To those who believe their time is so valuable that additional fees are insignificant, a 30% premium is nothing.
But to put it in perspective, those are far higher margins than the actual manufacturer or retailerenjoy.
Sounds like an opportunity for undercutting the undercutters. JL
Brian Chen reports in the New York Times:
Instant gratification has a price. With the delivery apps, tech
companies act as a middleman connecting merchants with
customers, and they pass the service charges on to the consumer. The cost for the convenience of delivery tended to be a premium of at least 30 percent on top of the transaction.
WHEN Emily Yang, a San Francisco tech worker, is running out of cat food, she taps an app called Instacart to order a new bag of kibble to be delivered to her door within hours. For dinner, she often orders through Sprig and Munchery, app-powered services that bring fresh organic meals to her home.Her experience highlights how a proliferation of instant-delivery apps has turned the smartphone into a sort of magic remote control that can almost beam items straight to your door: a burrito, a tennis racket, even a week’s worth of groceries. There are now so many of these apps, especially serving cities like San Francisco and New York, that you can tap an app even to do your laundry or mail packages.
But instant gratification has a price. With the delivery apps, tech companies act as a middleman connecting merchants and couriers with customers, and they pass the service charges on to the consumer. The fees are also more obfuscated and complex than you might expect when you, say, order a pizza. The receipt for the pie would clearly state its cost and the delivery fee.
For some consumers like Ms. Yang, the fees are no big deal. “The cat food I get is more expensive than normal cat food anyway, so unless the price is severely different, I don’t notice too much,” she said about Instacart’s charges.
But if you don’t pay close attention to how these companies charge for their services, your money could disappear like magic. I discovered this firsthand when I tested four popular instant delivery apps over the last week to take a closer look at their fee structures.
My conclusion: Instacart was the worst offender when it came to hiding extra costs in certain transactions. Another service, Postmates, stated its fees clearly, but service costs fluctuated. Two larger companies, Uber and Amazon, were more straightforward about what they charge. But little of it was cheap; the cost for the convenience of delivery tended to be a premium of at least 30 percent on top of the transaction.
A comparison of four instant delivery apps — Instacart, Postmates, UberEats and Amazon’s Prime Now — found that users end up paying a premium for using the apps, in the form of service fees, delivery fees and marked-up item prices.
Instacart
Rating: ★★★★★
Pros: The app provides fast grocery delivery from a large variety of stores, including Safeway, Whole Foods and Costco. Cons: For stores where item prices are higher inside the app than in stores, markups are crammed into items and not disclosed transparently.
Postmates
Rating: ★★★★★
Pros: The app lets you summon couriers to pick up and deliver many items from local merchants, even the hardware store. Cons: It's expensive. Delivery fees fluctuate, making service costs difficult to predict. An automatic tip calculator takes a percentage from total cost, including service fees.
UberEats
Rating: ★★★★★
Pros: The app sends food items extremely fast. It charges no delivery fee in some markets and there is no need to tip. Cons: The app features a limited selection of items from a group of merchants, meaning the food is premade and delivered in batches. The service is available in only a few markets.
Amazon Prime Now
Rating: ★★★★★
Pros: The service is straightforward to use and its fees are consistent. Delivery is fast and reliable. Cons: Using the service requires Amazon Prime membership. Not all Amazon.com products are available for Prime Now delivery and the service is available in just 20 markets.
My tests began with Instacart, which bills itself as an easy way to hire a shopper to pick up groceries at a store and deliver them to your door within a day. I immediately found some price differences: On a recent visit to Costco, I picked up a large pack of dental floss for $12.99. In the Instacart app, the same package from Costco was $15.89, or a 22.3 percent markup. Many Costco items inside the Instacart app were inflated by at least 20 percent, including olive oil and a carton of eggs.
Instacart states upfront that it has markups for some stores, including Costco. But the app neglects to show the actual retail cost of each item compared to the markup, making it tough to assess just how much more you’re paying for the service. Other costs of Instacart added up, too: a $4 delivery fee, plus a tip.
“Our pricing is very transparent,” Sophie Kleinert, an Instacart spokeswoman, said in a statement. In many participating locations, she said, Instacart’s app offers the same price on items as the stores do.
In the case of Costco, she said, Instacart customers don’t have to pay a membership fee to order from the store chain — as Costco’s regular customers do — and the higher item prices can reflect the additional membership cost. She added that Instacart’s partnership with Costco also was not as “embedded” as it was with other partners.
My Costco purchase came to $181.59, including $4.60 for the cost of a month’s Costco membership. In the Instacart app, the total came to $231.80, including the marked-up items, delivery fee and tip. So the extra cost of using Instacart was $50.21, adding 27.7 percent to my tab.
Postmates, a service that summons a courier to buy and deliver different items from local merchants — from a birthday cake to a can of paint — can also be unpredictable with pricing. The company is more transparent than Instacart when breaking out costs up front. But its delivery fees vary depending on the distance between pickup and drop-off or availability of marketing promotions, among other factors. If consumer demand is high, fees rise accordingly, to entice more Postmates couriers to deliver during busier hours.
The fees can also change depending on the merchant. There is a lower delivery fee for merchants that are “in network,” or in formal partnerships with Postmates, which include Escape From New York Pizza and Green Chile Kitchen. The delivery fee is higher for “out of network” merchants, the company says
All of that explains why charges for my Postmates orders were all over the map. Ordering a $15 rock-climbing carabiner from a nearby sporting goods store resulted in a total cost of $33.45, including a $10.75 delivery fee, a 5 percent service fee, tax and a 20 percent tip — a markup over 120 percent.
A separate Postmates order of two pizzas was $54.79, including $36.34 for the pizzas, a $7.50 delivery fee, a 5 percent service fee and my addition of a 20 percent tip; that’s 50 percent more than a pickup order. A $48.77 prime rib (when I had a really bad day) amounted to $74.05 after fees and tip, another 50 percent markup.
Who Delivers Where
Instacart
operates in dozens of cities across 19 states, including Washington, Boston, Miami Beach, Atlanta and Chicago. A full list is here.
Postmates
operates in a few dozen cities, including San Francisco, Phoenix, Houston, Minneapolis and Nashville. A full list is here.
UberEats
operates in 10 U.S. cities, including Los Angeles, Seattle, Washington and Austin, Tex., as well as Barcelona, Paris and Toronto. A full list is here.
Amazon Prime Now
operates in 20 cities, including Las Vegas, Indianapolis, San Antonio, New York and Baltimore. More information can be found here.
Postmates is clearly a premium service, and the app doesn’t try to hide that. My nitpick of its system is that Postmates’ tipping tool also automatically calculates a percentage from the total cost, including the item subtotal, service fee (which covers Postmates’ operational costs and research and development) and delivery fee.
That’s higher than if you ordered food the traditional way and tipped 20 percent based on the cost of the food. Why tip your Postmates courier for the company’s operational costs? Lesson learned: Take the time to calculate the tip manually when using Postmates instead of using its percentage calculator.
Another recent fast-delivery app is UberEats, an addition to the ride-hailing Uber app. I was shocked that within a minute of ordering a burrito from the app, the driver arrived outside my office building before I could ride down the elevator.
There’s an explanation for this kind of magic: UberEats offers a small selection of food items prepared by certain restaurants each day. In other words, my Uber driver was driving around town with a huge crate of the same burrito (which turned out to be unappetizing).
The pricing was straightforward. My total bill for the burrito was $10.88 — $10 for the burrito, and 88 cents for tax. The $10 price matched what the merchant charges for the burrito in its restaurant, meaning the cost for having it delivered was virtually nothing.
Sarah Maxwell, an Uber spokeswoman, said UberEats charged no delivery fee in San Francisco. But I would be wary of these low prices being temporary and food prices increasing to cover costs eventually.
For a fourth experiment, I ordered a bag of cat food and dog treats with Amazon’s new instant delivery service, Prime Now. For this service, the costs were clear: You have to be a Prime member, which costs $99 a year. If you want an order delivered within an hour, you pay an $8 fee; Amazon generally recommends a $5 tip. My $34.53 order of pet food added up to $51.24 after tax, tip and service were included; Prime Now fees added 48 percent to my cost.
One other factor to keep in mind with instant delivery apps: The couriers are humans prone to error. Brooke Hammerling, a tech start-up publicist based in New York, recently paid $113 to Postmates for three orders of cheeseburgers and fries on a rainy day.
It turned out, after Postmates investigated the order, that the courier had punched in the incorrect price for the food, which should have been $39.78. The company issued a refund for the difference.
“I should’ve known they weren’t showing the actual prices,” Ms. Hammerling said. “I feel like I stepped into that one on my own.”
As a Partner and Co-Founder of Predictiv and PredictivAsia, Jon specializes in management performance and organizational effectiveness for both domestic and international clients. He is an editor and author whose works include Invisible Advantage: How Intangilbles are Driving Business Performance. Learn more...
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