The news: Instacart’s AI pricing tools may be causing some consumers to pay higher grocery prices, according to a report by Consumer Reports and Groundwork Collaborative.

• The report found that consumers were routinely charged different prices for the same products, with differences as high as 23%.
• Each of the study’s 437 participants was shown different prices despite having the same products in their baskets.
• The algorithmic pricing experiments occurred across a number of Instacart grocery retail partners, including Albertsons, Costco, Kroger, Safeway, Target, and Sprouts Farmers Market.

Instacart’s response: Instacart defended its pricing policy by emphasizing its efforts to improve affordability, which include pushing retail partners to offer the same prices online and in-store and promoting initiatives like digital flyers and loyalty integrations.

• It noted that just 10 of its retail partners are engaging in “limited online pricing tests” to measure “category-level price sensitivity so they can sustainably invest in lower prices where consumers care most.”
• The company was also adamant that these experiments “are not dynamic pricing,” contending that prices don’t change in real time according to supply and demand. Instacart also stated that the tests don’t use personal, demographic, or user-level behavioral data.

The big picture: For shoppers, whether Instacart’s tactics meet the technical definition of dynamic pricing is beside the point. While consumers are more comfortable with—although not necessarily more accepting of—algorithmic pricing in segments like entertainment and travel, food is one category where people are resistant.

• Consumers overwhelmingly prefer brands with consistent pricing and respond negatively toward those that use surge pricing and hidden fees.
• The lack of transparency around algorithmic pricing is likely to be particularly distressing at a time when rising food prices and other stressors are pressuring household budgets.

Pros and cons: Proponents of algorithmic pricing contend that the method allows retailers to more easily adjust prices according to supply and demand, which could lead to lower prices and increased efficiencies. However, it also means that shoppers can pay significantly different prices for the same products: A report by the Institute for Local Self-Reliance found that one school district purchasing products from Amazon paid 17% more than it would have if it was consistently served the retailer’s lowest prices.

While consumers are open to dynamic pricing if it results in lower prices, they are also highly attuned to the possibility that these tactics could benefit companies more than shoppers.

• Over two-thirds (68%) of consumers consider dynamic pricing to be a form of price gouging, according to a March 2024 CivicScience survey.
• The same proportion report feeling “taken advantage of” by brands that use dynamic pricing, per a Gartner survey.
• 22% of US adults say they would bypass a business that uses dynamic pricing, per a 2024 Nerdwallet and Harris Poll.

Our take: Algorithmic pricing can be a minefield for retailers, especially in categories like food where consumers are more sensitive to price movements—and less accepting of tactics that could increase their grocery bills. Concerns about uneven pricing risk undermining trust.

Retailers that are transparent about their pricing strategies have a better chance at winning loyalty from cost-conscious shoppers at a time of uncertainty.