Instacart's First Major Customer, Whole Foods, Calls It Quits

What Instacart plans to do without its Whole foods partnership gives a signal to the industry.

Originally published on Forbes.com.

Apoorva Mehta, CEO of Instacart, shared the news that they will begin winding down their service with the retailer starting February 10, 2019 in a post on the company’s “The Instacart Checkout” blog on Wednesday. The announcement came as no surprise and has long been expected since Amazon’s acquisition of Whole Foods put the companies in direct competition.

What the blog post did not reveal is just what will happen, if anything, with their financial relationship as Whole Foods was one of the investors in Instacart. Over the past six years since the company’s inception it has raised $1.6 billion in capital. Mehta, at a recent Recode event, shared that Whole Foods comprised about 1.5% of Instacart’s total sales and went on to say, “Most Americans do not shop at Whole Foods. The retailers that most Americans shop at are partners with Instacart.” Instacart reports that it now serves over 4,000 cities, delivers from 15,000 stores and partners with more than 300 retailers. They say their employee count is close to 800 and their gig workforce is comprised of over 70,000.

The company is trying to put forward a positive spin to its workforce telling the 1,415 of them that work at 76 Whole Foods locations that they will place three-quarters of them with other retailers and offer them a transfer bonus. For those who do not want the transfer or cannot be placed in a new role, Mehta said “we will be providing a minimum of three-months separation package based on your maximum monthly pay in 2018, as well as additional tenure-based compensation.”

A decision, I’m sure, that is based on trying to keep these trained and experienced shoppers from staying just where they are and becoming Amazon Whole Foods Prime Now shoppers. These shoppers know the store, know the people and know the customers.

The announcement comes at an interesting time as many grocery retailers and Instacart retail partners are moving towards a model of ‘click & collect’ where customers shop online and select a time to pick up their groceries at the store. Many site issues with grocery delivery including the one to two hour delivery window having to stay at home waiting for their groceries and concerns about personal safety having strangers coming to their homes.

Other retailers are moving in the direction of even more convenience. Gelson’s the Southern California supermarket chain, offers a new program “Sip & Shop” where customers can come to the store, sit and enjoy a glass of wine (or two) at their bar while a store associate takes their shopping list and selects their groceries. There is no charge for the service.

Instacart has had a rocky relationship with its independent gig workforce over the years with issues over how they are compensated (based on the number of skus shopped) and the customer confusion over their service fee and tipping. Many customers believed that the service fee went to the Instacart shopper and forced the company to change its default and explanation on the app. Most recently in November, Instacart also lowered its delivery fees by a third.

No one can cast doubt on the phenomenal growth and ability to raise capital that Metha has accomplished, the question is if other grocery retailers will follow Amazon Whole Foods lead and start offering these services direct to customers instead of through third-party Instacart.