What Amazon’s Acquisition of Whole Foods Means for Instacart

published Jun 23, 2017
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(Image credit: Jonathan Weiss)

Last Friday, online retailer Amazon announced it is acquiring Whole Foods — the upscale grocery chain started in Austin, Texas, in 1980 that has over 460 brick-and-mortar stores in the United States, Britain, and Canada — for $13.7 billion. With Amazon being the world’s largest online retailer, the future of Whole Foods’ partnership with startup Instacart, which delivers goods to a consumer’s doorstep, remains unclear.

Instacart and Whole Foods first partnered up in 2014, but the two companies signed a five-year deal in 2016 making the startup an exclusive delivery provider for the high-end supermarket chain’s perishable goods. The company, founded in 2012, has four years left in their partnership, reports Bloomberg. And Whole Foods reportedly accounts for 10 percent of their business.

“From the beginning, we’ve been committed to helping grocers compete online,” an Instacart spokesperson says in a statement. “That’s more important than ever given Amazon just declared war on every supermarket and corner store in America.”

Cooper Smith, head of Amazon research at L2, told CNN that he predicts Amazon, which has its own grocery delivery service, will likely terminate its dealings with Instacart.

“The first thing Amazon is going to do in this acquisition is to remove all those third-party vendor services. Why would it keep Instacart?” Smith tells CNN. “Amazon is the master at keeping as much margin as possible. Why is Amazon going to let a third-party vendor take margin off of their sale?”

(Image credit: Instacart)

But Kenneth P. Sanford, the U.S. lead analytics architect for Dataiku and an adjunct professor at Boston College, says he thinks Instacart can coexist with Amazon.

“I don’t see [the acquisition] materially changing any relationship Instacart has with Whole Foods, but certainly Instacart will have to consider their strategy in a world where there are fewer inefficiencies to exploit in the Whole Foods delivery strategy,” says Sanford. “Instacart maintains many more grocery relationships than simply Whole Foods and I suspect it’s a fairly small part of their business.”

There’s also incentive for Amazon to remain in the deal. Currently, Amazon sells household items and fresh produce. The retailer has access to 20 cities in the U.S. and internationally. Instacart, on the other hand, operates in 69 U.S. markets sourcing groceries from the shelves of 160 grocers, making it a convenient one-stop-shop for consumers.

“Instacart’s strategy is to remove inefficiencies in transactions across multiple vendors,” Sanford said.

Then there’s also logistical differences between the two. Currently, Amazon’s delivery service requires consumers to place an order by 10 a.m. in the morning. Instacart is more flexible, as it lets you place an order for a last-minute delivery. Should Amazon not adopt a similar policy, then there’s room for Instacart’s delivery service and Amazon’s own service as well.

“In essence they were head-to-head with Amazon prior to this announcement and seem to be in the same place after,” Sanford says. “I assume Instacart will continue to pursue a strategy of creating localized, efficient distribution.”