Investigation: Instacart Dynamic Grocery Pricing

You grab a box of crackers marked $2.99 off the shelf at the grocery store and put it into your basket.  As your wealthy neighbor approaches the shelf, the price increases to $3.09.  A mother of three is stuck in the cereal aisle with her children pleading in unison for a sugary cereal with their favorite cartoon character.  As she gives in, the shelf price has increased 10% due to emotional demand. 

Dynamic or algorithmic pricing on food items sounds absurd when applied to the real world of a physical grocery store, but it is becoming an increasingly common practice of online retailers. 

Garlic and Roses was invited to sit in on a monthslong investigation of Instacart’s “experimental pricing” practices.  The investigation by Consumer Reports in partnership with More Perfect Union and Groundwork Collaborative used cohorts of shoppers who set their Instacart app to shop from the same retail location at the same time.   The groups were given individual items selected by Consumer Reports and asked to put them into their digital shopping cart.  Garlic and Roses was able to observe in real time as customers were charged different amounts on the exact same items from the same retail location. 

The investigation uncovered a practice, acknowledged by Instacart, of systemically charging different prices to different consumers at 10 retail grocery stores.  Stores confirmed to be a part of the dynamic pricing strategy included Albertsons, Sprouts Farmers Market, Costco, Kroger, Safeway, and Target.

The shopping cohorts showed an overall pricing difference of 8.4% between customers with the smallest and largest cost on the 20 items tested.  Pricing differences on individual items tested were as high as 23%.  The report states a household of four utilizing Instacart could wind up paying $1200 more on groceries per year.  Importantly, the investigation found far more shoppers charged the higher prices than the lowest available, on both the individual items and the overall basket cost. 

Instacart utilizes an AI pricing tool developed by a firm called Eversight that it acquired in 2022.  Instacart confirmed the pricing tool was used at 10 retailers when presented the investigation’s findings by Consumer Reports.  Typically, retailers set their own pricing on Instacart’s platform, meaning the retailers are likely aware of the dynamic pricing experiments on their customers. 

While no cooperatives were included in the retailers named by either Instacart or Consumer Reports, many food co-ops utilize Instacart for customer online shopping.  Co-ops could run small group testing on their platforms with willing shoppers to ensure the dynamic pricing tools are not in use at their location.  The investigation found at least one retailer, Target, who said they have no formal business relationship with Instacart and that the dynamic pricing was being employed without their knowledge or approval. 

The Consumer Reports investigation did not utilize enough participants to be able to say whether individual data profiles of customers were likely utilized in the pricing differences.  Instacart claims the dynamic pricing options does not utilize personal data, though they offered no further evidence to bolster that claim.  Companies like Instacart have access to troves of information about individual consumers. 

The retail grocery industry is one where frequent purchases make for easier experimentation on pricing than others.  Companies that were so inclined could utilize pricing experiences and customer data profiles to charge individuals the highest price they thought that customer would be willing to pay.  The fact that most shoppers in the investigation wound up in five neat pricing brackets indicates Instacart either believes these individuals to be relatively similar in profile, or occurred semi-randomly.  Either way, it is the type of pricing no customer would ever accept in a brick-and-mortar store. 

While the investigation did not specifically touch on Supplemental Nutrition Assistance Program (SNAP) shoppers as a cohort, the dynamic pricing strategy, if employed to individual SNAP shoppers would seem to run afoul of the Equal Treatment Rule.  The USDA website states for retailers:

• You must offer eligible foods at the same prices and on the same terms and conditions to SNAP-EBT customers as other customers, except that sales tax cannot be charged on SNAP purchases.
• You cannot treat SNAP-EBT customers differently than any other customer.
• Offering discounts or services only to SNAP paying customers is a SNAP violation unless you have a SNAP Equal Treatment Waiver.

SNAP is funded by the government and retailers must comply with USDA rules on the program in order to maintain their eligibility to accept SNAP as a form of payment.  Charging SNAP users different prices on the same items would be an illegal pricing practice under this rule. 

The number of consumers who shop online for groceries continues to increase.  USDA estimates that around 20% of grocery customers regularly shop online each month as of 2024.  Regulating AI pricing tools is increasingly important as people’s shopping online occurs in an individualized space, compared to a physical retail location. 

Without investigations like the Consumer Reports examination of these practices, customers wouldn’t even know the practice was occurring.  Retailers who participate in these practices need to hear from consumers that they want pricing fairness or they will take their business elsewhere.  For grocery cooperatives who pride themselves on serving the community, ensuring they are not a part of the dynamic pricing economy is an important differentiator.  For more information and to read the full report, click here.