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Amazon’s nearly $14 billion deal for Whole Foods will have huge ramifications for the biggest players in the grocery business.
But it also impacts one of the most highly valued startups in the space: Instacart.
Instacart, valued at more than $3 billion, delivers groceries to customer doors in around 65 U.S. markets; it sources its groceries off the shelves of 160 partner grocers.
Whole Foods is one of its earliest partners and perhaps its sexiest one. Instacart also works with other big chains like Publix, Costco and, most recently, Wegmans, too.
Here’s what the deal means for Instacart:
It’s hard to imagine a scenario in which Amazon wants to keep Instacart as a Whole Foods delivery partner long term, especially since Amazon is investing big in its own one-hour delivery services like Prime Now, and Instacart presumably doesn’t share valuable customer data with Whole Foods.
But Instacart and Whole Foods signed a five-year delivery contract in early 2016, Recode first reported, meaning they are in just Year 2 of the deal. At the time, sources said that the deal had some exclusivity around the delivery of perishables, which perhaps means there’s an opening for Amazon to take over delivery of packaged goods and prepared foods.
Either way, it seems likely that it will take some time for Amazon to unwind this deal — or perhaps they can pay up big to break it. But even if it surprisingly goes the full five years, the chances of a renewal seem extremely unlikely.
If Amazon does find a way to end the deal — or carve out the non-perishables business for itself — Instacart’s revenue will take a hit. The question is how big.
Instacart declined to comment, but multiple reports said Whole Foods makes up less than 10 percent of Instacart’s business. The big question is whether that number includes delivery and service fees on each Whole Foods order in addition to the commission Instacart earns directly from Whole Foods. Again, Instacart declined to comment. This is an important question because those fees combined may account for more revenue on an order than the commission paid by Whole Foods.
There’s also an indirect impact to take into account: Some Instacart customers pay an annual membership of between $99 and $149 for unlimited deliveries. With Whole Foods being one of Instacart’s biggest partners, it seems safe to assume that a material chunk of those subscriptions are used on Whole Foods deliveries. That’s a risk.
As Recode first reported last year, Whole Foods has made an investment in Instacart, though it’s believed to be a small one and does not involve a board seat. Still, if Amazon’s deal for Whole Foods closes, that could mean Amazon ends up being a shareholder of Instacart.
Even so, the bigger picture here is that Amazon sees value in Whole Foods’ real estate, which means Amazon is more likely interested in exploiting all of its locations to deliver all kinds of items more quickly to its customers. It’s not only about grocery.
The silver lining for Instacart is that you could make the case that this acquisition is validation of its model and the important role it plays in providing an innovative service to traditional grocers that aren’t at the forefront of technology.
The acquisition is an enormous signal that Amazon is dead serious about the grocery business, so Instacart will continue to position itself as a grocer’s No. 1 ally.
This article originally appeared on Recode.net.
