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Amazon has officially killed the Whole Foods-Instacart partnership

Instacart will begin pulling the first group of workers out of Whole Foods locations in February.

The Amazon Prime logo made out of chopped meat inside a Whole Foods store Kurt Wagner / Recode
Jason Del Rey has been a business journalist for 15 years and has covered Amazon, Walmart, and the e-commerce industry for the last decade. He was a senior correspondent at Vox.

The writing has been on the wall since Amazon’s 2017 acquisition of Whole Foods. Now, reality is backing it up.

The five-year relationship between Whole Foods and grocery delivery service Instacart is winding down, the delivery startup announced on Thursday. Instacart will begin pulling the first group of 1,415 workers out of its 76 Whole Foods locations in February. The company expects to be able to offer 75 percent of those workers employment at another nearby retailer that partners with Instacart for deliveries.

The end of the relationship is expected to reduce Instacart’s revenue by less than five percent, including any impact on the membership business, according to a person familiar with the company’s finances. In addition to membership fees, Instacart also generates revenue through retailer commissions, online ads and delivery and service fees.

This outcome has been a matter of when, not if, since Amazon announced in June 2017 its intention to acquire Whole Foods. Since then, Amazon has steadily been ramping up its own free two-hour delivery service from Whole Foods stores for Amazon Prime members. Today, the service is available in more than 60 cities.

But the acquisition also spurred giant grocery chains to take action and walk into Instacart’s arms. In the last year and a half, Instacart has reduced its dependence on Whole Foods by signing delivery deals with giant chains like Kroger, Aldi, Sam’s Club and Walmart Canada. The company has also taken on $871 million in new funding from investors.

Several years ago, the end of the Whole Foods relationship could have been a death knell for the startup; today, it certainly has a negative impact, but not a catastrophic one.

An Instacart spokesperson would not provide details about any possible breakup agreement with Whole Foods, citing confidentially provisions. But it seems fair to assume that Amazon would have paid to end the relationship; Recode reported in 2016 that Whole Foods and Instacart had signed a five-year agreement, which would mean there’s still a few years to go on it.

Instacart is providing a three-month severance payment to those Instacart workers stationed at Whole Foods stores who decline a new job from Instacart or aren’t offered one. The payment will be based on the maximum monthly income they earned through Instacart at any point in 2018.

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