Dive Brief:

• The U.S. Court of Appeals for the 9th Circuit upheld the ruling in a $42 million class action lawsuit against Safeway that claimed the grocery chain overcharged customers who placed online delivery orders, according to The Recorder.
• Back in 2010, according to the suit, Safeway increased prices of its online products by about 10% over in-store prices. This was steeper than the delivery fee allowed under the retailer’s customer contract, noted the plaintiffs, and was instituted without informing customers.
• The settlement amount includes $31 million to cover profits Safeway earned on the price markup between April 2010 and December 2012, according to reports, plus $10.9 million in interest.

Dive Insight:

In 2011, Pennsylvania resident Michael Rodman filed a lawsuit against Safeway after he compared the grocer’s online prices to its in-store prices and found a 10% difference between the two. The suit he filed, which was upgraded to a class-action suit by U.S District Judge Jon Tigar, stated that Safeway’s service agreement “promised, with certain exceptions, that the prices charged ... on Safeway.com would be the same as the prices charged in the physical store from which the groceries were selected and delivered.” The increase, Rodman claimed, violated that contract.

In his 2015 decision, Tigar noted Safeway’s claim that shoppers “knowingly and willingly choose to pay an additional fee” was irrational. Evidence showed that customers had no knowledge of the increase, he noted, but that they continued to pay for the service.

Following the decision, Safeway appealed the ruling. It was upheld, with the court noting: "Safeway cites no authority from California law suggesting that a merchant may modify a consumer contract and bind the consumer without any form of notice. …What authority does exist counsels that California would not enforce a modification without notice."   

Although the initial price increase cited in the suit happened several years ago, it remains relevant today as grocers continue to build out their e-commerce capabilities and try to make them economically viable. Online markups and delivery fees are still part of the model that grocers as well as third-party services employ. Instacart, the U.S.'s largest service provider, doesn't charge a markup for partner retailers that pay a fee to the service, but discloses a 15% markup for customers of non-partner retailers. Some sources, however, have found the markup to be higher.   

Safeway, which was an early adopter of online ordering and delivery, currently offers the service to customers at all of its 1,300 stores. Safeway’s parent company, Albertsons, is looking to continue the trend by expanding delivery services to locations throughout its collection of stores.