Thursday, September 3, 2020
Consumers: Beware of Instacart! D.A.’s Office, Please Take Note
By Roger M. Grace
I assume you really don’t give a hoot how much my wife and I paid on Aug. 15 for two live abalones.
But perhaps you’ll be interested in our transaction in the context of an operation—valued at $14 billion—that is, in light of the pandemic, flourishing in California and elsewhere and appears to be fleecing consumers.
In particular, I would hope that the following will gain the attention of Los Angeles Deputy District Attorney Hoon Chun, acting head of the Consumer Protection unit of his office’s Fraud and Consumer Protections Division.
The culprit, as I would view it, is an enterprise called Instacart. The service it offers is to take your shopping list, which you provide to it online (or via an app)—being restricted to items displayed on the Instacart website by a particular market—and its “shopper” will pluck those items from the shelves of the market, and deliver the goods to your door. It also offers commodities from some businesses other than grocery stores. You can pay a per-transaction charge or (as we did) a $99 fee for a year’s service. To those of us who are senior citizens, highly vulnerable to the COVID-19 virus, a service of that sort is a necessity.
But is the nature of the business simply that of a shopping-and-delivery service? Or does it have an additional, and hidden, function as a purchaser of retail goods which it resells to consumers at higher prices—and without acknowledging its role as a reseller?
Is it engaged, during the present emergency, in what is commonly understood as “profiteering,” even if its conduct does not come under the new express legal proscriptions?
As I view it, from an experience last month, Instacart is a scam operation. After I lay out the facts relating to my abalone purchase, see if you agree.
Before getting to that particular transaction, I note the perception of Karl A. Racine, attorney general for the District of Columbia, as to whether Instacart is a legitimate business. On Thursday of last week, Racine instigated a suit against the company.
His office’s press release says that he “announced a lawsuit against Instacart, a grocery delivery service, for charging District consumers millions of dollars in deceptive service fees and for failing to pay hundreds of thousands of dollars in District sales tax,” adding:
“The Office of the Attorney General…alleges that for a span of 18 months, Instacart failed to clearly disclose to consumers that optional service fees were added on their bills and led them to believe these fees were tips for their delivery workers. In fact, the fees were an extra revenue source for the company and did not increase workers’ pay.”
The press release says that the company did eventually revamp its practices but refused to make recompense to cheated consumers.
In 2017, Instacart agreed to pay $4.65 million to settle a class action brought by its workers whose tips it had confiscated.
OK, now to the abalone. On Aug. 14, I placed an order for the delivery of goods the following day from a grocery store called HMart. One of the items I specified was a bag of frozen abalones.
A short time before the anticipated delivery, I went online to see which items were located by the shopper and which were unavailable. I saw that the shopper had substituted live abalones.
That wasn’t among the replacements I had authorized in placing the order, but was delighted. I hadn’t seen fresh abalone available in years, and neither my wife nor I had ever encountered live abalone. The price was a bit steep—$47.90—but I didn’t want to pass it up.
We do like abalone. (The craziest thing my wife and I ever did—and we were much younger then—was to drive to a restaurant, Kan’s, which served sliced abalone with pot stickers. Why was that crazy? Kan’s was located in San Francisco.)
Anyway, the groceries arrived on Aug. 15. The abalone I was picturing was of the dimension of what was available years ago in Little Tokyo and elsewhere—about four inches across; what we got for $47.90 was two abalones, each about the size of a little neck clam.
Though tiny, they were delicious. But they were over-priced. The shopper had left the market’s receipt in the bag, and also left the price tag on the package. What the market charged Instacart was $11.98. Its mark-up was more than 400 percent.
Prices of some of the other items had also been boosted. For example, Instacart charged us $8.49 for frozen shrimp fried rice; HMart charged Instacart $6.49.
Thinking that $47.90 had been charged for the abalones by mistake, I made an online request for a refund of $36. I got the run-around, with Instacart seeking information from me already in its possession and otherwise seemingly creating inconvenience to deter pursuit of the complaint.
Enough! I wrote on Aug. 17 to the general counsel of Maplebear, Inc., which does business as “Instacart,” threatening to seek injunctive relief in a private attorney general action based on its business practices. I noted my perception that Instacart, in buying goods from merchants and re-selling them to consumers at a higher price, is acting as a grocery merchant. I queried whether it is licensed to sell fresh meats, fish, and poultry.
A response came from one Annica Schwartz, a paralegal. She insisted in an Aug. 21 letter:
“Instacart is not a retailer or a grocery store, and it does not purchase or own any goods. The prices of items on Instacart are set by the retailer. A retailer may set prices of items similarly or differently on its online Instacart storefront than those same items are priced in-store. In addition, certain in-store sales and/or promotions may not be available on the retailer’s online Instacart storefront.”
She announced that Instacart (without admitting any fault) agreed “as a one-time courtesy” to refund to me the $99 annual fee and to remit $55.97. Her message was, in other words: “You no longer have standing to sue, buddy.”
Whether I do or not, the Office of Los Angeles County District Attorney (or any other DA’s office in the state or any city attorney’s office or the Office of Attorney General) plainly does have standing under the Unfair Competition Law and the False Advertising Law. And given the nationwide operations of this San Francisco-based outfit, federal authorities might also be well advised to take a gander at what this company doing.
Is it true that “Instacart is not a retailer or a grocery store, and it does not purchase or own any goods”?
From the facts known to me, I can’t see how that could be so.
I had provided Instacart with my credit card number. The Aug. 15 HMart sales receipt reflects payment to it via a MasterCard with a number ending in “6764.” That’s not the number of my card—which happens to be a Visa card.
Instacart bought groceries from HMart for $103.67. Upon doing so, it gained ownership of those goods.
A statement from JPMorgan Chase Bank shows that Instacart, not HMart, put a $155.20 charge that day on my Visa card.
Of that amount, $138.37 was for the goods—goods that cost Instacart $94.68 (one of the items having been procured for another customer). The balance of the $155.20 charge was 10 cents for a bag, $13.84 for a tip (based on 10 percent of the inflated charge for groceries) and $2.89 for a service fee.
From this, how could it possibly be concluded that Instacart did not purchase goods and re-sell them to me at a substantial profit? If there is a basis for a contrary view, neither Schwartz, in her letter, nor any of those persons in Instacart’s “Customer Support” who sent emails, pointed to it.
And if Instacart is not merely a shopping-and-delivery service, as it portrays itself to be, but is also a reseller of retail goods, with an undisclosed mark-up in price by it, it is deceiving consumers as to the nature of its service and enjoying profits that ought to be disgorged.
Incidentally, if it is, as it appears to be, a direct seller to consumers, it would be strictly liable in tort for harms from defects in the products it peddles.
A Feb. 11, 2019 opinion piece in Forbes Magazine by Brittain Ladd says:
“At some point, Instacart will apply all that it has learned from its grocery customers to create its own retail experience. (Instacart founder Apoorva Mehta was working for Amazon when he came up with the idea for Instacart. Did Mehta immediately share the idea with executives of Amazon to benefit his employer? No. Mehta chose to create a company and become a competitor to Amazon).
“Since grocery retailers willingly gave Instacart access to their data and willingly taught Instacart their business, there is nothing they will be able to do once Instacart decides they’re expendable.”
The question is: Has Instacart already become a retailer?
Schwartz’s insistence that it is not a retailer is not only unsupported by her in her letter, but seems utterly unsupportable given that Instacart, from all appearances, pays money for groceries, gains title to them, and charges the recipient of its “delivery service” a higher amount.
There are other aspects of Instacart’s operations that warrant scrutiny. In soliciting “subscriptions” to its “Instacart Express” service—which costs $ $99 a year or $9.99 a month—the company proclaims:
“Need groceries? Order your items when you want and skip the fees with Express.”
Well, a user of the service, such as my wife and I, are, in fact, spared a delivery fee—on orders of $35 or more, that is—but there is still a “service fee,” though a reduced one for “members.”
“While the delivery fee is waived for Express members, the service fee covers a broad range of operating costs including shopper operations, insurance, background checks for shoppers and customer support.”
Hold on. Whatever the reasonableness might be of such a “service fee,” the imposition of it runs contrary to the representation that a consumer, by signing up for Instacart Express, will “skip the fees.”
There’s another lie by Instacart, though probably harmless. It represent to “subscribers,” when placing orders, that they are enjoying a “free delivery” though, in fact, they paid a blanket fee-in-advance for deliveries. That falsehood, however, can be dismissed as mere hype for advantages of the service given that subscribers are aware of having made such a payment.
Another question is whether Instacart should be closely regulated by the state. It is not a common carrier or other form of a public utility but does have a virtual monopoly on the transportation of certain goods to consumers.
It is the sole source of deliveries from a myriad of grocery stores—every major chain in this area—and some other businesses.
My wife and I recently wanted to have duck for dinner. The only place I could find that is selling ducks these days is Albertson’s. The only delivery service connected with it is Instacart.
Although my wife and I reside in what has become a predominantly Korean American neighborhood, fresh Asian grocery items, which we desire based on our tastes, are unavailable from any delivery service, so far as I can ascertain, other than Instacart. I would rather not deal with that company but must, if we are to acquire certain foods.
Instacart is tied to Ralphs, Vons, Pavilion, Smart & Finals, Spouts, Gelson’s, Bristol Farms, Rite Aid, CVS, Petco—you name it, it has an exclusive.
Monopolies must be kept in check.
Instacart should not only be investigated by prosecutorial authorities (are you tuned in, Hoon Chun?) for seeming violations of consumer-protection statutes, but subjected to strict regulation pursuant to yet-to-be-devised statutory controls.
And is Instacart, as the sole source of deliveries from the area’s major food markets, a candidate for an action under the Cartwright Act, California’s version of federal antitrust statutes?
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