In late 2018, Whole Foods and Instacart parted ways, ending their contract years earlier than expected. What changed the relationship? Amazon.
Tthe 800-pound gorilla had turned its eye towards the produce aisle, and it knew distribution and logistics better than anyone.
After Amazon’s acquisition of Whole Foods, Instacart’s penetration into new markets was as rapid as its fulfillment claims to be. In 2018, Instacart nearly doubled its location count, solidifying a presence in all 50 states and investing in relationships with numerous enterprise grocery chains similarly concerned about Amazon’s newfound presence. Concurrently, Amazon integrated Whole Foods’ digital fulfillment and in-store perks into the Amazon Prime Now app, doubling down on its brand-owned assets and growing the range of delivery 54% since early 2018.
Yet the rapid expansion of geographical coverage on the Instacart and Amazon apps hasn’t meant better penetration, according to Gartner L2’s Digital IQ Index: Grocery US. Significant user increases have unfolded alongside growth in location coverage such that penetration of existing locations has remained relatively stable.
While Instacart nearly doubled its monthly active users, challenges remain: widespread customer dissatisfaction and low retention. Instacart recently announced that it plans to round out its offerings with expanded alcohol delivery opportunities, which in some cases would be promoted on the app. This might help attract hesitant shoppers in locations where Instacart is already present. Like grocers, the delivery service must find ways to create sticky products or compelling loyalty programs to improve retention and penetration.
Instacart has realized the strength of its partnerships and is continually being integrated into grocers’ fulfillment strategies. As such, the platform may be only marginally impacted by the separation of Whole Foods. But Instacart has plans to be an 800-pound gorilla of its own, and growing customer bases requires not only expansion into new regions, but also better penetration in existing ones. Instacart will have to strategize how to do that at scale.