Instacart is hitting New York City customers with a \u201cregulatory response fee\u201d \u2014 prompted by the city’s new minimum wage rule for grocery delivery workers.<\/p>\n
The new fee marks the latest escalation in the battle between delivery apps and the City Council. City leaders have sought to protect gig economy workers by establishing rules around pay and tipping.<\/p>\n
Still, delivery service giants argue the rules drive up costs for consumers, hurt small businesses that see fewer orders placed through the apps and ultimately cost the same delivery workers pay.<\/p>\n
Instacart\u2019s new fee \u2014 which came to $5.99 on an order Gothamist punched into the app this week \u2014 is yet another instance of \u201cdrip pricing,\u201d said Vicki Morwitz, a professor of business and marketing at Columbia Business School.<\/p>\n
Critics argue that the back-end charges, which they call “junk fees,” hide the true costs from consumers. By the time a customer sees those kinds of charges, Morwitz said, they\u2019ve already made their selections.<\/p>\n
\u201cIt makes them more likely to buy [and] more likely to buy more expensive items,\u201d she said. \u201cAnd even when they see the total at the end, they’re unlikely to undo the deal.\u201d<\/p>\n
Calling these costs something like a \u201cregulator response fee,\u201d Morwitz added, \u201calso makes them sound like a tax \u2026 \u200aI don’t think your average consumer understands that that is the company passing on increased costs.\u201d<\/p>\n
Several new regulations went into effect Monday, including one that requires grocery delivery apps to pay workers at least $21.44 an hour, not including tips, according to the city\u2019s Department of Consumer and Worker Protection.<\/p>\n
This matches a rate that the Council set in 2023 for food delivery workers, like those working for DoorDash or Uber Eats. City leaders have framed the changes as necessary to address low pay and unpredictable earnings.<\/p>\n
Grocery and food delivery app companies alike must also now present customers with the option to tip workers during checkout, with a default rate of at least 10% preselected.<\/p>\n
The city had previously accused Uber and DoorDash of costing workers more than $550 million<\/a> by putting the option to tip later in the ordering process.<\/p>\n Judges last week rejected separate requests \u2014 one from Uber Eats and DoorDash, another from Instacart \u2014 to stop the laws from going into effect.<\/p>\n Passing the costs of these sorts of policies onto consumers is nothing new: DoorDash also charges a $1.99 \u201cNYC Regulatory Response Fee\u201d at checkout, which the app describes as \u201ca result of NYC\u2019s minimum pay regulations.\u201d<\/p>\n A spokesperson for Uber confirmed the company had also folded a similar charge into its pricing when the city passed earlier regulations regarding driver pay.<\/p>\n Instacart said in a December blog post that the new regulation was the result of a \u201crushed, flawed and politicized process that fundamentally ignored how grocery delivery actually works.\u201d<\/p>\n It said the new rules would limit the number of workers who could be on the road at any time.<\/p>\n \u201cFor months, we raised clear, data-backed concerns that the policy would increase grocery delivery costs for New Yorkers, but those warnings were repeatedly ignored,\u201d Thomas McNeil, Instacart\u2019s government affairs senior manager, said in a statement this week.<\/p>\n He confirmed the new fee was a direct response to the minimum wage regulations.<\/p>\n Recently, policymakers have been targeting similar pricing structures, saying they hide costs from consumers.<\/p>\n Under the Biden administration, the Federal Trade Commission passed a rule requiring ticket sellers, hotels and rental platforms to disclose fees up front<\/a>.<\/p>\n