Tech

Instacart holds firm on its tipping policy as contract workers call for national boycott

Key Points
  • Nilam Ganenthiran, Instacart's president, said the current 5% default tip is appropriate.
  • "I truly think it's right for our shoppers, right our customers and right for the ecosystem," he told CNBC.
  • Instacart workers are calling for a national boycott on Sunday to reinstate the 10% default tip.
A shopper for Instacart navigates through the aisles as she shops for a customer.
Cyrus McCrimmon | Denver Post | Getty Images

Instacart isn't budging on the default tip rate on its platform amid growing calls for food and grocery delivery companies to increase payouts to contract workers.

Nilam Ganenthiran, Instacart's president, said the current 5% rate is appropriate as the default, though customers have the option of giving more.

"I truly think it's right for our shoppers, right for our customers and right for the ecosystem," Ganenthiran told CNBC.

Instacart counts on contractors to shop for customers' orders and, in many cases, deliver them to their door. Workers, who have lobbied the company to reinstate the 10% default tip that was reduced in 2016, are calling for a national boycott on Sunday, following a three-day strike in November. In an open letter to customers published on Medium, a group called "Instacart workers" is also urging customers to show their support on Twitter with a #DeleteInstacart hashtag on the day of the boycott.

The tipping fight gained attention last year after food delivery service DoorDash was criticized for not paying drivers the full amount that customers tipped. The company responded by announcing that it was changing its model so that "every dollar customers tip will be an extra dollar in their Dasher's pocket, and customers will be able to tip at checkout or after the delivery."

Still, in November, District of Columbia Attorney General Karl Racine brought charges against DoorDash, accusing the company of pocketing tips meant for workers and misleading customers about where their money was going.

DoorDash delivery person
Source: DoorDash

Ganenthiran said Instacart shouldn't be held to the same standard as food delivery and ride-sharing companies because grocery orders tend to be larger in volume and higher in value, with customers spending $100 to $150 at a time.

"We're a different app," he said. "Our average order value ... is just so much higher than say a food delivery app."

As Instacart faces growing competition from Amazon and Walmart, it's also expanding options for customers who prefer to pick up groceries rather than have them delivered. The company on Tuesday announced upgrades to the pickup feature, combining alerts, mapping, and delivery and pickup options so customers can find the store that's most convenient at the time they need service. The product is available at 1,500 of its 24,000 stores in 30 states and will expand to all 50 states this year.

Challenge of going public

Instacart was last valued at $7.8 billion in a private financing round in late 2018. But since then, the so-called sharing economy has faced the harsh realities of the public market, where investors are looking for business models that can show profitability. Uber and Lyft have struggled since going public last year, and WeWork was forced to pull its IPO prospectus and seek emergency financing in October.

Ganenthiran said Instacart is "very well capitalized" and doubled its order volume last year, though he declined to provide revenue growth figures. He said an IPO is on the horizon, but the company still has to figure out "the right relationship between growth and profitability."

He added that Instacart has more diverse revenue streams than other gig economy players, pointing to retailers, a white-label business and advertising from consumer goods companies.

"Instacart is more nuanced than the folks we sometimes get lumped in with," Ganenthiran said. "We're a different animal."

WATCH: D.C. attorney general sues DoorDash over worker tips

VIDEO0:4800:48
DC attorney general sues DoorDash over worker tips