Dive Brief:
- Instacart will pay $60 million in consumer refunds as part of a settlement in a lawsuit brought by the Federal Trade Commission, the agency announced Thursday.
- The FTC alleged in the complaint, filed Thursday in the U.S. District Court for the Northern District of California, that Instacart engaged in deceptive practices that misled consumers on fees for its delivery promotion, made it difficult to initiate refund requests and did not fully disclose Instacart+ membership trial terms.
- “Rather than truthfully advertising the cost of its delivery services, Instacart forced consumers to invest their valuable time and energy — in many cases exceeding 30 minutes — so that it could coerce them into paying hidden fees,” the FTC said in the complaint.
Dive Insight:
The FTC claimed that Instacart has brought in millions of dollars through deceptive practices.
The FTC alleged that Instacart’s “free delivery promotions for first-time customers” are deceptive because, although the delivery fee is waived, customers still have to pay service fees that add up to as much as 15% to the order cost. The FTC noted that these fees are “just delivery fees by another name.”
“Consumers have paid Instacart tens of millions of dollars in service fees and other mandatory fees on their first ‘free delivery’ orders,” according to the complaint.
The FTC also took issue with the company’s “100% satisfaction guarantee,” claiming that Instacart only provides “a small credit” for future purchases when customers are unhappy with the service they receive. Because the refund option is not available on the self-service menu where people report issues with their orders, customers may “erroneously believe they can receive only a credit toward a future order rather than a refund,” the complaint said.
The FTC claimed that Instacart did not properly disclose that its 14-day free trial of Instacart+ automatically renews at the end of the trial period into an annual membership and that the company does not clearly tell consumers that it only refunds Instacart+ memberships under limited circumstances.
The agency said that Instacart’s alleged actions put it in violation of the FTC Act as well as other federal law.
On the same day the complaint was filed, Instacart and the FTC agreed to a proposed settlement order, which prohibits Instacart from misrepresenting delivery service costs or satisfaction guarantees and requires the grocery technology company to clearly disclose its subscription terms. The FTC Commission approved the stipulated final order with a 2-0 vote and said it will go into effect once signed by the District Court judge.
“The FTC is focused on monitoring online delivery services to ensure that competitors are transparently competing on price and delivery terms,” Christopher Mufarrige, director of the FTC’s Bureau of Consumer Protection, said in a statement.
“We flatly deny any allegations of wrongdoing by the agency, and we believe the foundation of the FTC’s inquiry was fundamentally flawed,” Instacart said in a blog post on Thursday, noting that it is not aware of any other pending FTC investigations.
The company said that it offers “a service that’s simple, straightforward, transparent, and customer-friendly” and has helped consumers save more than $3 billion — an average savings of more than $5 per Instacart order — through its Instacart+ membership benefits as well as other discounts, deals and offers.
Instacart said that it’s been clear that “$0 delivery” means no delivery fees, while “clearly and consistently distinguish delivery fees from service fees, which are always shown as a separate, itemized line.”
Instacart also said its Instacart+ membership “complies with regulatory standards” and that the subscription terms “are clearly disclosed before signup, again during the free trial, and repeatedly throughout the membership period, including reminders and emails before renewal.”
“Instacart offers automatic full refunds for 5 days after annual renewal if the membership isn’t used and in many cases, even out-of-policy refund requests are honored,” the blog post said.
The FTC complaint was the latest consumer advocacy backlash against Instacart. Earlier in December, an investigation by Consumer Reports and Groundwork Collaborative found that grocery prices differed by as much as 23% between customers on Instacart due to the company’s algorithmic pricing experiments with major grocery partners. In a separate blog post addressing the investigation’s findings, the grocery technology company said its short-term pricing tests are not the same as dynamic pricing.
“[M]uch of what’s been reported since has inaccurately blurred together fundamentally different things: A/B price tests, dynamic pricing, and surveillance pricing. Those are not the same thing — and the differences between them are important,” Instacart said in the post.
