Publicly, Instacart has made a big push this year to offer “same-as-in-store pricing,” so online grocery shoppers aren’t hit with mysterious markups.
Less publicly, Instacart has admitted to tinkering with its pricing tactics so different shoppers pay different prices for the very same items.
And now government leaders want answers.
Reuters reports that the Federal Trade Commission has launched an investigation into Instacart’s artificial intelligence-enabled experimental pricing tool, in which grocery prices can vary widely depending on who’s buying. The FTC would not confirm Reuters’ reporting, but it didn’t deny it, either. While “the Federal Trade Commission has a longstanding policy of not commenting on any potential or ongoing investigations,” it said in a statement, “like so many Americans, we are disturbed by what we have read in the press about Instacart’s alleged pricing practices.”
Many lawmakers have long fretted that in-store technology like digital price tags could enable retailers to change prices on the fly, charging more based on demand or based on the characteristics of individual shoppers. Retailers have denied this is happening, or planned.
But it’s already happening, to an extent, online. The issue burst into public view last week, when Consumer Reports and Groundwork Collaborative published an investigation into Instacart’s pricing practices. Acting on suspicions that Instacart was using algorithmic pricing experiments to charge different prices to different customers, the consumer investigators rounded up hundreds of volunteers to shop on Instacart for the exact same basket of items from the same grocery stores at the same time.
Their conclusion was that “every shopper was an unwitting participant in Instacart’s pricing experiments,” with about three-quarters of the products offered at different prices to different customers – sometimes just pennies apart, other times the prices varied by as much as 23%.
Instacart admitted to conducting pricing “experiments” to gauge shoppers’ price sensitivity. “Some consumers may see slightly higher prices for certain items and lower prices for others; however, most customers see the standard price,” Instacart said in response to the investigation. It denied using personal or demographic data to set prices, instead saying any variable prices are randomly assigned. “Just as retailers have long tested prices in physical stores to understand what resonates with customers, a small subset of our retail partners… run limited online pricing tests,” the company explained. “These short-term, randomized tests help retail partners understand category-level price sensitivity so they can sustainably invest in lower prices where consumers care most.”
But the report opened a Pandora’s box of concerns that grocery sellers will be able to exploit technology to squeeze more money out of grocery shoppers, at a time when everyone is particularly price sensitive about groceries. Instead of looking at a fixed price tag to see how much a grocery item costs, grocery prices could become as opaque as buying a plane ticket, where prices can change by the minute and you never know how much it’s going to cost you.
Several states and national lawmakers have already introduced legislation to restrict what they call “surveillance pricing.” The most recent effort came from Democratic Senator Ruben Gallego of Arizona on the very day the Consumer Reports investigation into Instacart was published. His One Fair Price Act would ban companies from charging different prices to different customers for the same product at the same time.
“Greedy corporations are compiling Americans’ personal data and using AI to find their ‘pain point’ – the maximum they’re willing to pay. That’s not fair pricing, that’s predatory pricing,” he said in a statement. “When you go to the grocery store, you expect to pay the exact same price for milk as the person in line behind you. But imagine if they charged you more for milk because they know you have growing kids at home and that you need it more than the person behind you. You’d be outraged. It may seem far-fetched, but increasingly that’s exactly what’s happening, especially when shopping online.”
Senate Democratic Leader Chuck Schumer followed up with a letter to the FTC itself, demanding action to “crack down on AI-driven price gouging and ensure families are not being taken advantage of at the checkout line.”
“Companies like Instacart are using artificial intelligence to rip off consumers by charging different shoppers different prices for the same exact items,” Schumer said in a statement. He urged the FTC to investigate, to force companies like Instacart to disclose any pricing experiments, and to regulate it as necessary. Shoppers, he said, “should not be forced to wonder if Instacart is using an undisclosed AI system quietly squeezing them for more.”
Instacart, meanwhile, is hoping to shift the focus from its pricing experiments to its pricing consistency. It’s pushing its partner retailers to offer the same prices online as in store, so the issue of variable pricing will become moot. “Affordability is the biggest barrier to online grocery adoption, so we’re partnering with retailers to lower prices and make services like Instacart accessible to more consumers,” the company explained.
But Pandora’s box is already open. Instacart may be promising to lower prices – but government leaders and regulators may be the ones to have the last word.
Image source: Instacart
