Amazon.com Inc. is very serious about grocery delivery, but Instacart Inc., the most popular alternative for supermarket orders in the U.S., isn’t rolling over.
The San Francisco startup raised US$200 million in a round led by investment firms Coatue Management and Glade Brook Capital Partners, the company told Bloomberg on Monday. The money will help Instacart defend against programs like the one Amazon made public on Thursday: It’s testing free two-hour delivery of Whole Foods groceries to Prime customers in four U.S. cities.
The funding values Instacart at US$4.2 billion, said people familiar with the matter, who asked not to be identified because the terms are private. That’s quite a ways off from Amazon’s US$649 billion market value, but Instacart said it can compete by forming more alliances with grocery stores concerned about the online shopping company’s dominance.
The five-year-old startup has been inking partnerships, which now include Albertsons Cos. and Costco Wholesale Corp. Whole Foods is also a major partner and shareholder, a remnant of a contract signed before Amazon acquired the company for US$13.7 billion last year.
Apoorva Mehta, Instacart’s co-founder and chief executive officer, has a specific goal in mind for the new capital: “We raised it because we want to win,” he said. Mehta is looking to expand the service outside the 190 markets in the U.S. and Canada where it’s currently available, and add new businesses beyond delivery, coupon management software and digital circulars. He plans to hire 200 employees this year.
The deal brings Instacart’s total funds raised to US$900 million from investors, which includes Sequoia Capital and Andreessen Horowitz. One big shareholder who didn’t participate in Instacart’s new financing is Whole Foods. Their partnership contract, a five-year deal signed in 2016, made Instacart the exclusive delivery provider for most Whole Foods goods. It’s unclear whether the contract forbids Whole Foods from building its own grocery-delivery arm.
Analysts expect Amazon to be a real threat to Instacart’s business -- especially with Jeff Bezos’s habit of driving down prices. The two companies may also find themselves competing on the quality of avocados and other produce picks, said Phil Lempert, a food industry analyst. In mature markets, Instacart typically switches from contractors to full-time employees, who are trained to be expert grocery shoppers, Lempert said. “If, in fact, Instacart can do that, I think they stay very competitive,” he said. “If they can’t do that, I think they’re in trouble.”