Mobile Commerce

Instacart’s Business Model Shakeup

2010 — the days when the sharing economy was new and exciting and full of get-rich-quick promises for contract workers. Fast forward to 2016, and one of the most successful door-to-door delivery services is proving that mantra to be not so true.

The Wall Street Journal reported that last-mile grocery delivery startup Instacart is backing off of previously made wage guarantees to drivers and cutting pay by up to 63 percent in some cities. According to documents obtained by WSJ, Instacart is lowering per-delivery pay in San Francisco and Los Angeles from $4 to $1.50. Instacart is also cutting the per-item fee paid to drivers who collect products from stores; that number dropped from $0.50 per item to a shiny quarter each.

“We have made some recent rate changes to reduce variability in how much shoppers earn, and we are constantly innovating to help shoppers get more orders,” Instacart said in a statement to WSJ. “After these changes, our shoppers will earn, on average, an effective rate of $15 to $20 per hour.”

WSJ noted that that hourly wage included tips.

While every business adjusts wages for its employees depending on one, or several, of a million factors, Instacart’s recent comments to Bloomberg might shed some light on the precipitous drop in wages for the company’s already lowest-paid employees. Company officials explained that 40 percent of deliveries are profitable, though the calculations used to arrive at that figure didn’t include potentially hundred and millions of dollars in costs — office space, payroll for in-house IT staff and executives and costs of hiring new drivers were not factored into that declaration of “profitability.”

Does cutting employee wages make sense for Instacart if its financial problems are this dire? One could make the argument, but as one San Jose-based Instacart driver told WSJ, the new pay guarantees are throwing his commitment to the service in doubt.

“It’ll be a lot harder to make what I earn now,” Josh Schwarzenbach told WSJ. “It was a good gig to earn some extra money, but I don’t think it makes much sense anymore.”

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