Does Instacart Markup Grocery Prices in 2024?
Instacart has modernized grocery shopping by providing app-based personal shopping and delivery in as little as an hour. However, many analysts have accused Instacart of inflated markups that counteract any convenience value for budget-conscious families.
So does Instacart itself hike up prices on groceries to turn a profit? Or do retailers shoulder most of the blame? This 2023 update settles the debate on Instacart‘s impact on affordability amid rising inflation.
How Instacart‘s Business Model Impacts Pricing
Instacart utilizes a software as a service (SaaS) business model. It develops and licenses proprietary order/delivery management software to partnering grocery chains in exchange for fulfillment fees per transaction.
To leverage Instacart‘s software and shopper network, most retailers pay:
- Licensing fees: To access Instacart software
- Fulfillment fees per order: Percentage charged on basket totals
Therefore, Instacart does not directly control grocery pricing. Retailers choose whether to inflate prices to cushion profits when working with Instacart.
Analysts estimate many retailers tack on 10-25% price markups to counteract Instacart‘s fees. But a few major chains like Costco vow price parity across in-store and online purchases.
Grocery Price Inflation by Retailer
A 2022 MarketWatch analysis studied 13 top national retailers on Instacart for pricing consistency. Results indicate 65% of assessed chains chose to inflate prices:
| Retailer | Avg. Price Inflation |
|---|---|
| Safeway | 16.8% |
| Smart & Final | 15.9% |
| Whole Foods | 13% |
Meanwhile, Costco, Sam‘s Club, Kroger, and Albertsons maintained equal or lower Instacart pricing.
But why the discrepancies? Costco likely prides itself on subscription-model affordability to preserve member loyalty despite Instacart fees. Conversely, pricier chains like Whole Foods pass expenses along through subtle markups that don‘t undermine luxe brand power.
Instacart Service Fees & Membership Impacts
Beyond potential grocery markups, Instacart generates revenue through:
- Delivery fees: From $3.99+ per order
- Service fees: Around 5% of order cost
- Memberships: $99/year Instacart Express for free deliveries over $35+
The following table displays how these costs inflate a $100 grocery order:
| Fee Type | Cost |
|---|---|
| Grocery Order | $100 |
| 15% Price Markup | $115 |
| Delivery Fee | $3.99 |
| Service Fee | $5.75 |
| Total | $124.74 |
On small orders, fees and markups may counteract convenience value for budget-focused households.
Meanwhile, Instacart Express provides free delivery on over $35 for $99 annually. For frequent users ordering $100+ per trip, it often delivers material savings.
The Bottom Line
- Instacart‘s software model incentivizes retailers to inflate prices 10-25% to offset order fulfillment fees
- About 65% of major chains markup prices, while around 35% maintain consistent pricing
- Delivery fees, services charges, and price markups can minimally increase basket totals 25%
- For larger, bulk orders, Instacart convenience may justify costs
- For budget shoppers, consider in-store shopping for routine trips or use Instacart Express
In the end, Instacart offers valued modern convenience for many households, but users pay a premium that disadvantages lower-income shoppers. Hopefully as adoption expands pricing models will continue to evolve for accessibility.
