Whole Foods to Invest in Instacart, Signs New Multi-Year Delivery Deal


(Author : Jason Del Rey)
Whole Foods and Instacart are taking their relationship to the next level.

The $10 billion national grocery store chain is making an investment in the four-year-old delivery startup, according to multiple sources. The size of the deal could not be learned, but sources say the deal is essentially done, barring an unforeseen last-minute change of heart.

The two companies have also signed a five-year delivery partnership, these people said, making Instacart the exclusive delivery partner for Whole Foods’ perishables business. Other terms of the deal could not be learned, but Instacart’s commercial agreements with its grocery store partners typically include a revenue sharing component.

The deals come as Whole Foods stock has dropped more than 45 percent over the past year amid increased competition from other grocers selling more and more natural and organic foods. But the company’s existing relationship with Instacart has been a bright spot, company executives have said.

In his first-quarter earnings report script earlier this month, Whole Foods co-CEO Walter Robb said “many” of its stores are “seeing [Instacart] sales as a percentage of total store in the mid-to-high single digits.” The two companies, which have partnered on deliveries since 2014, work together in 16 cities.

For Instacart, the deals provide the startup with some added stability and credibility after a bumpy December. The startup, whose workers deliver groceries from local stores in as little as an hour, laid off 12 in-house recruiters that month, signaling that its most rapid growth may have passed. Instacart, which has raised $275 million from investors at a valuation of about $2 billion, also raised its minimum delivery and annual subscription fees by 50 percent.

Instacart’s other grocery partners, both big and small, could have issues with the startup cozying up with another partner. Instacart works with several national chains including Costco and Target.

The Whole Foods-Instacart pact may also indirectly affect Google’s delivery business, Google Express, which has previously partnered with Whole Foods. Google Express recently announced that it would start offering delivery of cold and fresh groceries in parts of San Francisco and Los Angeles, but with Whole Foods as a partner only in San Francisco.

The reason for the limited Whole Foods availability? Google’s current perishable-delivery relationship with Whole Foods involves just a single store, located in San Francisco, according to a source. And Instacart’s new deal means that Google will likely have a hard time expanding its delivery of fresh Whole Foods groceries beyond that one location. A Google spokeswoman said the company does not comment on relationships with individual merchants.

Source : recode.net