Yesterday, Amazon and Whole Foods ruined a perfectly slow news
day on a Friday in June with the announcement that Amazon intends to buy
Whole Foods for almost $14 billion
.

The most obvious victim of the deal was Instacart, in
which Whole Foods invested and with whom Whole Foods has a
five-year contract.

But after talking to a few Instacart investors and other sources close to
the company, Instacart may have a real opportunity in the wake
of this acquisition.

Not not a big deal

Amazon is a shark. The company has evolved over the past 25
years to become one of the greatest operational successes in
the business world to date. And when a shark swims into your
waters, it’s undoubtedly dangerous.

People with Amazon Prime memberships who have yet to venture
into online grocery delivery were just given a trusted reason
to buy groceries with Amazon. Whole Foods represents
credibility for folks who like to see and touch their food
before they buy it.

Amazon has invaded Instacart’s waters, but Instacart is not
alone. Walmart, Kroger, and Target shares were all down
yesterday
as the news broke. Indeed, Amazon has invaded
their waters, too. And this may make Instacart’s proposal all
the more inviting.

Here’s what an Instacart spokesperson had to say about the
deal:

From the beginning, we’ve been committed to helping grocers
compete online. That’s more important than ever given Amazon
just declared war on every supermarket and corner store in
America. We already work with over 160 retailers across the
country and look forward to partnering with many more.

Them’s fightin’ words.

The Opportunity

“No doubt, there is huge shark in the lagoon,” said Semil Shah.
“This is obviously a concern for Instacart, yet is also an
opportunity. In the lagoon, Instacart is like a school of fish
— specifically, they are on the verge of launching in cities
nationwide, not just in locations that have a Whole Foods.”

Instacart is built to support hundreds of grocery chains in
markets big and small. The ‘last mile’ is built into the
structure of the business. And it already has deals with 159
retailers that aren’t Whole Foods, including Publix,
Ahold-Delhaize, and Wegmans most recently.

One source close the company said that Whole Foods represents
less than 10 percent of Instacart’s revenue, and Whole Foods
has less than 1 percent equity in the company. The source also
said that Instacart will be able to service 80 percent of U.S.
households by 2018.

“As far as Instacart’s partnership with Whole Foods is
concerned, their business is far diversified away from any
single grocery chain,” said Instacart investor and Canaan
partner Hrach Simonian.

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Instacart cofounder and CEO Apoorva Mehta came from Amazon
before starting Instacart. He knew that this was coming — that
one day, he’d be in direct competition with Amazon.

“Obviously it’ll pose a challenge to the company, but knowing
the early team, they’ve already thought through all this,” said
Shah.

“Apoorva has known he’d have to compete with Amazon,” said
another source close to the company.

In other words, it’s game day.

And, there is always the chance that Amazon/Whole Foods include
Instacart in their little takeover party and offer Apoorva
Mehta a deal he can’t turn down.

Metha hasn’t said one way or the other how he feels about an
Instacart acquisition, but from what I’ve learned about him, I
don’t think he’d sell to Amazon as part of this deal. He’s
ready to compete against the ecommerce giant, and an offer from
Amazon would only open up more lanes of opportunity with
Amazon’s new grocery store competitors.

After all, it’s not like Amazon hasn’t lost before. Just look
at the Fire Phone.

The Counter Attack

So what does Instacart have to offer that Amazon + Whole Foods
don’t?

For one, the timeline for big grocery chains and retailers has
just shifted based on Amazon’s pace. It only follows that the
C-Suite executives at these massive companies are adjusting
their plan of action, and may be particularly interested in
signing a deal with Instacart.

“I think it lights a fire under Walmart to make a big move
here,” said Simonian. “This is bad news for brick-and-mortar
grocery chains that don’t have an online partner or eCommerce
solution, and the stock market agrees — nearly every grocery
chain is down 5-15% on the news.”

While Simonian is depicting an investor’s ideal scenario, it’s
not hard to imagine Walmart executives including Instacart in
their discussions. It’s also not that to imagine retailers
considering shoving more SKUs through the Instacart channel. In
short, it’s feasible that this deal actually provides a bump
for Instacart in its quest to grow its network of grocery
chains and retailers.

And then there’s the consumer experience.

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Amazon will undoubtedly pull potential customers and existing
Instacart customers over to Amazon Fresh. But will the
experience live up to Instacart?

AmazonFresh offers both attended delivery
(hand-to-hand drop-off) or doorstep delivery. Doorstep
deliveries arrive same-day as long as the order is placed
before 10am, and orders placed after 10pm are delivered at
‘breakfast time’. But doorstep delivery means that your food
could be waiting outside all day while you’re at work, or could
be delivered after you leave for work in the morning and sit
out all day.

Instacart, meanwhile, has been refining its web and mobile
experiences to cull repeat behavior, while offering direct
hand-off delivery for groceries that were just purchased.

“For the last 5 years, consumers have created a habit of using
the Instacart interface (web and mobile),” said Shah. “There is
a massive ton of repeat usage. That behavior won’t just wash
away. Similarly, it’s not a given Prime Shoppers will join
Fresh en masse (it’s been around for a while).”

And, finally, we can’t forget about data.

AmazonFresh has been up and running for a while, but Instacart
has been collecting data about how customers shop for groceries
for five years now. Instacart knows what I order from Whole
Foods through the app, but Whole Foods has no idea what
in-store shoppers are buying week to week.

Amazon is a monster, and this shouldn’t be taken lightly by
Instacart. But at the same time, Instacart has a few pieces of
the puzzle working to its advantage.

Long Story Short

Instacart is still in this. With a vast network of grocery
chains and retailers, a quality customer experience, and an
industry-wide pressure to get into delivery, Instacart finally
has the final piece of the puzzle: validation.

“This is extreme financial and strategic validation that this
is a very important category,” said Shah. “From afar, this is
huge validation for the size of the market and the strategic
value of owning the customer experience around providing
groceries to households.”

The company knew that this day would come. Amazon, the player
that no one wants to compete with, has entered the game in a
very real way.

And so it’s up to Instacart to leverage this situation in their
favor. Preparation can only get one so far. So now, we wait to
see if Instacart is ready to go to war.

Grab some popcorn. I hear you can order it online.


Featured Image: Instacart

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