Back in June when news broke that Amazon was going to shell out $13.7 billion to acquire Whole Foods, the grocery and delivery industries went into panic mode. Rumors circulated over the survival of leading grocery chains as their shares tumbled signaling the interdependence of these sectors and how any disruptive move remains disdainful.
As the industry came to terms with this development, a conspicuous, likely victim emerged. Instacart was poised to suffer most from this deal because of its strategic partnership with Whole Foods.
Instacart has an exclusive arrangement as a delivery partner for Whole Foods and the move by Amazon, a giant in delivery and logistics, would certainly annihilate the San Francisco-based company. But in a turn of events, Instacart surprised analysts by adding more than 80 new markets to its portfolio in 2017 and hence expanding its presence to more than 100 markets. It is significantly notable that in an interview that CEO Apoorva Mehta gave to Axios in March, his forecast was only 30 new markets.
The rapid expansion was first reported by Axios. On the other hand GeekWire confirmed that an array of grocery chains in 105 markets is offering their customers same-day delivery courtesy of Instacart.
The Amazon deal, however, will not have any adverse effect on Instacart in the short term due to a grocery delivery agreement with Whole Foods that’s exclusive and will expire in the next four years. This cushion is still overshadowed by the incredible growth that was two times the projections.
The Amazon deal largely pushed Instacart’s expansion by stimulating the leading grocery chains to adopt new technology to avoid lagging behind in the face of Amazon’s onslaught. While Whole Foods represents less than 10 percent of Instacart’s revenue (and it continues to decline), new partnerships like the one announced yesterday with Aldi and existing ones with CVS, Ahold-Delhaize and Wegmans, Publix and many other retailers will strengthen its position.
In a report by Axios, the company is leveraging on technology to enter new markets remotely. Expanding to serve 80 percent of U.S. households by 2018, is a goal Instacart set back in April after noticing a spike in demand from both large and small cities across the U.S. for grocery delivery, according to an email by a spokesperson to GeekWire.
Interestingly, Whole Foods has a stake in Instacart and Instacart’s CEO Apoorva Mehta (he will be speaking at the GeekWire Summit, Oct. 10-11) has worked at Amazon in fulfillment and delivery. However, this history hasn’t helped to smooth relations between Amazon and Instacart. In a statement in the aftermath of the Whole Foods deal, Instacart reaffirmed its commitment to support the more than 160 grocers they work with to compete online and made it clear that Amazon had declared war on every supermarket and corner store in America.
In order to strengthen its competitive advantage, Instacart secured $675 million in venture capital from several entities including Comcast Ventures and Andreessen Horowitz.