What Amazon buying Whole Foods means for Instacart

There’s been a disturbance in the grocery force.
There’s been a disturbance in the grocery force.
Image: Reuters/Brian Snyder
We may earn a commission from links on this page.

Amazon is buying Whole Foods for $13.7 billion. The main feature of the purchase is a mainstream grocer with more than 430 physical stores. But Amazon is also picking up Whole Foods’ stake in Instacart, a grocery-delivery startup valued at $3.4 billion, whose founder and chief executive got his start at Amazon.

Instacart doesn’t hold any inventory but hires a network of shoppers to pick and deliver grocery orders, placed through its app, from established stores. The company is cozy with Whole Foods. In February 2016, the two signed a five-year agreement to make Instacart the exclusive delivery partner of Whole Foods’ perishable business. Whole Foods also invested an undisclosed sum in Instacart as part of that deal (an analyst later pegged it at $36 million).

On the surface, Amazon’s Whole Foods acquisition might seem like a win for Instacart. Just as Amazon’s obvious competitor was always Walmart, Instacart’s has been Amazon. The companies have until now taken different approaches to online grocery—AmazonFresh uses warehouses and holds inventory, while Instacart is asset-less—but they are fundamentally competing for the same customers. Owning shares in Instacart in theory gives CEO Jeff Bezos less reason to destroy the startup on his own slow march toward online grocery domination.

But the reality is more complicated. While Amazon and Instacart may now be allied through Whole Foods, Instacart has been busy building out partnerships with other other grocers—with the pitch that it will help them compete against Amazon.

“A lot of the retailers are now feeling the impact of Amazon,” Instacart CEO Apoorva Mehta, who used to work at Amazon, told me over coffee in late April. “Amazon Go, for example, that’s a very big lead gen for us, because all the retailers give us a call and say hey, how can we be more innovative? How can we come online? How can we provide a service that Amazon will not be able to match?”

(Amazon Go is an automated convenience store concept Amazon unveiled last year. The first store was supposed to open in early 2017 in Seattle but so far has been delayed.)

A source familiar with Amazon’s acquisition of Whole Foods told Quartz the grocer has a less than 1% stake in Instacart and doesn’t have access to company data; preferential access to its management; or access to its revenue and other financials. Amazon won’t get those things either. The source added that Instacart was not aware of the acquisition until it was announced. The company had a call with Whole Foods at 9am PT that reaffirmed its commitment to their relationship.

Instacart’s grocery partners include Whole Foods, Food Lion, Publix, Target, and Costco. Earlier this week, the startup also added family-run grocery chain Wegmans to its roster.

Every retailer Instacart delivers from is accessible through its app, but the company has also quietly been working on a white-label delivery service, “Powered by Instacart,” in which its own branding takes a backseat to the store’s. With Powered by Instacart, shoppers can place their orders through a designated website that Instacart creates for the store. Instacart has rolled out this service for seven retailers and plans to have more than 25 in the next six months.

Before today, Instacart had positioned itself as the de facto ally of American grocers against Amazon. Even though Whole Foods’ stake—and by extension Amazon’s—in Instacart is small, so long as one exists, the affiliation seems liable to imperil that.