How Instacart Went From an Upmarket Novelty To Exploitative Decline

Even with inflation, online and app-based grocery delivery services are exploding. From a mid-pandemic high of $286 Billion in 2021, economists predict the expensive convenience will grow to more than $2 Trillion by 2030.

Believe it or not, grocery delivery existed in some form or another long before Instacart and other app-based food shopping. New York City natives, in particular, may remember their parents bringing a cart of groceries to a designated lane at the grocery store. A store employee would later deliver the items to the customer’s apartment. Some even accepted phone orders.

Upon the birth of the app economy, users in other upmarket urban areas discovered the joys of having things delivered to their doors that were once the realm of Hollywood celebrities. Boutique ice creams, last-minute makeup refills for a date, and that new laptop to meet an urgent deadline could now be at your doorstep and tracked in real-time without requiring a personal assistant.

As Manhattan later populated with wealthier and younger transplants, Instacart immediately appealed to them. After all, it seemed redundant to visit a grocery store and select your items but not take anything home.

Restricted To Upper-Income Households in Core Manhattan

With Instacart so widely available across America today, it is hard to believe that it once offered minimal service in the New York City area. When the app launched in 2012, Manhattan and the rapidly-gentrifying neighborhoods of western Brooklyn were the primary markets served. Instacart partnered with equally upmarket Whole Foods Market until this lucrative partnership ceased upon Amazon’s acquisition of the grocery chain in 2018.

But as demand for on-demand delivery apps surged, leadership at these companies saw potential in diversifying their risk across larger pools of users. Service areas for delivery apps like Instacart and Postmates substantially widened, adding higher-income neighborhoods carefully curated by market research.

However, times and markets change. Middle-income users, particularly disabled workers and parents of young children saw immense value in paying to avoid the hassle and time suck of grocery trips. Subsequently, Instacart’s growth surged in the mid-2010s until it tapered off in 2019, bleeding $25 million per month.

This all changed when the pandemic lockdowns were declared, and Instacart posted a $10 million profit in April 2020. Medically vulnerable, elderly, and disabled people became significant customer segments. The company’s positioning was originally that of a high-end concierge service.

But when COVID spread, Instacart had long abandoned its glossier origins and commenced a partnership with budget supermarket Aldi. Through this partnership, the app started accepting EBT food stamps with participating grocers by late 2020, indicating a universal customer base rather than its high-end roots.

Despite partnering with numerous other grocery chains, which made app-based grocery delivery accessible to all income brackets, Instacart has been steadily bleeding customers after a very profitable pandemic. According to industry researchers Grocery Dive, only 7% of Instacart customers remain loyal to the app. In contrast, grocery store loyalty increased from 22% to 29%.

Instacart brought a niche service to a small market when the app economy was novel. As smartphones and e-commerce became ubiquitous, the market grew, and demand for grocery delivery surged. Most grocery stores didn’t have their own delivery infrastructure, as the concept didn’t exist outside New York City until the smartphone boom.

Even though Instacart experienced record revenues during the pandemic, competition arose from other delivery services like Postmates, Uber Eats, and DoorDash. Instacart remained at the top of the heap for grocery delivery as the app was specially designed for it while the others were not. While customers with small orders began gravitating to GoPuff and DoorDash for those forgotten ingredients, Instacart was still the go-to app for large grocery orders.

Instacart Now Faces a Perfect Storm.

E-commerce has become a fact of life. As a result, consumer preferences changed, gig workers organized, and exposed inferences of misconduct. Soon, Instacart was forced to take accountability for deceiving workers and consumers.

Just like how the birthplace of Uber now sees higher taxi ridership than Uber hails, customers now turn directly to their grocery stores for large orders rather than a third-party solution like Instacart. With DoorDash and GoPuff cornering the small order market, competitors like Dumpling provide a consistent personal shopper who gets to know each customer’s needs and preferences.

Ultimately, Instacart’s downfall ensued because customers and shoppers alike became fed up with the lack of transparency and even potential theft.

Instacart isn’t the only on-demand delivery app that has run afoul of labor laws. But it is noteworthy that Washington DC’s attorney general ordered the company to pay $1.8 million in restitution for misleading customers that their in-app tips would go to the shoppers and drivers when instead they padded the bottom line. Changes in pay structure were also met unfavorably by shoppers and customers alike.

As modern consumers are more concerned about workers’ rights, it’s no surprise that Instacart’s loyalty has taken a tumble. The deception is also passed onto the consumer with numerous hidden fees, even if they pay for a membership, but also in egregious markups compared to in-store prices. A 2017 Reddit post went viral when a customer found that Instacart marked up the price of the customer’s groceries by 42.8% before even considering taxes, tips, and multiple fees. Even after The Counter reported on this, this practice persisted with Instacart orders nationwide for years.

With low pay and poor treatment from customers, and judgment from an algorithm, poor service often follows. Shoppers need to beat the clock to find items that often don’t match the store’s inventory on hand at the moment. Layouts vary by store, even across the same chain, adding to the time shoppers take to complete customers’ orders.

Strange substitutions for unavailable items have also prompted discussions on social media concerning men taking on traditionally feminized labor. While this phenomenon merits a closer look, Instacart nevertheless created a lose-lose situation where both customers and workers are shafted.

A Customer Shift to Supermarkets’ Native Apps

With 2020s customers more fixated on being loyal to specific stores rather than delivery apps, supermarkets and mega-businesses like Amazon used the pandemic as an opportunity to level up their in-house options.

According to Apptopia, supermarkets’ own mobile apps experienced a sharp increase in downloads in the first quarter of 2022. User sessions were 13% higher in 2022 compared to the onset of the pandemic in 2020 when Instacart still reigned.

With food prices escalating out of control in 2023 and the possibility of a looming recession, customers want to avoid paying fees that only go straight to the company. They also don’t want to risk their tips not making it into the hands of hard-working shoppers and drivers while being charged 20-40% markups on their groceries.

Amazon Fresh and Whole Foods delivery services utilize Amazon’s unparalleled logistics network and Amazon employees to shop and deliver orders. Amazon Fresh differentiates itself from competitors by being minimally disruptive to the customer, as opposed to constant notifications from Instacart when items are out of stock or instructions are unclear. Supermarket employees shop, deliver customers’ orders, and know where everything is in each store. Additionally, supermarket apps and Amazon Fresh often have up-to-the-minute inventory information, so the customer has a lower risk of numerous replacements and refunded items.

Even if these alternatives could be more worker or consumer friendly, they ultimately meet customers’ needs more efficiently than Instacart, and supermarkets realized they have viable growth opportunities in bolstering in-house delivery services.

This article was produced and syndicated by Wealth of Geeks.

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