Instacart wants to go public. Its biggest challenge may be its own disgruntled workers
An Instacart order pings on Matthew Terres’ phone, interrupting his rant about the company’s CEO, Apoorva Mehta. “What have we got?” he asks, considering whether to hop in his van for a grocery run. “It’s a whole bunch of stuff — 16 miles, round trip, for US$8.53 from Instacart. I will not be accepting that,” he says. “It’s not worth it.” He closes the app, ending his 11-hour shift as a shopper for the company, having made zero deliveries.
Terres started delivering for Instacart in 2015 after a head injury forced him into a long-term disability leave from his sales job. In the beginning, delivering full time in downtown Chicago, he says he earned between US$1,000 and $1,500 per week including tips, which he says averaged about 18 per cent. But things started to change in the fall of 2016, when the company slashed the default 10 per cent suggested tip for shoppers — contract workers who collect grocery items and deliver them to customers. Tipping was eventually reintroduced, but at a suggested five per cent. Workers have been fighting for the company to reinstate its old tipping system, but Terres and other shoppers say their pay has only gotten worse.
Earlier this month, a group of shoppers stopped working for 72 hours to protest for better compensation — some didn’t clock in for shifts, while others did but declined all order requests. It was the fourth strike over pay since the 2016 cut. The company wasn’t swayed; later the same week, it removed the $3 quality bonus shoppers got for every five-star customer rating. The feature, introduced in October 2018, was a transparent source of income in a complex and often changing pay system, according to shoppers who spoke to The Logic. “What kind of algorithm they’re using to determine our pay per order is beyond what any of us can figure out,” says Diane Devine, an Instacart shopper in London, Ont. “So I just started striving to get five stars. It was something I could rely on.”
Instacart is just the latest company to be caught up in a backlash from gig workers who say their pay and labour conditions have incrementally worsened. Contractors in markets across the world have brought lawsuits against Uber, DoorDash, Foodora and others on issues spanning from their right to unionize to their very employment status.
“Every fall since this first announcement in 2016, Instacart has messed around with our pay,” says Terres. But this time, he says, the reaction is different. “Now that the gig economy and the world in general has experienced this first round of techlash, we’ve been able to join forces with other gig workers, as well as build relationships with politicians and legal scholars — who study this and write bills on this.”
What kind of algorithm they’re using to determine our pay per order is beyond what any of us can figure out
Diane Devine, Instacart shopper in London, Ont.
A spokesperson for Instacart told The Logic, “An IPO is on the horizon for us.” But analysts who cover the space worry it’s setting itself up for failure on the public markets by not heeding the warning signs of the growing labour movement roiling the gig economy. “Instacart lives and dies by its shoppers, and I anticipate that they will lose some workers in all this,” says Brittain Ladd, a retail strategy consultant. “It’s going to be difficult for Instacart to hire new workers because their reputation is so poor — that’s an issue they’re going to have to solve.”
At the centre of that problem, says Ladd, is Mehta, the company’s 33-year-old Canadian CEO and co-founder. While Instacart has grown substantially under the University of Waterloo electrical engineering graduate, critics say he doesn’t have the track record to improve the company’s optics and make it profitable in the lead-up to an IPO. “It’s clear that the team that started Instacart is not the right team to take Instacart to the next level,” says Ladd.
Mehta often tells tech conference attendees that he had about 20 failed startups before Instacart. One was a social media network for lawyers, a group of people whom Mehta later admitted knowing nothing about and who hated the product. He uses the story as a lesson to entrepreneurs about building companies around something they care about which, for him, he says, is groceries.
But Instacart was almost another flop. In spring 2012, Mehta — who declined to be interviewed for this story — was sure he finally had a winning concept and was eager to get into Y Combinator, the prestigious Mountain View, Calif.-based tech incubator that’s fostered companies like Airbnb, Reddit and Stripe. The program would give Mehta the capital and mentorship he needed to give Instacart a fighting chance at success. But because he had missed the application deadline by over two months, Garry Tan, then a Y Combinator partner, told him that landing a spot would be nearly impossible. Mehta — who grew up in Hamilton, Ont. — wasn’t ready to give up, so he sent Tan a case of beer using his new app. The move earned him a meeting with Tan and his partners and eventually a spot in the incubator.
Since then, the company has expanded to more than 20,000 stores in over 5,500 cities in Canada and the U.S. It has raised more than $2.5 billion from investors like Andreessen Horowitz and Sequoia Capital, and ranks sixth among Y Combinator’s highest-valued alumni, after its last funding round a year ago hiked its valuation above $10 billion.
In September 2016, Mehta told TechCrunch reporter Megan Rose Dickey that the company would be cash flow-positive within a year. “Our unit economics are really, really good,” he said. “We can comfortably say in the next 12 months, Instacart is going to be a profitable company.”
Seven months earlier, Instacart had signed a five-year deal with Whole Foods, offering the startup a stable retail partner to help carry it through its next growth phase. The company embarked on a Canadian expansion the following year, and now partners with six major retailers in the country, including Loblaw, M&M Food Market, Walmart Canada and Bulk Barn, and delivers out of more than 1,000 stores. In September 2018, it announced plans to add 200 employees to its Toronto office, the company’s first R&D hub outside San Francisco. It claims it can reach 70 per cent of Canadian households, up from 60 per cent at the start of this year.
A spokesperson for the company declined to say whether, two years after its target, the company is profitable. At the same time, shoppers say their take-home pay has shrunk, an issue they’ve repeatedly called on the CEO to address.
Instacart has tinkered with its fee structure since it first cut tips in 2016. The company said at the time its shoppers were too reliant on the gratuities, so it introduced a service fee that would go to Instacart instead, which it claimed would allow it to pay better base wages. The tipping option was reinstated after intense backlash, but the company buried the feature in the app, making it harder for customers to find. In March 2017, the company agreed to pay US$4.6 million to settle a class-action lawsuit in the U.S. alleging it misclassified shoppers as independent contractors and failed to properly compensate them. Onstage at Recode’s Code Conference in September 2018, Mehta apologized for how Instacart had treated shoppers. “Yes, we have made mistakes in the past, and we have debt with our shoppers,” he said. “The reality is that we have 50,000 shoppers on our platform and this number is growing really, really fast. So we need to do much, much better here, and we recognize that.”
The company has since started paying shoppers for their mileage from the grocery store to the customer and introduced a feature that gives shoppers their estimated earnings before accepting an order. But shoppers kept finding problems with pay. In one case, Instacart paid a shopper just US$0.80 for more than an hour of work — the shopper’s total pay was US$10.80, US$10 of which was a tip. The company later said it was a glitch, but the incident raised concerns that Instacart was skimming off shoppers’ tips to pad their base pay. While it’s never copped to the scheme, it responded by introducing a minimum pay of $7 to $10, depending on the shopping assignment, and $5 for delivery-only jobs.
Many shoppers still aren’t satisfied. A recent analysis of their pay by Working Washington, an advocacy group for low-wage workers, found the average shopper earned just US$7.66 per hour, after accounting for unpaid mileage and taxes; about half of the workers earned less than the US$7.25 federal minimum wage. Fast Company did its own analysis using Working Washington’s calculator in February and found shoppers earned anywhere from US$2.74 to US$29.05 per hour.
In the perennial battle between workers and the company’s executive team, Instacart’s reputation has taken a hit. “I’ve had many analysts tell me the absolute worst company to work for if you’re a gig worker is Instacart,” says Ladd.
That kind of brand erosion can drive retailers away at a time when there’s ample choice in the delivery space, and as many large retailers look to bring delivery in-house, says Bill Bishop, a Chicago-based retail consultant. “Do you want to put the experience of delivery in a third party’s hands and risk that being a poor experience?” Bishop says. “I think retailers are looking to avoid staying longer [with Instacart] than they need to.”
Ladd points to Whole Foods’ split from Instacart this year as a harbinger of what’s to come. The grocery chain was once Instacart’s biggest partner and a catalyst for other retailers to use the service. Amazon’s US$13.7-billion Whole Foods acquisition in June 2017 initially boosted Instacart’s business, as brick-and-mortar retailers looked for ways to compete with the e-commerce giant’s growing presence in the industry. But with its own same-day delivery network, Amazon wasn’t likely to keep Instacart around for long. When the partnership fully ended in May — nearly two years premature — Whole Foods orders made up less than five per cent of its revenue in the U.S., according to several reports at the time. But Ladd wagers that other retailers will follow suit.
Online ordering makes up about three per cent of grocery revenue in the United States. But that’s poised to grow from US$14.2 billion in 2017 to US$29.7 billion in 2021, according to Statista. “Imagine when it gets to be 10 to 15 per cent of retailers’ revenue,” says Ladd. “Then it’s in the interest of the retailer to be managing that customer experience, managing all that data.”
Given what Ladd calls a vulnerable market position and reputation, he thinks it’s a mistake for Instacart to go public anytime soon. “They need to solve the pay problem to where the negative view of Instacart improves. If that doesn’t happen, no one’s going to invest in Instacart.”
Uber was just a year older than Instacart when its co-founder Travis Kalanick was forced out of his CEO role in 2017, amid calls from investors to have him removed. The backlash against the company’s leader hinged on his eroding reputation among drivers and a toxic workplace culture. The ride-hailing company was barreling toward an IPO, and while the company has spent the last two years trying to erase Kalanick’s missteps, Ladd says it didn’t happen soon enough. Since going public in May, Uber’s stock price has dropped nearly 40 per cent.
Whether or not Mehta has learned anything from Uber’s mistakes, Terres says Instacart shoppers have. “We follow the Uber model for organization and activism as far as getting really angry online,” he says. “But we decided we weren’t going to just do that; we’re going to actually do something.” Terres points to initiatives like California’s Assembly Bill 5 as an incremental victory that could eventually make life better for gig workers. The new bill makes companies treat gig workers like employees, not contractors, if their work is central to the company’s usual course of business.
In an open letter to Mehta published ahead of their latest strike, shoppers appealed once again to the CEO to listen to his workers for the sake of his company: “You are the CEO, but we hold the power. We are highly organized and more agitated than ever,” the letter reads. “You launched 20 failed start-ups before Instacart. Whether this will be your first success or your 21st failure will in no small part hinge upon repairing your decayed relationship with Shoppers.”