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Instacart Cuts Pay for Couriers by 63%

On-demand startup reduces costs amid VC funding crunch

As reported by the Wall St Journal, Instacart Inc. is reducing what it pays couriers who shuttle groceries in several cities. Contract drivers in the company’s hometown of San Francisco who collect prepacked bags from grocery stores will earn $1.50 a drop-off, a cut of 63% from the previous guarantee of $4. Instacart is also slashing by 50% to 25 cents the commission it pays for each item in an order drivers collect when shopping in stores.

“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. “After these changes our shoppers will earn, on average, an effective rate of $15 to $20 per hour,” including tips.

When messaging this change to drivers, Instacart claimed drivers could still earn “$18 or even $20 or more per hour” based on its expectations for tips.

Workers are feeling the pain.

The immediate effect is many Instacart drivers will earn less for the same deliveries, said Josh Schwarzenbach, a driver in San Jose, Calif.

A shopping and delivery trip for 20 unique items to one customer would net him $15 under the current rate structure, he said, but only $12.50 when the new rates take effect next week, not including tips. Though Instacart is raising the minimum pay for a shopping and delivery trip to $7.50 from $5, the lower per-item commission makes earning more than $10 a delivery more difficult, he said.

With larger orders, the differential widens. A 40-item delivery today pays $25, excluding tips, but would drop to $17.50 in the new structure.

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

He said Instacart used to guarantee drivers $10 an hour regardless of whether they made a delivery, before switching to fees based on the number of deliveries. Instacart also cut to 50 cents from 70 cents the per-item fee it pays drivers for Costco Wholesale Corp. items, while maintaining the $10-a-delivery minimum.

Founded in 2012, Instacart sends couriers to stores such as Whole Foods or Safeway to pick up groceries, avoiding the need to stock shelves or manage trucks. At some Whole Foods stores, Instacart has embedded shoppers who use devoted checkout lanes and pass off orders to drivers.

The company, which operates in 17 U.S. markets, makes money from delivery fees, as well charging more than retail prices for items at some stores and pocketing the difference or through commissions paid by the grocer. This model attracted big-name venture-capital investors such as Andreessen Horowitz and Sequoia Capital that in late 2014 raised Instacart’s valuation to $2 billion.

Instacart recently laid off much of its recruiting staff as it slows hiring, according to people familiar with the matter.

 

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