Dive Brief:

• In a move that industry experts have anticipated for months, Whole Foods and Instacart will end their partnership. The change is estimated to reduce Instacart’s revenue by less than 5%, according to sources who spoke to Recode.
• Instacart CEO Apoorva Mehta outlined the changes on the company’s shopper blog, writing that the first phase of the transition will start soon. “Today, we have 1,415 in-store shoppers across 76 Whole Foods locations. Out of this community of in-store shoppers at Whole Foods, 243 will be impacted beginning February 10, 2019. In the months that follow, we expect to ramp down all remaining Whole Foods in-store shopping operations in preparation for Whole Foods to fully exit our marketplace in the coming months,” Mehta wrote.
• Instacart expects to shift 75% of its Whole Foods shoppers to nearby retailers, and will offer a transfer bonus to assist them with the transition. For those shoppers who choose not to take on a new role or cannot be placed elsewhere, Instacart will provide a minimum three-month separation package based on shoppers’ maximum monthly pay in 2018. The company will provide additional tenure-based compensation as well.

Dive Insight:

Instacart currently works with 300 retailers across 15,000 stores, so while this is a significant change for the company, a loss of 76 Whole Foods stores is only a small dent in the startup’s bustling business. Parting ways with Whole Foods will allow Instacart to focus more heavily on some of its other big name partnerships, such as Kroger, Safeway and Costco — as well as stores that may be comparable to Whole Foods, such as Sprouts.  

This news is not a major surprise. Many in the industry anticipated this would happen when Amazon acquired Whole Foods last year. Amazon has been ramping up its delivery service for Whole Foods and now offers delivery service for Prime members in 60 cities and curbside pickup in 14 cities. It was only a matter of time before Instacart became superfluous for Whole Foods as it rolls out additional e-commerce capabilities. 

Whole Foods and Instacart joined forces in 2014, and Whole Foods made a small investment in the company in 2016. Together, the companies have helped popularize online grocery ordering, giving Whole Foods customers a convenient option for delivery, and have improved technology to drive e-commerce sales. Given the history of the partnership, Instacart’s steady approach to wind down with Whole Foods seems to be taking place without any ill will. 

One of the unknown factors in this situation is if this change will make any waves among Instacart and Whole Foods shoppers. Presumably, Whole Foods loyalists will simply get a Prime membership if they don’t have one already – but that will be an additional expense for those who already pay for Instacart. It's also possible that Whole Foods will lose a few customers who are more dedicated to Instacart’s platform than Whole Foods groceries. 

Amazon has been slow to make major changes at Whole Foods up to this point, with the primary emphasis so far being on integrating Prime into the grocery store. But without Instacart’s support for grocery delivery, more e-commerce changes may be on the way. 

As for Instacart, it’s been an up-and-down year, but the sentiment is trending positive. New partnerships, major funding announcements, reduced pricing for customers and new pay structure for contracted shoppers have kept the company in the news, and it’s likely Instacart has more plans for 2019 to keep itself at the forefront of grocery e-commerce.