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Instacart, a Startup Worth $2 Billion, Slashes Pay of Some of Its Lowest-Paid Workers

Workers say the cuts are emblematic of a wider divide at the company.

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Instacart, the darling of the grocery-delivery industry, is looking to an unusual area of its company to decrease wages: Some of its best-performing front-line workers.

Over the last few weeks, the startup has notified thousands of contractors and employees who shop for, and deliver, groceries to Instacart customers that their pay is significantly changing, sources told Re/code.

In some cases, the changes amounted to huge pay cuts for the company’s lowest rung of workers, resulting in hourly rate decreases of 40 percent or more, according to six current Instacart employees and contractors. A high-performing Instacart worker in one major city once made more than $25 an hour thanks to their speed; that person will now make $15 for the same work.

Several of these people say the cuts are emblematic of a wider divide at the company, where the people doing the grunt work are often treated like second-class citizens. Instacart customers order same-day delivery of groceries from local stores, which are then picked off shelves and delivered to people’s doors by a network of thousands of workers.

"It’s totally a 99 percent and 1 percent thing," one Instacart shopper, 54-year-old Maggie Jackson Connolly, of Boulder, Colo., told Re/code. "[Corporate employees] get this fun, exciting environment. And the 99 percent, we’re not even spoken to, responded to."

In a statement, an Instacart spokesman said, "Attracting and retaining shoppers is vital to running our business. We have made some recent rate changes to reduce variability in how much shoppers earn, and we are constantly innovating to help shoppers get more orders. After these changes our shoppers will earn, on average, an effective rate of $15-$20/hour, which is both in line with historical levels and strongly competitive within our markets."

Managers in at least one major Instacart market, however, are telling Instacart shoppers that they can expect a lower average rate of $14 to $16, according to an email viewed by Re/code. At the same time, Instacart’s stated goal "to reduce variability" in what its shoppers earn means the startup risks losing its hardest-working front-line staffers who were making more than their peers as a result.

The changes come a few months after Instacart laid off 12 in-house recruiters and announced it was raising customer delivery prices and subscription fees by 50 percent.

Taken together, these past and recent events could lead some to believe that Instacart has started to stumble. Alternately, the startup could be cutting costs proactively because of an increasingly difficult funding environment, where investors are becoming more cautious in backing unprofitable businesses, even if they are growing quickly.

Instacart secured a $220 million investment 14 months ago that valued the company at nearly $2 billion, and Whole Foods, one of its grocer partners, plans to invest an undisclosed sum into the startup. But Instacart is still unprofitable. A source familiar with the company’s finances, however, says the startup has positive gross profit margins in about half of the cities it operates in.

At worst, the moves could be seen as a sign that the economics of Instacart’s model simply don’t work, and drastic changes were needed to give it a shot at surviving long term. An email sent in the wake of the pay cut announcement to one of Instacart’s best-performing in-store shoppers — challenging the shopper to work even faster — hinted at potential business model problems.

"Your speed is also critical to Instacart’s continued success — at slower speeds, Instacart cannot sustain its business model," it read.

A separate email from the company to its shoppers explained the changes: "Instacart is a growing company. From time to time, based on order volume, efficiency, and delivery costs, we need to evaluate the rate that we offer shoppers. By making these adjustments, the Instacart community will grow together."

The changes in compensation differ by city and by type of job. Here are some of the details from current Instacart employees and contractors Re/code spoke to:

  • Instacart hires two types of front-line workers: One to pick items from store shelves and another to deliver the goods. (In some cities, the same person will do both tasks.) In-store shoppers previously made a small base wage of a few dollars an hour, but received 100 percent of tips on a given order. With the changes, the delivery people will begin receiving the tips instead, on top of a fee of 50 cents to $1.50 per delivery, depending on the city.
  • In Washington, D.C., an Instacart shopper who previously made $3.35 an hour plus 100 percent of tips is now making $11.50 an hour plus a "bonus" that equals 20 percent of an order’s tip. This person said the results are a pay cut of 30 percent, from $20 to $14 an hour.
  • In Boulder, Connolly, who both picks and delivers orders, said the cuts mean she now has to deliver 18 items from Costco to hit the $15 minimum she was guaranteed previously for even a one-item Costco order.
  • In Austin, shoppers will soon be paid $7.25 an hour plus a bonus that equals 40 percent of tips (with a cap). They previously made a few dollars an hour, but received all the tips. One worker Re/code spoke to projected a 40 percent earnings decrease based on past earnings.
  • And in Boston, one Instacart shopper estimated a 46 percent pay cut, taking her wage down from about $27.60 an hour to $14.80.

Some would say $15 an hour is fair pay for that type of job, and some workers agreed with that notion — on the surface — in conversations with Re/code. But several said the severity of the pay reduction is what has angered them most, as well as the fact that they are having trouble getting enough hours.

"All I know is that now, no matter how hard I work, the driver is getting the money I earn," one shopper said. "If I get a $20 tip, a whopping $4 goes into my pocket. It’s a massive pay cut for shoppers."

For some, the wage changes mark just the latest disappointment with the fast-growing startup. Until recently, for example, Instacart showed a red clown face in the app of workers who had made errors, leaving it there to shame them for several weeks. Several shoppers said they were disgusted that a high-profile company would resort to treating them like elementary school children.

Multiple shoppers also complained that the grocery database that Instacart uses is grossly inaccurate. Two shoppers estimated that they have to enter around 50 percent of items ordered into their app manually, since they don’t come up when scanned. This slows down their shopping time, which can negatively impact their ranking inside of Instacart and the hours they are given.

"I was extremely grateful for Instacart," said Connolly, the Boulder, Colo., contractor, who said she started at the company after her husband was laid off from his long-time employer. And Instacart seemed grateful for her, too, featuring her story in a blog post this summer.

That bond now seems broken.

"They’ve gotten college-educated adults to accept day labor," she said. "Except you’re being told you’re self-employed."

(Any Instacart employees or contractors who have experienced changes to their wages can contact me here: jason@recode.net.)

This article originally appeared on Recode.net.