Dive Brief:
- Instacart has significantly reduced fees for home delivery and its Instacart Express membership service, a company spokesperson confirmed to Grocery Dive. News of the new fee structure, which quietly went into effect November 14, was first reported by Business Insider.
- The annual fee for Instacart Express, the membership service that offers free delivery on orders over $35, has dropped from $149 to $99. Instacart has eliminated the 5% service fee previously included with each order and set the default tip to 5%. The company is also offering free store pickup for Express members.
- Those who shop Instacart without a membership have seen delivery fees drop from $5.99 to $3.99 across North America for same-day and next-day orders over $35 — with the exception of New York City, where the fee dropped from $7.99 to $5.99, and club store orders, which will charge an $8.99 fee. One-hour deliveries are subject to additional fees, according to Instacart. A la carte customers will still pay the 5% service fee and a 5% default tip.
Dive Insight:
This is big news for Instacart, which has received a lot of negative publicity for its high, sometimes hidden, fees. Its new pricing structure is an acknowledgement of the important role price plays in getting consumers to adopt online grocery shopping. It's also a defensive move against the likes of Amazon, Walmart and Target, which have offered lower-priced options within their home delivery and store pickup services.
As Business Insider notes, a $99 Instacart Express membership is now $20 less than Amazon Prime, which gets shoppers free two-hour delivery and store pickup from Whole Foods stores. It's not quite an apples-to-apples comparison, since Prime offers a suite of benefits ranging from streaming video to free two-hour delivery across its retail empire. Matching that value is difficult, and compounded by the fact that so many other retailers out there are clamoring for shoppers to shell out for their own membership programs.
Still, the wide array of grocers on Instacart's platform coupled with the $50 price drop make it a strong value for consumers, said Matt Lindner, senior e-commerce analyst with Mintel.
"Lowering costs is going to get more people shopping on Instacart," he told Grocery Dive.
Instacart's new membership fees bring it level with close competitor Shipt, which also offers free pickup from Target stores and free delivery on orders over $35. Meanwhile, Walmart's remains unmatched in store pickup, which is free at more than 2,000 locations and doesn't require a membership fee. Its delivery service, available for a flat $9.95 fee with a minimum $30 order required, could come under pressure, though Walmart's low prices could easily make up the difference.
According to Lindner, recent Mintel data shows that lowering delivery costs could significantly boost online grocery trial, particularly among younger, tech-savvy consumers who just need a nudge.
“Instacart dropping prices even by two bucks might be enough to get someone who’s on the fence to give it a shot," he said. "If they have a good experience, they’re more likely to do it again."
Instacart has made other recent moves lately to broaden its appeal, including launcing grocery pickup throughout the U.S. and expanding its partnership with leading discounter Aldi to additional cities. This comes on the heels of a surging valuation after Instacart raised $600 million in funding in October. This ongoing effort to win more customers and maintain its leading share of the market is essential, given the expectations of Instacart’s investors and grocery partners as well as the strong competition in grocery e-commerce.
Instacart's scale — more than 300 grocery partnerships and counting — makes it a true online shopping platform, and its membership program will be an important avenue to secure loyalty. But according to Lindner, lowering its fees is just the first step.
"Now that it’s dropping these prices, it really has to focus on the execution," he said. "The pressure’s really on them to deliver a good experience to every online shopper that tries this service.”
Jeff Wells contributed reporting to this article.
