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Amazon-Whole Foods deal boon to Instacart

JP Mangalindan
Chief Tech Correspondent
Apoorva Mehta, CEO of Instacart speaks during 2016 TechCrunch Disrupt in San Francisco, California, U.S. REUTERS/Beck Diefenbach/File Photo

Amazon (AMZN) acquiring Whole Foods for a staggering $13.7 billion, then slashing prices on some goods, may have been the best thing to happen to Instacart. Many grocers, whose stock had taken a pounding, flocked to Instacart in search of ways to compete by profitably delivering fresh food and pantry items.

“What happened that day and the next few days after that was that pretty much every single important grocery retailer in the country — international, as well — called us, and they wanted to meet us,” explains Instacart CEO Apoorva Mehta. “That was sort of a formative moment for Instacart because that acquisition signaled to the entire grocery landscape that e-commerce is important, and Amazon is coming.”

Indeed, Amazon’s new ownership of Whole Foods means there’s less room — figuratively and literally — for Instacart. According to a Bloomberg report, Instacart’s army of professional shoppers who visit Whole Foods locations now find themselves relegated to packing customers’ orders in spaces near stairwells, for instance, rather than the large, dedicated rooms they once enjoyed. Instacart, meanwhile, plans on focusing its resources on the slew of other partnered grocers, including Costco (COST), Albertsons, Kroger (KR), and Sam’s Club, who partnered with Instacart in the weeks and months following Amazon’s Whole Foods acquisition.

As a result of those new partnerships, Mehta said company revenue grew 157% year-over-year. Meanwhile, users who pony up for Instacart Express, a program that offers unlimited ordering for a flat $14.99 monthly or $149 annual fee, now spend $5,000 a year on groceries — twice the amount non-Express users pay, Mehta also told Yahoo Finance.

Over the past year, the startup expanded to more than 200 markets, from just 30. Most recently, it partnered with Loblaw for its Canada debut in December. To date, Instacart has raised more than $600 million from investors that include a who’s who of Silicon Valley venture capital firms: Andreessen Horowitz, Sequoia Capital, and Khosla Ventures, to name a few.

Mehta would not specify his expansion plans but did say he hopes to help in the disruption of the stodgy grocery business. Instacart isn’t the only online grocery to do this. Several have come and gone, including Webvan, the online grocery business that spent more than $800 million in three years before going bust in 2001. Meanwhile, others like FreshDirect persist but haven’t achieved the international scale of Instacart.

Future of grocery shopping

Mehta’s goal is to make sure Instacart customers will ultimately have a better experience, eat healthier and ultimately spend less time actually shopping.

“Americans spend 15 billion hours a year shopping for groceries,” he contends. “What if that time could be given back to the people so that they could do other things they enjoy?”

But does that mean physical grocery stores could one day go the way of the dodo?

“They’re not going anywhere, but we do think there’s going to be an interesting mix,” adds Mehta, a serial entrepreneur who once worked at Amazon. “I think there is going to be a lot of people, like millennials do now with their phones, who will want to order their groceries online, while there are maybe people who are slightly older, who prefer to do their shopping [in store]. But you know the best proof point of this is Amazon itself, which has been doing grocery delivery for about 15 years. It bought Whole Foods because it understood the importance of brick and mortar, as well as groceries. So the way we think about this is actually in that respect, grocery stores will be around for the future.”

JP Mangalindan is the Chief Tech Correspondent for Yahoo Finance covering the intersection of tech and business. Email story tips and musings to  jpm@oath.com . 

This story is a part of Yahoo Finance Presents: The Retail Revolution, March 5-9, 2018.

Retail Revolution (Illustration by Thomas Porostocky)