(Bloomberg)—As more Whole Foods customers choose to avoid the store by ordering online and getting groceries delivered to their homes through Instacart, the high-end supermarket chain is taking a stake in the four-year-old startup.
Instacart Inc. authorized the sale of new equity earlier this year, letting Whole Foods Market Inc. buy shares in the startup in conjunction with an expanded partnership, said people familiar with the transaction, who asked not to be identified because the details are private. Analysis by private stock market operator Equidate, based on a regulatory filing, pegged the total equity authorization at about $36 million.
The shares were added to Instacart’s previous funding round at the same share price from late 2014, which valued the company at about $2 billion, according to the filing. Whole Foods and Instacart declined to comment.
Before the Whole Foods investment, Instacart had raised more than $270 million, according to data compiled by Bloomberg. The San Francisco startup and its peers have benefited from a shift in an overcrowded food delivery market this year.
Grocery delivery startups have brought in more investor dollars than companies that deliver prepared meals, a reversal from previous years, according to research firm CB Insights. On Monday, online grocer and meal service FreshDirect LLC announced it has raised $189 million from private equity investors.
However, as the fundraising market becomes more competitive overall, startups are making cuts and emphasizing how close they are to supporting themselves with their own earnings. Instacart is no exception: Apoorva Mehta, the startup’s chief executive officer, said on stage this month at a TechCrunch conference that his company will be cash-flow positive in the next 12 months. He also dismissed questions about whether Instacart would sell to Whole Foods. “It just doesn’t make sense for us to even think about selling to a grocery store,” Mehta said.
Instacart depends on delivery fees, customer membership fees and product markups for its revenues. It also receives a retailer-paid fee, which varies and is not disclosed, based on the number of orders Instacart fulfills from the store
Whole Foods first teamed with Instacart on a delivery program in 2014 and has since expanded to more than 25 markets across the U.S. It allows customers to order food and other products directly from the Whole Foods website and have them delivered. In March, the two companies said they would increase the number of Whole Foods stores with “embedded Instacart shoppers” by up to 50% this year. Recode previously reported that Whole Foods would invest in Instacart, without deal terms.
Grocery delivery is a key initiative as Whole Foods tries to claw its way out of its biggest sales slump since 2009. As conventional grocers have expanded their organic offerings and pushed prices down, Whole Foods has suffered under the weight of its reputation for being overpriced. That’s added pressure on the grocer to make its shopping experience more convenient.
“With more outlets for natural and organic foods, they don’t drive as far, and they don’t come as frequently,” John Mackey, the co-CEO and co-founder of Whole Foods, said during a presentation in June. “They just want convenience as the overriding value. I think that Whole Foods wants to compete for those customers to be sure, and we have a lot of things in the works.”
Walter Robb, the other CEO, said on a recent earnings call: “We feel really good about the partnership with Instacart and the results we’re seeing.”
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