Something wonky is going on with the prices for your Instacart grocery deliveries, according to a new report. Have you ever compared prices with your neighbors? You might want to.
Just as snow has blanketed parts of the U.S., kicking off the winter weather season (and making grocery deliveries look much more attractive than trekking out in icy conditions to go shopping), Consumer Reports and Groundwork collective have released a report that indicates artificial intelligence-related pricing experiments might be impacting grocery bills. It said that item prices can actually differ as much as 23 cents from one customer to the next on the Instacart app.
That’s one of the most popular grocery delivery apps, with an estimated 25 million customers as of this year. Other services include UberEATS and DoorDash, though those are more well known as restaurant delivery apps. Consumer Reports said Instacart’s dominance in grocery delivery is why it chose to look at Instacart for its research.
To conduct the research, it sought help from 437 volunteers who were divided into four groups this September. During a video meeting, the participants simultaneously shopped on Instacart for identical baskets of 18 to 20 goods from Safeway and Target. A fifth test was also conducted in person with volunteers in Washington, D.C.
“In each case, the shoppers placed the items in their virtual shopping carts and recorded the prices by taking screenshots but did not purchase the goods,” Consumer Reports said. “After checking the screenshots of our volunteers and evaluating roughly 200 that had no errors, we found that every shopper was an unwitting participant in Instacart’s pricing experiments.”
A final test was also conducted in November with online volunteers. It revealed evidence of price experimentation at four additional chains: Albertsons, Costco, Kroger, and Sprouts Farmers Market. Interestingly, there were no price variations for select items. These include Premium brand saltine crackers, Heinz ketchup, and Barilla farfalle pasta
“About three-quarters of the products we checked were offered at different prices to different customers,” said Consumer Reports. “Some products were offered at as many as five different prices, and price variations for the same products ranged from as little as 7 cents to $2.56 per item.”
Though the price variations might seem small, they can add up. According to Consumer Reports, identical baskets could have up to a $10 difference. Over the course of a year, “the average price variations observed could translate into a cost swing of about $1,200,” based on how much Instacart says the typical household of four spends on groceries.
Instacart confirmed the Consumer Reports findings accurately reflected its pricing experiments and strategies. However, it claimed that 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,” Consumer Reports said.
“Just as retailers have long tested prices in their physical stores to better understand consumer preferences, a subset of only 10 retail partners – ones that already apply markups – do the same online via Instacart. These limited, short-term, and randomized tests help retail partners learn what matters most to consumers and how to keep essential items affordable,” the company wrote in a statement.
It’s not illegal or new to charge different customers different amounts for the same products, but Consumer Reports noted that “consumers express deep misgivings about algorithmically driven changes in pricing when it comes to more essential goods like food.” In a September survey of 2,240 U.S. adults, 72% of people who have used Instacart in the previous year did not want the company to charge different users different prices for any reason, for example.
At the same time, Consumer Reports noted that Instacart has “been transitioning from a company that primarily delivers groceries,” to one more focused on the tech it can offer. This seems to be a trend, with retail giant Walmart also reportedly positioning itself to be seen more as a technology company in the future.
In 2022, Instacart acquired an AI company called Eversight. With this tech, it began offering pricing software to retail companies as a way to “optimize” prices. It claimed the tech could increase store sales by up to 3%.
Some of the tactics include displaying inflated “original prices” – a tactic known as “fictitious pricing.” Though consumers are wary of it, fictitious pricing has proven effective in some cases.
In an email between Instacart and Costco that was accidentally sent to Consumer Reports, an Instacart employee also wrote that the company had been experimenting in recent months with what it calls “smart rounding” at Costco. In a 2023 letter to company shareholders, it was described as a “machine learning-driven tool that helps retailers improve price perception and drive incremental sales.”
“Experts who examined our findings told us Instacart and its partners appeared to be trying to determine how ‘price sensitive’ consumers are – that is, how high a retailer could raise the price of an item before customers decide not to buy it,” Consumer Reports said.
Errol Schweizer – a grocery industry consultant who, as an executive at Whole Foods, helped set up the company’s partnership with Instacart – referred to these actions as “pricing gamesmanship.” He said “by the end, it’s predatory and manipulative,” at a time when consumers are feeling pressure from inflated food prices.
Additionally, the use of AI and data collection is a separate a concern, according to Len Sherman, an adjunct professor and executive-in-residence at Columbia Business School in New York City, whose research examines the proliferation of algorithmic pricing, per Consumer Reports.
“All of us, without our knowledge, are being conscripted in this enormous and growing social experiment being conducted by companies across a wide range of industries,” he said. “Every step that we take as a consumer is being bundled together in these massive databases and being analyzed so that the next time we confront a purchase decision, everything we’ve ever done is going to factor into the price we see.”