App-based services like Uber and Airbnb, which source service costs and labor from individuals who wish to rent out their cars or homes, have carved out sizable chunks of the transportation and hospitality markets, much to the dismay of traditional taxi and hotel companies. Now Instacart Inc., a company that allows people to order groceries directly to their home with the push of a button, is attempting to do the same to the grocery industry, per the Wall Street Journal. The app, like Uber and Airbnb, circumvents the need for large capital investments by outsourcing their service to contracted individuals who provide the service instead. Rather than pouring millions into things like storage space and delivery trucks to establish a supply chain, Instacart simply sends a local driver to the nearest grocery stores to pick up the items that the consumer wants, delivers it to their homes, and profits by adding a slight mark-up to each item.
As a student without a car who lives miles away from any grocery stores, I have made extensive use of a similar service, Wolverine Grocery, and it has been a life-saver for me. I will gladly pay a small mark up on each item (which, like Instacart, is exactly how Wolverine Grocery operates) rather than face the alternative of having to find and pay for a ride both to and from the grocery store. As a consumer, it has made my life significantly easier, and so has Uber. Just as Wolverine Grocery has made it easier and cheaper for me to purchase groceries, Uber has made it easier and cheaper for me to solicit a taxi. From an anecdotal perspective, app-based services have raised my consumer welfare. In a recent study conducted by the University of Chicago’s Booth school, 100% of 40 leading economists either agreed or strongly agreed that allowing Uber to compete with the taxi industry would raise consumer welfare.
However, the societal costs of this new app-based approach to the service industry are not yet well-documented. As noted in the Wall Street Journal article on Instacart, the company does not have to pay employees a salary or benefits, since they are merely temporarily contracted. Uber employees have been recently outspoken in the Washington Post about how working for the company isn’t as great as promised – hidden paycheck deductions, on top of the cost of gas, taxes, car insurance, and repairs, have left some employees making as little as 3$ an hour, well below the country’s minimum wage. Consumers are ecstatic about the way the services industry is moving, but if the labor force is being swindled, it may only be a matter of time before regulators need to step in, which may make apps like Instacart unfeasible.