Are Instacart's Pricing Experiments Inflating Your Grocery Bill? | Fast Five Shorts

Instacart's AI enabled pricing experiments may be inflating your grocery bill.

That is, according to a Consumer Reports and Groundwork Collaborative investigation.

According to a post on ConsumerReports.org, the investigation found that some grocery prices differed by as much as 23% per item from one Instacart customer to the next.

There's lots to sort through here because we want to get the background information correct, so please bear with me.

In September, 437 volunteers were divided into four groups during a video meeting.

For each group, the volunteers simultaneously shopped on Instacart for identical baskets of 18 to 20 goods from the same retailers, Safeway and Target.

A fifth test looking at Safeway and Target was conducted in person with volunteers in Washington, D.C. this process enabled Consumer Reports and Groundwork Collaborative to control for some of the factors that might have influenced the prices the shoppers saw, including the specific store they shopped at the time of day and and the day of the week.

And in a final test conducted online with volunteers in November, they looked at Instacart purchases at additional grocery retailers and found evidence of price experimentation at four additional chains, Albertsons, Costco, Kroger and Sprouts Farmers Market.

Instacart confirmed that the findings accurately reflected its pricing experiments and strategies, which it said were ongoing at 10 partnering grocery retailers at the time of the investigation.

The company, however, declined to name them and said the experiments affect only a small portion of its retail partners, have a limited impact on consumer pocketbooks, and are similar to well established in store pricing practices.

Hmm.

And this is also the A and M puts you on the spot question of the week and A and M wants to know quote While algorithmic pricing as described in this article is neither illegal nor new, do you feel any differently about retailers choosing to apply this to basic needs and essential categories like grocery and than for more discretionary categories like travel and hospitality, which are more supply and demand driven?

The floor is yours.

So I think it's important for me in answering this question to separate algorithmic pricing at a grocery store and algorithmic pricing for an Instacart order from a grocery store.

I think what it comes down to for me is that Instacart is still a convenience business.

So I think as as long as they're transparent which a lot of the travel and hospitality providers that you mentioned about surge pricing or the fact that there is going to be, you know, supply and demand factored into this.

While I don't personally like it, I can see the business case for Instacart doing it.

I also think that a big part of this, like you see with Uber or, you know, travel sites too, is that you're going to get consumers who stop using it as a result and default then to grocer's own programs for either delivery or curbside pickup.

So I think that, all in all, I understand the business case.

I think it's harder for me in the case of just your local grocer doing price changes up and down when somebody's going into the grocery store.

But I think in the case of convenience, I can understand where this makes sense.

But the bigger question for me, Chris, on this one is that now that consumers have access to AI tools to just take their shopping list, drop it into Perplexity or chatgpt, and be like, find me the cheapest price for this basket.

And what, you know, what they're doing now with Instacart is scraping all these sites anyway.

These AI engines can scrape the sites.

They can say, here's what you're going to get here.

Here's the cheapest, you know, the cheapest place for you to shop for your entire basket.

Yes.

You could have it delivered or you could pick it up.

Like, these are all the prices.

Like, consumers have that available and at their fingertips now.

So I think the bigger issue is for the grocery industry to realize that they're going to have to wait.

They're going to have to really double down on their loyalty programs.

They're going to have to figure out ways that they, you know, offer their own buy online pickup and store delivery.

That's going to get people to kind of maybe look beyond the total basket and see what other benefits they can get from shopping from that retailer over another.

But ultimately, price is going to going to play a huge component here.

And the transparency they have with these AI tools I think kind of puts this whole thing to bed for the grocery industry.

It's, it's unfortunate.

But what are your thoughts here?

Where, where do you land?

Or do you think it's fair to put this on, on, you know, essential items like grocery?

Yeah, I mean, I think, I think I agree with your point about the impact that AI will have on this business.

We can touch on that a little bit more.

The part that I'm not sure I agree with you on is I took from what you said, is that you're okay with Instacart doing this, but you're not okay with your local grocer doing it online.

Is that right?

Yeah, I mean, I think that you're.

That Instacart's still a convenience service and that is different to me than your local grocer.

I don't think it's going to be possible for local grocers because of AI, But I also think that it's not.

Going to be possible for anyone because of AI.

But just take AI out of the question.

So let's take it out of the equation.

So, like, like, if a.

Are you okay with Instacart doing this online, using dynamic pricing online, but not okay with your local grocer doing dynamic pricing online?

Because both could easily do it.

I mean, it's just.

Yes.

Pricing.

They are.

Yeah, yeah.

No, I think that I don't like that grocers are doing it.

I don't like it.

I can understand the business case for it, but I don't like that they're doing that.

I think grocery right now is an area where it's just too, it's too difficult for people to be getting the basic needs that they have in grocery.

And if I were a grocer, instead of, you know, more price changes, I would be focusing on how do I get them in with my loyalty programs or what other offers or partnerships could I put in place so that I can make up for like, using the.

Getting money from the data that I have about my customers instead of using it to push prices up and down.

Yeah, that's where I mean, I agree with that.

I think what I, what I disagree is actually I don't think instacart should be doing this either.

I think, you know, when you start talking about trying to take advantage of people and trying to gain money on the margins for items that they have to buy.

Now, granted, it's a luxury to use Instacart, but there's a lot of people that also have to use Instacart.

And there's also SNAP benefits that are being deployed on Instacart.

And how is that being applied here too?

We don't know the answer to that.

So, like.

Right.

Lots of open questions here.

And I think this just brings a hailstorm storm of negative blowback to potentially for Instacart and any grocer that's going to try it and no grocer's going to touch this, given the political climate right now.

So.

So yeah, I 100% agree.

And the last point I would make is to your point about AI, if you're a grocery executive, you have to be scenario planning.

What do you do when agentic AI comes in and how do you design your in store experience and your online experience within this world around pricing and loyalty?

That's going to be the fundamental question here because you have to assume that the world where everything is price transparent is coming.

And that is why, you know, UBS for the most part predicts that grocery, grocery will go the way of agentic commerce first and foremost.

Because we know what the items are, we buy them on repeat and that's what's going to happen.

So, so yeah, so that's, that's my take here and I think I, I think I, I agree with you for the most part, but I disagree with you on Instacart being allowed to do this.

I don't think that's right either.

Yeah, I mean, I think the other part, Chris, is we're still missing key components of data like the SNAP benefits are not.

The Instacart fees are completely waived in this case for some of those SNAP benefit recipients or at least were in November.

So I think that also plays into it too.

I mean there are other factors that we don't have the data on to understand.

Okay, what, what is, what are they actually being charged?

This was 432 people.

The sample size is small.

So I think there's more to it than we are, that we have visibility to at this point in time.