- Instacart has updated its checkout process in an effort to make tipping easier and to simplify its service fee. The company now suggests a 5% default tip, and has changed the service fee from 10% to 5% and moved it from waivable to fixed.
- Instacart has had a rocky relationship with workers in the past, according to TechCrunch, and has faced criticism for making its tipping feature too difficult for customers to navigate. In September 2016, Instacart removed its tipping option entirely and changed its service fee to an optional 10%, which went directly to the company. Following backlash, the company reintroduced tipping a month later, but the feature was hard to find on the app and generated more criticism.
- Despite these hiccups, Instacart, which was founded in 2012, is on a staggering growth trajectory and recently raised $350 million in Series E financing. It is now valued at $4.3 billion.
With competition intensifying in the grocery e-commerce space, Instacart needs to make sure its customers and shoppers are happy in order to maintain its edge. This new checkout feature could be an important step toward this goal, though time will tell if it's as helpful and intuitive as the company claims.
Customers may appreciate that tipping is now easier. Prior to this announcement, they could only tip Instacart workers if they chose to edit their carts at checkout — a process that many claimed was too confusing. However, customers — especially frequent ones who knew how to previously avoid paying the service fee — may not like that a service fee is now mandatory.
This also won't likely help Instacart's price positioning. According to a recent analysis by Barclays in the Cincinnati market, a basket of groceries was cheaper through two-hour delivery from Whole Foods, which utilizes Amazon Prime Now, than from Kroger, which uses Instacart. Walmart matches pricing in-store and online, and plans to offer home delivery to 40% of U.S. consumers by the end of this year.
Instacart lets retailers set prices and offers customer discounts through partnerships with various product manufacturers.
Workers may approve of the default tip amount, but there is still discontent among some who claim the company's commissions and tipping procedures don't add up to much. Instacart says it aims for workers to earn $14 an hour, but employees in some markets claim they're earning less than minimum wage. Last year, employees in two markets took part in a "no delivery day" in which they refused to log in for their shifts.
The labor market is tight right now, with unemployment hovering just above 4% nationwide. Instacart, like other gig economy companies, must also contend with high turnover. According to a recent report from the JPMorgan Chase & Co. Institute, more than half of workers in the gig economy quit within one year.
Though these issues may have caused some reputational damage, Instacart’s growth doesn’t seem to be affected. This year, the company expects to offer grocery delivery in more than 80% of U.S. households. Still, competition is picking up. Nielsen and the Food Marketing Institute estimate that grocery e-commerce will reach $100 billion in sales within the next four years.