Instacart Will Stop Delivering Groceries From Amazon’s Whole Foods

(Bloomberg) -- In 2014, when Instacart Inc. was a younger grocery-delivery startup, Whole Foods was its first major relationship—Instacart's debut national retail partner and an investor as well. A lot has changed since then. Amazon.com Inc. now owns Whole Foods and runs its own delivery service. So the startup and grocery chain are splitting up for good.

Starting Thursday, Instacart said it will begin separating itself from Whole Foods and eventually no longer let its customers order from the Amazon-owned grocer through its app or website, the company said. The 1,415 part-time employees that Instacart hires to pick and pack grocery orders inside some Whole Foods stores will also be given the option in the coming months to transfer to another store or leave their jobs, with either a transfer bonus or severance pay, Instacart said.

The Whole Foods-Instacart breakup will take months to finalize, largely because of how closely intertwined the two companies were. For years, Instacart looked for more efficient ways to help its shoppers buy, sort and deliver orders of kale, peanut butter and cheese at Whole Foods. The startup set up in-store shoppers and made dedicated checkout aisles for Instacart orders within Whole Foods stores. They also signed a five-year agreement in 2016 that made Instacart the exclusive delivery service for many Whole Foods groceries.

Then Amazon said it was buying Whole Foods in June 2017 for $13.7 billion, and the relationship with Instacart suddenly became very complicated. Soon after, Amazon workers started popping up in Whole Foods stores, picking and delivering groceries through an Amazon app, just like Instacart's workers were doing—and, in some cases, physically crowding out the space in Whole Foods stores where Instacart workers had been.

Instacart is one of only a few companies with the infrastructure and capital to challenge Amazon in groceries. Instacart has more than 70,000 workers, a mix of part-time employees and contractors, who shop for groceries for its customers. Just this year, investors have handed over some $1 billion to Instacart. The business is valued at $7.6 billion.

Even though Whole Foods was initially a big partner, Instacart has grown less dependent on the stores over time. Whole Foods orders account for less than 5 percent of Instacart's revenue, according to a person familiar with the matter. In 2017, it was less than 10 percent. That figure includes all revenue associated with a Whole Foods order, said the person, who asked not to be identified because the information is private. It includes the cut the retailer pays for orders, delivery fees from customers and advertising revenue from coupons.

San Francisco-based Instacart plans to move its in-store shoppers out of Whole Foods stores and into similar part-time jobs at other retail partners, such as Publix, Costco, Wegman's, Safeway and Sprouts. The company declined to give details about the timeline or financial agreements around the separation.

To contact the editor responsible for this story: Mark Milian at mmilian@bloomberg.net, Molly Schuetz

©2018 Bloomberg L.P.