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Speaker 1: Bloomberg Audio Studios, podcasts, radio news.

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Speaker 2: One weekday this fall, thirty nine shoppers fired up the

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Speaker 2: grocery delivery service Instacart and filled their virtual carts. They

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Speaker 2: all put the same twenty items in there from the

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Speaker 2: same Seattle Safeway, wheat Thins, Heinz, Ketchup, Cheerios, Skippy peanut butter.

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Speaker 2: But when it came time to check out, the total

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Speaker 2: price of their baskets was different as much as nine

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Speaker 2: dollars and fifty nine cents different. One shoppers two dollars

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Speaker 2: ninety nine cent jar of peanut butter was another shopper's

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Speaker 2: three dollars and sixty nine cent jar of peanut butter.

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Speaker 2: Two identical boxes of wheatins could vary by as much

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Speaker 2: as ninety cents. Now, a few dollars here or there

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Speaker 2: might not sound like a lot, but over a year

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Speaker 2: of buying groceries, it can add up.

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Speaker 1: Grocery are a major line item for most families budgets.

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Speaker 1: The other thing that's a problem for many families is

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Speaker 1: when pricing is so variable, your grocery budget starts to

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Speaker 1: feel really unpredictable.

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Speaker 2: That's Lindsay Owens, the executive director of the Groundwork Collaborative,

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Speaker 2: a progressive economic policy think tank. This month, Groundwork released

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Speaker 2: an investigation with the organization Consumer Reports in partnership with

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Speaker 2: the news nonprofit more Perfect Union that found that instacart

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Speaker 2: has been using an AI tool to run algorithmic price

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Speaker 2: experiments on shoppers around the country, often without their knowledge,

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Speaker 2: at a time when inflation has driven grocery costs higher.

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Speaker 2: The revelation that instacart was charging some consumers more for

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Speaker 2: the same goods struck a court.

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Speaker 1: A one to two dollars markup just from shopping online

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Speaker 1: versus in person just sounds crazy to me when you're

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Speaker 1: already doing the tip and having this service fee here.

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Speaker 3: Obviously, this needs legislation, so let your representatives know that

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Speaker 3: this matters to you.

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Speaker 1: But until we have that law, avoid in store apps.

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Speaker 2: And it did get attention from lawmakers and regulators.

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Speaker 1: That is instacart stock is falling this morning after Reuters

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Speaker 1: reported that the FTC sent the grocery delivery company a

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Speaker 1: civil investigation demands.

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Speaker 2: The instacart said that it does not use any personal

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Speaker 2: demographic or user level behavior data to set prices, and

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Speaker 2: that prices weren't changing based on real time supply and demand. Instead,

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Speaker 2: they said that the price discrepancies were the result of

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Speaker 2: completely randomized ab testing, the kind of test retailers often

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Speaker 2: do to figure out how sensitive shoppers are to the

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Speaker 2: price of certain items. Still, the company said report raised concerns.

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Speaker 2: Quote at a time when families are working hard to

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Speaker 2: stretch their grocery budgets, customers should never have to question

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Speaker 2: the prices they see on Instacart, an instacart spokesperson told

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Speaker 2: us and this week the company need a big one

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Speaker 2: to eighty. Instacart is ending a program where customers saw

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Speaker 2: different prices for the same product ordered at the same

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Speaker 2: time from the same store.

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Speaker 3: Oftentimes, you know, companies get criticized for things all the time.

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Speaker 3: It doesn't necessarily change their strategy.

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Speaker 2: That's Leah Nylan, who covers antitrust for Bloomberg.

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Speaker 3: But Instacart was pretty quick to sort of pull back

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Speaker 3: on this policy, given like the significant outcry that there

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Speaker 3: was in response.

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Speaker 2: As more online retailers lean on AI to influence their

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Speaker 2: pricing strategy, the groundwork collaboratives Lindsay says Instacart's saga raises

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Speaker 2: new questions.

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Speaker 1: How far can you take a pricing practice before you

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Speaker 1: touch the stove.

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Speaker 2: I'm Sarah Holder, and this is the big take from

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Speaker 2: Bloomberg News today on the show what Happens when an

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Speaker 2: algorithm determines your grocery bill? How volunteer shoppers revealed Instacart's

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Speaker 2: invisible pricing practices and what came after the back. In

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Speaker 2: twenty twenty two, instacart acquired a company called ever Site

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Speaker 2: that offers AI powered pricing software.

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Speaker 3: And what this did was it helped retailers, primarily grocery

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Speaker 3: stores like Kroger, Albertson's, Safeway, things like that set prices

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Speaker 3: for like sort of everyday grocery items.

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Speaker 2: Leah Nylan, an antitrust reporter for Bloomberg, says the tool

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Speaker 2: has been controversial.

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Speaker 3: They could increase the price if they thought, for example,

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Speaker 3: you were somebody who really needed an item, or you know,

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Speaker 3: were the sort of person who might not see a

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Speaker 3: price increase and walk away, so they could sort of

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Speaker 3: jack up the prices for certain people or lower them

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Speaker 3: for others. The sort of problematic thing about this tool

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Speaker 3: is as a consumer, you have no idea that Instacart

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Speaker 3: or the grocery store is even using.

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Speaker 2: Earlier this year, researchers and analysts at the Groundwork Collaborative

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Speaker 2: and Consumer Reports decided to look closer at the grocery

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Speaker 2: delivery company's pricing strategy and how it could impact consumers.

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Speaker 1: We were interested in this kind of concept of surveillance pricing,

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Speaker 1: this idea that companies are collecting data on us not

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Speaker 1: just to get better at advertising to us, but also

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Speaker 1: maybe to get better at overcharging us.

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Speaker 2: Lindsay Owens, again, the executive director of the Groundwork Collaborative.

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Speaker 1: We knew a little bit about what instacart was up

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Speaker 1: to because they have been reasonably transparent with one population

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Speaker 1: their investors. So they have talked about their pricing strategies

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Speaker 1: and their earnings calls. They have been transparent about the

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Speaker 1: types of technologies they were buying and perfecting in their

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Speaker 1: patent applications, and they have also talked a little bit

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Speaker 1: about this on their website and some of their marketing materials.

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Speaker 1: When they purchased Eversite in twenty twenty two, one of

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Speaker 1: the reasons they did so is because ever site offered

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Speaker 1: better technology for running the types of experiments we found.

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Speaker 1: So we knew that some sort of pricing experiments were

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Speaker 1: going on with instacart, but we wanted to understand was

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Speaker 1: it just a few pennies here, or was it something

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Speaker 1: that could really be contributing to the high cost of

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Speaker 1: groceries that so many families in America are frustrated about

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Speaker 1: right now. So we basically turned instacarts pricing experiments right

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Speaker 1: back around on them.

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Speaker 2: Consumer Reports went to their network of members and asked

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Speaker 2: for volunteers to participate in an instacart shopping experiment. More

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Speaker 2: than four hundred people ended up participating.

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Speaker 1: We said, okay, all of the consumers in the study,

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Speaker 1: you're going to all pick out the exact same eighteen

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Speaker 1: to twenty grocery items Wheat thins and Quaker oats and

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Speaker 1: Deli lunch meat. You're going to put them in your cart,

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Speaker 1: and then you're going to take screenshots of the prices

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Speaker 1: you're being offered for each of the items, and we

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Speaker 1: had our data set. What we found was pretty extraordinary.

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Speaker 1: These were not little differences. Sometimes one consumer was offered

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Speaker 1: a price twenty three percent higher than another consumer for

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Speaker 1: the exact same good at the exact same time.

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Speaker 2: The total price for the consumer's baskets differed by an

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Speaker 2: average of about seven percent.

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Speaker 1: So the best way to explain this if you and

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Speaker 1: I were standing in line at Target right now, and

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Speaker 1: we were holding the exact same box of cheerios. We

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Speaker 1: would expect to pay the same amount, right.

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Speaker 2: Same store, same day, same item. Yep.

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Speaker 1: Like, we're in line together, irl, right and you check

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Speaker 1: out your box costs four ninety nine, You're still bagging

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Speaker 1: your box. I check out next. My box is six

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Speaker 1: ninety nine. I look over at you and I'm like, wait,

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Speaker 1: how much did you pay? In you're four ninety nine?

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Speaker 1: And then we both look at the cashier, Wait, why

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Speaker 1: am I paying six ninety nine? If you and I

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Speaker 1: stepped out of line, fired up our phones, got on instacart,

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Speaker 1: got the same box of cheerios from that same pickup

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Speaker 1: location that we're standing in, there is a very good

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Speaker 1: chance that we would be offered different prices. We found

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Speaker 1: price variation on seventy five percent of the items in

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Speaker 1: the grocery carts, and we found that one hundred percent

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Speaker 1: of our secret shoppers got variable pricing at some point

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Speaker 1: during the experiment. So no one was immune and seventy

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Speaker 1: five percent of the items were offered at variable prices.

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Speaker 1: We're effectively part of this big experiment. Well.

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Speaker 2: Lindsey also says that this isn't a niche issue. Grocery

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Speaker 2: delivery picked up during the pandemic, and a range of

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Speaker 2: people use the services today. In an instacart twenty twenty

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Speaker 2: five economic report, the company said that sixty eight percent

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Speaker 2: of its customers considered Instacart essential. App Trackers estimate instacart

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Speaker 2: has over fourteen million active users.

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Speaker 1: Some people have kept up with it because they can't

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Speaker 1: get to the store, or maybe it's not accessible through

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Speaker 1: public transportation, maybe you know, have an injury or something

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Speaker 1: like that and can't sort of pick up your own groceries.

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Speaker 1: And also instacart allows shoppers to grocery shop at a

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Speaker 1: whole host of different outlets, low end grocers, discount grocers,

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Speaker 1: big box grocers, high end grocers. Right, so it really

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Speaker 1: covers the watershed of different consumer preferences. And so one

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Speaker 1: of the reasons why we felt like this study was

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Speaker 1: so important, but also we felt like our findings were

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Speaker 1: so problematic, is because this isn't sort of a niche market.

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Speaker 1: This really is increasingly a big part of the American

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Speaker 1: grocery experience.

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Speaker 2: And what did you find about why or what could

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Speaker 2: explain whether a customer would get a higher or lower price.

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Speaker 2: Was there anything about the profiles of shoppers that would

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Speaker 2: inform what prices instacart was serving them, or was it random?

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Speaker 1: So I think we have a couple of suggestive answers

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Speaker 1: to this. The first is we know from Instacart's own

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Speaker 1: public statements that part of the reason they do this

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Speaker 1: is just to test how much they can charge for

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Speaker 1: given items. So they're really conducting pricing sensitivity analyses figuring

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Speaker 1: out how high they can take Instacart's markup on top

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Speaker 1: of the retailer's price before you take an item out

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Speaker 1: of your cart, or close your computer and walk to

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Speaker 1: a brick and mortar grocery store. On our end, we

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Speaker 1: tested a whole host of demographic information to try to

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Speaker 1: see if we could predict which prices you would get

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Speaker 1: based on the information that we had. We didn't find

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Speaker 1: any statistically significant patterns, so we can't rule out that

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Speaker 1: it was random. However, we did find that people were

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Speaker 1: sorted into distinct price groups, so there were some people

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Speaker 1: who got higher prices pretty much across the board. There

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Speaker 1: were some people who got lower prices more often than not.

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Speaker 2: According to the report, Instacart confirmed that the findings from

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Speaker 2: the tests accurately reflect pricing experiments and strategies. In a

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Speaker 2: statement to Groundwork and Consumer Reports, instacart said, just as

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Speaker 2: retailers have long tested prices in their physical stores to

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Speaker 2: better understand consumer preferences, a subset of only ten retail partners,

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Speaker 2: ones that already apply markups, do the same online via Instacart.

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Speaker 2: These limited, short term and randomized tests help retail partners

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Speaker 2: learn what matters most to consumers and how to keep

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Speaker 2: essential items affordable. But in statements, instacart also said that

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Speaker 2: there's been reporting that's inaccurately characterized the mechanisms behind some

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Speaker 2: of its pricing experiments, and Bloomberg's Leah Nyland says instacart

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Speaker 2: stress that the retailer is the one that sets the

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Speaker 2: base price of groceries they sell on the app. Retailers

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Speaker 2: often have their own reasons and strategies for engaging in

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Speaker 2: pricing experiments, as groceries have notoriously narrow profit margins.

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Speaker 3: They felt that this study was sort of unfairly blaming

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Speaker 3: them for something that they don't have a lot of

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Speaker 3: control over.

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Speaker 2: Another thing I thought was interesting in the statement that

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Speaker 2: they released was that they really reiterated that they weren't

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Speaker 2: using surveillance pricing. In other words, they weren't using customers

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Speaker 2: personal information to set prices that it was like random

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Speaker 2: ab testing. Can you explain further the difference between algorithmic

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Speaker 2: pricing and surveillance pricing and why do you think instacart

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Speaker 2: was so clear in making that distinction.

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Speaker 3: Yeah, So when people think of the term surveillance pricing,

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Speaker 3: they generally think of a company that is taking a

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Speaker 3: lot of information about them and sort of coming up

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Speaker 3: with a price that is very personalized to them. So

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Speaker 3: they'll have all of these different characteristics and they will

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Speaker 3: use those particular things about you to set the price.

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Speaker 3: Instacart was saying, we weren't doing that. It's not like

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Speaker 3: we were like deciding that you as Jane Doe, and here,

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Speaker 3: you know, we have all this information about you and

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Speaker 3: so we were tailoring the price to you. We were

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Speaker 3: just like using various algorithms that sort of like are

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Speaker 3: testing various things about our app to see if maybe,

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Speaker 3: you know, like if we highlight this type of deal,

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Speaker 3: you're more likely to click on it. And the way

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Speaker 3: they do that is this thing called ab testing, where

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Speaker 3: they'll show one customer one thing and they'll show another

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Speaker 3: customer something slightly different, and then they see which one

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Speaker 3: is more effective for whatever it is that they're testing.

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Speaker 2: Coming up, how price experiments started creeping into more industries,

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Speaker 2: and how lawmakers and regulators are responding like it or not.

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Speaker 2: Consumers are used to being experimented on, at least in

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Speaker 2: some arenas.

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Speaker 3: You know, you sort of think when you're buying airline tickets,

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Speaker 3: you know, or maybe concert tickets or something, you know

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Speaker 3: that it's a good that there is a limited.

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Speaker 2: Supply, right Bloomberg's Leah Nylan.

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Speaker 3: There are only so many any seats on a flight,

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Speaker 3: so yeah, maybe like the price might go up when

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Speaker 3: there's like fewer seats left. You know. Concert tickets are

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Speaker 3: sort of notoriously you know, get expensive the more close

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Speaker 3: to the date that you get. But with groceries, you know,

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Speaker 3: there's sort of always been this idea that you go

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Speaker 3: into a grocery store and everybody gets charged to the

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Speaker 3: same price. Increasingly, like, grocery companies and other companies along

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Speaker 3: these lines are trying to change that, and they're very

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Speaker 3: interested in finding more and more details about people to

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Speaker 3: try and tailor the pricing towards them. They've been introducing

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Speaker 3: what they call electronic shelf labels at grocery store so

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Speaker 3: that they might even have an opportunity to change that

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Speaker 3: shelf price throughout the day. And I think that is

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Speaker 3: a surprise to just the regular average consumer because we're

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Speaker 3: not really expecting that. We are used to going into

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Speaker 3: the store and the price is the price.

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Speaker 2: When the Groundwork Collaborative and Consumer Reports investigation revealed that

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Speaker 2: the grocery company Instacart was running its own pricing experiments,

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Speaker 2: many members of the public, we're taken aback. Yeah.

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Speaker 3: From lawmakers and regulators, there was sort of a big

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Speaker 3: hue and outcry because this is something, at least from

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Speaker 3: the regulatory perspective, that they've been concerned about for a while.

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Speaker 3: They know that in this day and age, when there

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Speaker 3: is a lot of data about consumers out there, that

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Speaker 3: retailers are trying to find out this information about consumers

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Speaker 3: and do this sort of personalized pricing. But it raises

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Speaker 3: a lot of red flags because you don't know exactly

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Speaker 3: how various factors are increasing or decreasing the price. There

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Speaker 3: are various federal laws that prohibit you from raising or

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Speaker 3: lowering prices based on particular characteristics, So for example, you're

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Speaker 3: not supposed to charge people different prices based on race,

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Speaker 3: or sex, or religion or things like that. But when

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Speaker 3: it's a black box like this, like you don't know

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Speaker 3: exactly what factors the company is using to make the

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Speaker 3: decision about pricing. Among lawmakers, it was also sort of

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Speaker 3: a red flag because food is an essential thing, you know,

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Speaker 3: everyone has to eat, and especially at a time right

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Speaker 3: now when grocery prices have been such a touch point

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Speaker 3: with voters. It really did get a lot of lawmaker reaction.

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Speaker 2: After the instacart report came out, members of Congress, including

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Speaker 2: Senator Chuck Schumer and Senator Amy Klobuchar, wrote letters to

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Speaker 2: Federal Trade Commission officials expressing their concerns. Reuters reported that

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Speaker 2: the FTC has sent inquiries to Instacart regarding its use

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Speaker 2: of AI enabled pricing tools. FDC Chair Andrew Ferguson posted

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Speaker 2: on x this week that the FDC quote began investigating

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Speaker 2: these potentially unlawful practices in the spring. With all this

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Speaker 2: new scrutiny on the role of technology in price setting,

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Speaker 2: I asked Leah about how long the issue has been

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Speaker 2: on regulator's radars.

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Speaker 3: This is something that the Federal Trade Commission, which is

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Speaker 3: the US's primary consumer protection agency, has been concerned about

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Speaker 3: for a while. During the Biden administration, the FTC had

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Speaker 3: started an investigation into a lot of retailers. They have

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Speaker 3: this special power that they can ask retailers to sort

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Speaker 3: of turn over information for the purposes of a study.

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Speaker 3: So they had asked a bunch of major retailers to

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Speaker 3: do that, and then they were looking essentially at how

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Speaker 3: frequently they use these sort of algorithms to help determine pricing.

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Speaker 3: And that study is still underway. The Trump folks didn't

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Speaker 3: kill it upon coming into office, but we still don't

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Speaker 3: really have the results of that yet. And the FTC

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Speaker 3: in particular had already had an investigation into Instacart over

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Speaker 3: whether it's Instacart plus this is its membership program was

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Speaker 3: sufficiently transparent enough about its pricing and cancelation policies.

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Speaker 2: And Instacart has to pay sixty million dollars back to

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Speaker 2: consumers as a result of that investigation.

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Speaker 3: Yes, they're refunding consumers millions of dollars as a result

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Speaker 3: of this investigation because the FTC found that they weren't

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Speaker 3: being transparent enough about the terms of this membership program

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Speaker 3: and how people could cancel it, because the FTC found

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Speaker 3: that frequently people sort of didn't realize that they were

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Speaker 3: enrolled in this program and they would try and cancel,

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Speaker 3: and instead of giving them their money back to Instacart,

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Speaker 3: would give them a credit, which violates some consumer protection

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Speaker 3: laws about memberships.

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Speaker 2: On Monday, Instacart announced that retailers would no longer be

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Speaker 2: able to use ever site software to run item price tests,

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Speaker 2: effective immediately now. The company said in a statement, if

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Speaker 2: two families are shopping for the same items at the

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Speaker 2: same time from the same store location on Instacart, they

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Speaker 2: see the same prices period. So Instacart announced they're stopping

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Speaker 2: this tactic, which marks one sort of resolution to this story.

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Speaker 2: But could what happened here with Instacart set a precedent

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Speaker 2: for other industries that are experimenting with this kind of

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Speaker 2: price setting.

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Speaker 3: I do think that if anybody else is experimenting with

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Speaker 3: this price setting, they probably have seen what the sort

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Speaker 3: of criticism that Instacart got and are probably going to

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Speaker 3: be a little bit more reluctant to at least admit

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Speaker 3: that they are doing this, and or, you know, when

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Speaker 3: they get blowback a little bit more willing to pull

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Speaker 3: back on it. So it will be interesting to see,

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Speaker 3: you know, sort of as we go forward, how many

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Speaker 3: other companies to sort of try these types of tactics,

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Speaker 3: how transparent they are about that's what they're doing, and

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Speaker 3: sort of what the reaction is going forward. The basics

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Speaker 3: of consumer protection laws that you have to be very

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Speaker 3: transparent about what you are selling and at what price.

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Speaker 3: If you don't do that, the regulators will come after you.

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Speaker 2: This is the Big Take from Bloomberg News. I'm Sarah Holder.

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Speaker 2: To get more from the Big Take and unlimited access

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Speaker 2: dot com Slash Podcast offer. Thanks for listening. We'll be

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Speaker 2: back tomorrow