this should be a fundamental premise of this service.