The New York Times this morning has a piece about how a recent, limited study suggested the degree to which pricing on Instacart can be dynamic – some would say unacceptable fluid – which is “a trend economists say could be pushing up some prices.”
Here’s the context for the piece:
“On a Thursday in early September, more than 40 strangers logged in to Instacart, the grocery-shopping app, to buy eggs and test a hypothesis.
“Connected by videoconference, they simultaneously selected the same store — a Safeway in Washington, D.C. — and the same brand of eggs. They all chose pickup rather than delivery.
“The only difference was the price they were offered: $3.99 for a couple of lucky shoppers. $4.59 or $4.69 for others. And a few saw a price of $4.79 — 20 percent more than some others, for the exact same product.
“The shoppers were volunteers, participating in a study published on Tuesday and organized by the Groundwork Collaborative, a progressive policy group, and Consumer Reports, a nonprofit consumer publication. In tests in four cities across the country, nearly 200 volunteers checked prices on 20 grocery items on Instacart.
“On item after item, they found significant differences. In a Target in North Canton, Ohio, some shoppers were charged $3.59 for a jar of Skippy peanut butter that others could get for $2.99. At a Safeway in Seattle, some people paid $3.99 for a box of Wheat Thins while others paid $4.89. And at a Target in St. Paul, Minn., some people were charged $4.59 for a box of Cheerios that others could get for $3.99.”
The Times writes that “Groundwork’s findings are the latest example of how the notion of a single price, offered to all customers for a predictable period, is breaking down in the digital age. Companies are using sophisticated algorithms to adjust prices quickly in response to competitors’ offers and consumer behavior.
“‘Dynamic pricing’ strategies, in which companies raise prices during periods of intense demand, have spread beyond sectors where they have become familiar, such as air travel and ride-hailing services, to other parts of the economy, including restaurants and retailers.”
An Instacart spokeswoman tells the Times that “stores on its platform set their own prices, and that some of them engaged in pricing tests to ‘learn what matters most to consumers and how to keep essential items affordable … The pricing tests are short term, randomized and designed so that people may see slightly lower prices and some may see slightly higher prices, with the goal of helping retail partners understand consumer preferences and identify categories where they should invest in lower prices’.”
The only problem with that defense, the Times suggests, is that “a Target spokesman said the company ‘is not affiliated with Instacart and is not responsible for prices on the Instacart platform.’ Instacart said that during the period covered by the Groundwork study, it was ‘evaluating different approaches’ to covering its costs but has since ended pricing tests on Target orders.
Safeway and its parent company, Albertsons, did not comment on the Times story and Groundwork study.
The Times notes that “grocery prices are up more than 25 percent over the past five years and continue to rise faster than before the pandemic. In surveys, voters consistently rank food prices among their top affordability concerns … In total, the Groundwork study identified price differences on nearly three-quarters of the items tested. The price tag for the full basket of 20 goods varied by about 7 percent within each store, a difference that could add up to hundreds of dollars over a year of grocery shopping.”
It is a subject that both sides of the political aisle seem intent on addressing: “Democrats including Senator Elizabeth Warren of Massachusetts have accused large food companies of price gouging. On Saturday, President Trump signed an executive order creating task forces to investigate possible price-fixing in the food supply chain.”
KC’s View:
First off, I seem to remember that the Biden administration got a lot of criticism from the industry when it launched a probe into high grocery prices, and suggesting that they might be the result of price gouging and anti-competitive behavior; Senator Warren often is excoriated by some within the industry for her positions on such issues.
I wonder if the Trump administration will face the same criticism.
I, for one, was very critical of Warren’s assumption that all dynamic pricing meant that prices always would go up. Sometimes, I pointed out, they could go down, which would be good for consumers. It is true that dynamic pricing, which is predicated on a greater situational awareness on the part of retailers, can be good for business, but last time I checked that was called capitalism. Maybe not good for shoppers all the time, but that’s for retailers to gauge.
One of the things that digital commerce does allow for is a more flexible approach to pricing, and that’s probably a good thing; it allows retailers to respond more quickly to events and trends, and to conduct tests that are both dynamic and real-time. All good.
The one thing that the Times story suggests to me, though, is that retailers may have to be careful about the degree to which they empower Instacart to conduct tests and price dynamically in ways that affect their value propositions. Instacart clearly has proven itself to be an invaluable partner in the e-grocery sector – there are retailers that would be unable to compete against Amazon’s and Walmart’s e-commerce initiatives without partnerships with Instacart (and its e-grocery brethren). For that matter, we know that even Kroger is depending more on such companies as it lays out out its digital strategies for the future.
But retailers have to be engaged, have to be in control, have to be full partners.
One other point. The Times points out that “the Groundwork study found no evidence that Instacart was basing different prices on customers’ individual characteristics like income, ZIP code or shopping history. But there is little doubt that Instacart and other online sellers have the ability to do so. Companies including Delta Air Lines, Amazon and Home Depot have been accused of experimenting with such personalized pricing, only to retreat after consumer backlash.” And Instacart tells the Times that its pricing tests were “never based on personal or behavioral characteristics” and that prices “never change in real time, including in response to supply and demand.”
That all sounds good. I’m not sure I entirely believe it, but I also think there is nothing wrong – especially in a low-margin business such as grocery – to respond to a high demand/low supply moment by raising prices. Stores and businesses always have done it. Again, it is called capitalism. A digital world just allows them to do it faster and more effectively. And again, retailers also can respond more efficiently to a low demand/high supply moment by lowering prices.
Consumers don’t have to like it. They can make their displeasure known, and can decide to shop elsewhere. And then retailers have to decide how dynamically to respond to that.
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