Instacart is getting squeezed out by Amazon Prime Now delivery
- As Amazon expands same-day delivery to Whole Foods stores through its Prime Now service, it's downsizing Instacart's operations in those stores and possibly violating its five-year contract with the e-grocery provider, according to Bloomberg.
- The Bloomberg article notes that Prime Now grocery pickers have taken over the prepping and storage areas previously reserved for Instacart workers, relocating them to out-of-the-way spots.
- Prime Now offers free two-hour delivery of Whole Foods groceries to Prime members who place orders over $35, and provides one-hour delivery for $7.99 for orders of a similar value.
The writing on the wall at Whole Foods is increasingly clear: Instacart is getting edged out by Prime Now delivery.
In 2016, well before Amazon acquired the organic grocer, Whole Foods signed a five-year deal with Instacart to make it the exclusive delivery provider for most of its products. That same year, the supermarket chain also bought an equity stake in Instacart, making it both partner and customer.
Now, Amazon is muscling in to offer the same two-hour delivery in certain markets, but at a more desirable price point. If Prime members can get free two-hour delivery for orders over $35, why would they pay Instacart an annual fee or surcharge for each order for the same service?
Prime Now has a couple of advantages over Instacart in attracting customers. First, it’s cheaper for Prime members. And second, its getting more in-store marketing in its test locations.
It’s easy to see Instacart as the victim in this scenario, but there could be some upsides to getting out of the Whole Foods deal. If Amazon pays out the contract, the delivery service would get some extra capital and newly available workers to start packaging groceries for other retailer partners, like Albertsons and Costco. Just last month, Instacart signed a deal with Walmart’s Sam’s Club to provide same-day deliveries in three cities, a deal which could easily expand nationwide.
As Sarah Mastrorocco, Instacart’s vice president of business development, told Bloomberg, “Whole Foods is a small and declining portion of our revenues...The U.S. grocery market is $800 billion-plus. Whole Foods is less than 2 percent of that.”
Still, the situation does seem like bad form on Amazon’s part. It comes down to what exactly the five-year contract says, and if Whole Food’s new owner is violating those terms, which have not been disclosed. It's possible that Amazon could brazenly be violating that deal, doubting that Instacart would want to get into a lengthy legal battle over a contract that’s essential dead.
Losing Whole Foods as a partner does not appear to be disaster that could bring Instacart down. In February, it announced it raised $200 million in new funding to explore international expansion and develop more partnerships with other retailers. This new funding valued Instacart at $4.2 billion.
So while it’s not ideal to lose Whole Foods as a partner, it would seem that Instacart will do just fine without them.