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Delivery service Instacart, facing a class action lawsuit alleging that the company “intentionally and maliciously misappropriated gratuities” in order to pay employee wages despite its assurances to the contrary, yesterday tried to stanch the public relations bleeding.

It gave its shoppers a raise.

The company said that from now on, it will pay shoppers a minimum of $7 to $10 for full-service orders and a minimum of $5 for delivery-only orders. In addition, the company said, “Tips should always be separate from Instacart’s contribution to shopper compensation … All batches will have a higher guaranteed compensation floor for shoppers, paid for by Instacart … Instacart will retroactively compensate shoppers when tips were included in minimums.”

In a blog posting, Instacart CEO Apoorva Mehta wrote, “After launching our new earnings structure this past October, we noticed that there were small batches where shoppers weren’t earning enough for their time. To help with this, we instituted a $10 floor on earnings, inclusive of tips, for all batches. This meant that when Instacart’s payment and the customer tip at checkout was below $10, Instacart supplemented the difference. While our intention was to increase the guaranteed payment for small orders, we understand that the inclusion of tips as a part of this guarantee was misguided. We apologize for taking this approach.”

TechCrunch writes that “in addition to the lawsuit, workers have taken to Reddit and other online forums to speak out against Instacart’s paying practices. Since introducing a new payments structure in October, which includes things like payments per mile, quality bonuses and customer tips, workers have said the pay has gotten worse - far below minimum wage. In one case, Instacart paid a worker just 80 cents for over an hour of work. Instacart has since said it was a glitch - caused by the fact that the customer tipped $10 - and has introduced a new minimum payment for orders.”

In its coverage, the New York Times suggested that “the gig economy’s work force is fighting back, and in some cases, it’s winning.”

And, the Times put the Instacart situation in a broader context:

“The victory at Instacart, which will ultimately affect thousands of workers, is just the latest in a string of successful pressure campaigns by workers for gig economy platforms. Drivers for Uber and Lyft in New York successfully agitated for a citywide minimum wage that went into effect this week. Postmates, another high-flying start-up, recently settled a class-action suit with thousands of delivery workers who contested the way the company classified them as contract workers.

“It’s no secret that many modern gig workers exist in a state of permanent precarity, with few legal protections, unstable working conditions and pay that varies based on who’s flush with venture capital money that week. Most gig economy workers are still classified as contract workers, meaning that they aren’t covered by federal minimum wage laws and other labor protections.

“Still, by organizing en masse and expressing vocal opposition to exploitative policies, they have managed to wring some concessions out of the billion-dollar corporations whose labor they provide.”

Instacart CEO Mehta, in his blog posting, tried to put the controversy to rest: “I want to thank you for your feedback,” he wrote. “It’s our responsibility to change course quickly when we realize we’re on the wrong path and we believe today’s changes are a step in the right direction.”
KC's View:
If Instacart has been persistently deceptive about this, what else have they been deceptive about?

Like maybe the whole notion that it is serving retailers‘ best interests?

I think the Times observations point to a specific financial reality - as startup companies evolve and grow and continue to seek venture capital, they are looking for any possible advantage that will make their numbers look good, and therefore more attractive to potential investors. This can mean a short-term focus that is not necessarily sustainable, and does not serve all the stakeholders in a business.

That’s strikes me as the case with Instacart. It has a model that makes sense short-term for retailers, because it enables them to get into the e-commerce business quickly and efficiently … in the same way that when Priceline many years ago tried to market a “name your own price for groceries” system that some retailers (Kroger included!) thought could serve as an e-commerce solution. But it is not a long-term solution, because, like the Priceline offering, it erodes a retailer’s value proposition over time.

Here’s the deal. Startup businesses like Instacart can address this by focusing less on their own branding and economic needs, and more on their customers. It might take longer to get traction, but in the end, I think that focusing on customer needs is the best prescription for success.