What is Instacart really charging? the breakdown
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For me, this isn't just about whether it is "worth it" to not have to shop for groceries, but also whether there is a much cheaper option available through either your grocery store or a non-Instacart personal shopper.
It boggles my mind that people are paying this much for the privilege of being able to use an app rather than having to interact a bit more with an actual human being.
However if you actually go and price this stuff out, it's often 30-50% cheaper at Walmart or Target. I get the convenience factor, but it really adds up when you're talking about daily necessities.
https://www.amazon.com/Subscribe-Save/b?ie=UTF8&node=5856181...
In either case, you have to go seek out the on-premise retail prices, and in fact this is no different than traditional price comparison shopping whereby you learn that different stores have different loss leaders to get people in the door, and if you really want to get the cheapest price you have to shop a lot of different places. I'm not sure whether Amazon's model of centralized distribution with direct delivery has greater economies of scale then the big box store model, but I'm worried people are blinded by Amazon's convenience and don't realize how often the prices are really quite bad.
What stores do they not mark up and how do you know that? What do you mean when you say they're transparent - that they tell you there's no markup?
I got on the site as a first-time user and entered my zip code. From a list of stores around the area, I pointed it to a grocery store in my neighborhood. Then I started searching for items.
When I saw the prices on the Instacart list, I did a double-take. Turns out there is a margin, and it is at least 20%, if not much more. The reason I noticed this is because I shop at that store every week and am very familiar with the prices of the items I was browsing. Keep in mind I was browsing around 11 am, with a delivery window of 2-3pm, so it wasn't (or shouldn't have been) subject to surge pricing either.
And like you say, the exact margin is hidden, and even the fact that they do have a margin isn't explicitly stated anywhere that I could see. So if I wasn't familiar with the prices at that specific store, I may have just gone with it.
This lack of transparency (and in fact I can go one step further and claim it is purposeful obfuscation) immediately eliminated all my trust in Instacart. I closed the window without completing my order. I have since received three emails from them (in 24 hours) reminding me that I have an incomplete order. Suffice it to say, I have no intention of logging back in, ever.
This is not true. In some stores Instacart offers the same as in-store prices, other it does not.
The same is true of anything one buys on Amazon. Low-cost items that ship with Prime shipping are usually marked up a bit, but I order from Amazon (and Instacart) in spite of this because of the convenience offered.
You can pick a basket of goods in Instacart where the percentage is high, but there are many other baskets where the percentage is low.
I did some casual searching and discovered that they supposedly have page (https://www.instacart.com/store/prices) where they list their markups per store, but it doesn't work for me.
Does this person also expect businesses to disclose their profit margins before he's comfortable doing business with them? Ever bought a bottle of water at a stadium? We're looking at several 100 percents of markup there.
Fair enough regarding the 42% vs 63%, though.
In the UK, this would never fly as pretty much every supermarket has home delivery with identical online v in store pricing + delivery fee. It's much more honest.
Is that really such an unreasonable demand?
Though; I've also considered how a reverse BlueApron service might work - you bring ingredients to a chef and kitchen, who then cooks the food for you. My cooking ability, limited to the occasional meal prepared after work is nothing compared to a master chef who's gone to school and practiced their art for every day for years as a job, and I'd gladly pay to see a master at work. (I doubt that particular niche is big enough to sustain a business though because, well, restaurants exist.)
Like a cooking class, but without any lab work?
Yes. That's how price controls and messed up economies start out.
Sometimes profit margins are highly misleading. For instance, the profit margins for software development are extremely high if you calculate them a certain way. ("You're only paying how much for capital and electricity and you're charging me how much?")
The main thing is what value the business brings you. They can charge whatever they want. As long as you value their service/goods more than what they're charging you, who cares how much it costs them?
Because not knowing it creates an information asymmetry and makes it more difficult to make a rational decision about whether to pay for the product or service, or look/wait for alternatives.
It's not just about what the product or service is worth to me. It's also about a sense of fairness. I'm OK with a 20% markup on bottles of water at ball games. I'm not OK with a 200% markup, because even if I'm really thirsty, on principle I don't want to pay several times more for it than I otherwise would. So if I knew the exact margin, I can make an intelligent decision between paying for it then, or waiting X hours for the game to end so I can drink the water I have in the car.
It makes sense to compare a product offering with other offerings on the market, but it doesn't make sense to me to care about the profit margin. What if one firm can offer a product cheaper than all equivalent competing products, but with a much higher profit margin?
Great point. These objections to Instacart are not just bizarrely irrational, they are at odds with how the service economy works.
The idea that at the end of the day the product/service is either worth it to you at X price or it isn't is simply wrong.
Your arguments are the opposite of rational though - and I'm not insulting you, I mean in the economic meaning of a rational person that just considers the cost and the benefit. Your arguments are irrational and emotional.
But I think you have a better argument that you haven't made clear - the markup gives you information in that if the markup is high then it is more likely that someone else is willing to sell to you for less if they can tolerate a lower margin. If a margin is very low then that's less likely, as there's nowhere to go.
Meanwhile I partition my everyday purchases among grocery stores, CVS, and Target based on a detailed knowledge of which product categories are inherently cheapest in each and which are currently or regularly go on sale at each and how aggressively. For someone with a six-figure salary I probably micro-manage it more than I need to. But I look at Instacart and Uber prices and just laugh.
What's $80 worth of groceries? It's what you're willing to pay $80 for. The grocery store is marking up the food from their suppliers, is that a rip off? Grocery stores in urban areas charge more than in rural areas, rip off? When there's only 1 small store in an area (food deserts) they charge 10-30% more - an outrage?
This is great information to have and a benefit to consumers that they know the difference, but if Instacart gives you a price and you pay it then that's a fair price by definition. It's not an outrage in any way.
Information is critical for driving free markets. Instacart is pulling some sleazy shenanigans, sending them down a path pretty similar to where Uber has ended up. I don't make it a habit of patronizing businesses that use deceptive pricing practices to try to rip me off.
Now it could be something consumers DEMAND which would give a competitor an advantage if they did it (see Everlane with their transparent pricing) but it's not unethical or sleazy not to disclose the underlying costs of your goods.
Instacart shows you the final price. The price they paid for the goods is immaterial - you're choosing the convenience of not having to write your own delivery app, recruiting employees, or set up payment.
When you walk into a book store, do you demand to see the book price broken down into manufacturer's price, store rent, employee pay, and store profit and complain when the difference between the manufacturer's price and the retail price is too high?
It's the same reason I think mechanics are shitty when they charge 50%+ markup on parts for auto repair. I'm paying you for the service - the right thing to do is to show the cost of the service separate from the market price of the product.
Alcohol/food at a restaurant is different - it is clear and known that service and product are interwoven in the list price.
They're not intentionally obfuscating anything. You know how much your bill will be before you order. What it costs them is immaterial.
Would you expect a clothing store to tell you what their individual per-unit cost is for clothes you're buying, and to tell you how much money they're charging you for opening a storefront and negotiating with the manufacturer?
This guy ended up paying $70 for a single grocery trip, do that and take Uber twice a day, and you're verging on "I can hire personal staff" territory.
Whatever math calculation one does, it has to factor in the hassle of becoming an "employer" which is a complication that most consumers don't want. E.g. If you pay someone more than $36 a week[1], a law-abiding tax payer would have to file a W2 to the IRS reporting the income. (Yes yes, most parents don't actually file W2 for their neighborhood babysitter but that's technically "tax evasion".)
You can legally circumvent the W2/employer relationship by using an agency and that staffing firm becomes the "employer of record." However, there's no such thing as a free lunch and that agency has its own 50% to 100% markup on the personal assistant's hourly rate. This gets right back into Instacart pricing territory or even exceeds it.
Without any survey data, I'm guessing that there's a huge market of customers willing to pay Instacart profit margins instead of becoming an "a W2 employer" or paying 3rd-party agency.
[1] http://www.usatoday.com/story/money/personalfinance/2013/04/...
People have had this viewpoint that filing taxes is 'hard', but recent improvements have made it 100% electronic and really cut down on the effort needed to compile it legally.
And then of course, no one would pay a babysitter a W2. You'd count them as a 1099, but not need to file till they made more than 10,000 a year.
What's more interesting is having an actual employee though who can do nannying, picking up dry cleaning, and all of the other personal chores you just put off or have apps do. They're your personal assistant, and honestly if filing taxes is a hassle for you, you can have them fill out the forms because what else are assistants for?
You're taking my example too literally. The "W2 filing" is shorthand for all the extra legal complications such as withholding taxes, paying employer's portion of Social Security, Medicare, and any state mandated payments such as worker's comp, etc. All of that is a big leap of complexity compared to just pushing a few buttons on an iPhone and getting a service-on-demand.
>And then of course, no one would pay a babysitter a W2. You'd count them as a 1099,
Unless the IRS (or even the babysitter) wants to reclassify the relationship as W2 instead of 1099.[1] Now the consumer owes back taxes (and possibly penalties) which is more complicated (and more expensive) than using a phone app.
>What's more interesting is having an actual employee
Sure but probably 95%+ of consumers who want to periodically use Instacart / Uber / Blue Apron / etc do not want jump to the next level of complexity with an actual employer+employee relationship. The threshold for inflicting that bureaucracy on oneself is high. Lastly, the extra employee taxes a consumer would have to pay makes the W2 relationship more expensive than a naive calculation would suggest.
[1] https://www.nytimes.com/2015/03/14/your-money/contract-worke...
Here at least I can see that instacart gets enough revenue to probably be sustainable and pay someone a reasonable wage for doing the actual work of going to the grocery store on my behalf.
That said, I've just been finding great small grocery markets in the outer sunset to shop at. I'm lucky to live in a place where I can walk to a number of excellent small markets, so I just do that instead of paying for grocery delivery.
Noriega Produce Mart (gus's, but I love that it's NPM) has almost everything I need, except the meat / fish selection is pretty low. Noriega and 43rd(ish).
Other Avenues (judah and 41st-ish) is a worker-owned cooperative. They don't carry meat at all, but they have a great bulk food selection.
Both have excellent produce selections and a surprising amount of useful dry goods - with the exception of meat / fish, the only real pull to Andronico's was the parking lot.
I went to Guerra Quality Meats for the first time last weekend, and it was pretty great as a butcher, and had some fish selection. They're at taraval and 15th. I'm considering going back to marin sun farms for their CSA meat boxes. There's also a fish seller going in at irving and 42nd (or so) where the old cajun restaurant was. That's a long-term thing, though, since it's been "coming soon" for a while.
There's a couple great Asian markets up on irving - sunset super at 25th and irving is really great, although a tad overwhelming at times. They've got a lot of meat and fish.
No grocery store in the area is as cheap as going to safeway and shopping frugally (or quite as satisfying as Berkeley Bowl, but since I don't go to the east bay often anymore, it's hard to justify a really long drive to the grocery store), but these places sell high-quality organic food and other good brands of dry goods (I can get both king arthur and antimo caputo flours for my breads and pizzas, respectively, at NPM) and are local stores rather than chains, so I'm willing to pay the premium to support them.
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Edited - because of the wall of text I've linked to a pastebin of the original text
The problem seems compounded when shopping for this stuff online, when each individual item is so cheap, it takes too many clicks to realize how badly you are being ripped off.
I find even when grocery shopping online through a store's own site the prices are inflated over in-store. It compounds the anxiety over someone else picking low quality/old stock to the point where I won't grocery shop online as much as would really like to optimize the process.
I also find the menu system and scrolling lists of items an incredibly frustrating way to pick out the right gallon of milk.
I think the underlying fact is that it's extremely expensive for Instacart to provide their service.
I think an automated / lights out grocery store where you order through an app and drive by on the way home to pickup the food would be an order of magnitude more efficient. But you have to build the warehouse (like Amazon does) to allow robots to fill the order.
If you're paying for the overhead of food to be stocked on shelves nicely enough for picky customers to look at it, and then only after that point are you filling an online order, that's hugely wasteful.
In a lot of areas there wouldn't be the population density to support a pickup only location, but it's easy for an existing store to implement pickup and delivery services. A locally owned store here has done it using Rosie: https://www.rosieapp.com/
Of course it seems crazy to make the claim today that people won't o inside a store to pick their own groceries. About as crazy at it will seem to people then, that we used to do exactly that.
We don't ask Walmart to disclose the prices it pays to its suppliers. Why care about Instacart's suppliers?
In grocery stores, etc. there isn't a service fee, so it's expected that the prices are marked up. In Instacart, there is already a service fee, but the prices are also marked up.
I'm sure not going to be using a service with such a high mark up, but I can see how someone with a high income might be willing to spend extra for the convenience.
So this markup may be based on discounted cost instacart pays, not necessarily what YOU would pay at the store.
Still think it's a crazy premium, but I enjoy grocery shopping.
Doesn't that just make things even worse?
I have no idea if that's true or not..
The issue all comes down to scale. Automated robot warehouses and delivery vans are far more efficient than individual drivers searching through grocery stores.