Pando

With Instacart’s help, Whole Foods looks poised to go after Blue Apron and Munchery. Big time.

By Sarah Lacy , written on March 10, 2016

From The Sharing Economy Desk

In February, I wondered why Whole Foods hadn’t yet taken out the major players in the meal kit business, either through acquisition, partnership or launching its own competitor.

After all, I mused, Whole Foods is desperately looking for new ways to grow, it already makes meal kits and prepared foods in house and already has a delivery arm in Instacart. The advantage of having thousands of grocery items in house means it doesn’t have the frustrations most of these services have. Things like sourcing and risk of inventory, that force Blue Apron, Plated and the like to bind consumers in strict plan-way-ahead subscriptions with little meal flexibility or control.

These companies are almost onto something huge here. But I feel like ten years from now, we will marvel that we thought a $2 billion company could be built by not giving anyone any choice in what they are cooking for dinner and forcing them to commit to making it a week or so ahead of schedule. This, in the golden age of the magical I WANT IT NOW! on demand economy.

Answer number one of my question came from Gerry Hays, an entrepreneur in middle America who has already built one company selling into thousands of grocery store deli counters and has spent years developing something exactly like this for regional grocery chains, which is rolling out in several stores in the next month.

Answer number two came this week with news that Whole Foods and Instacart were deepening their relationship through a strategic investment and expansion of markets where Instacart delivers for Whole Foods. There was even some intimation that Instacart may start to get some exclusivity for parts of Whole Foods delivery business.

But that’s not all. From TechCrunch’s write up:

The company says it will be working with Whole Foods to co-develop new e-commerce and delivery solutions that will be piloted this year.

I think we know what those will be: Meal kits and prepared foods. And it may be an even greater body blow for Munchery than Blue Apron. The thing I like about Munchery over Blue Apron is that it can be delivered on demand and you can pick between a meal kit or prepared food. But while it gives the consumer total control over dinner the selection of food is painfully limited. Someone gave me a $250 Munchery gift certificate after I had pneumonia last year, and it was a God send. It’s my go to bereavement/hope you feel better/congrats on the new baby gift. And yet, I haven’t ordered Munchery once since because I tried everything they had at least once.

I mean, one of the staples on Munchery is a whole roasted chicken. One of the staples for Whole Foods is whole rotisserie chicken. Instacart can deliver it. We’re talking about a matter of front end design and marketing for the two to compete directly for my don’t-want-to-leave-the-house, Chicken needs.

How do we know these are the “experiments” they have in mind? Well, Whole Foods’ co-CEO Walter Robb said this a few months ago:

"You’re going to see an explosion in food service and prepared foods and beverages, an explosion of choices for those who don’t want to cook. And they’ll be able to get it on-demand. Ultimately [customers] are looking to the food store not just for food that they can cook but for food they can eat right now."

And should we think Whole Foods will be serious about these experiments? Also from TechCrunch:

It’s also worth noting that the grocery delivery service has had a significant impact on Whole Foods’ bottom line. According to the companies, Whole Foods stores with dedicated shoppers are seeing growing Instacart sales – on average, this can be in the 5 to 10 percent range of their total store sales. And in some stores, Instacart accounts for as much as 15 percent of in-store sales.

Yep. It’s fucking on, Blue Apron and Munchery et al.

Whole Foods has been reeling from chains like Safeway and Kroger getting more into organics. More than the actual increased revenues perhaps, it needs a story for Wall Street on how it will continue to differentiate: Its stock fell some 30% in the last year. This not only plays into Whole Food’s strengths of better prepared food than the average grocery chains, but it could help expand its customer base more from singles to families.

As Gerry Hays noted when we were talking about his company, DinnerCall, when you go to Whole Foods in the evenings you don’t see families. You see singles and couples. Families either figured dinner out already or are getting take-out and fast food.

Blue Apron’s rigidity and lock in may give it time. But long term, if Whole Foods does this on the urban side and Hays’ DinnerCall succeeds with its target of suburban families, these dozen or so meal kit companies become niche businesses that are more about teaching you to cook than they are solving a nightly dinner problem. A market that already seemed limited and with huge churn will shrink. It’s worth noting that Blue Apron-- the sole unicorn in the space-- was among the recent Fidelity write downs.

The interesting thing to watch will be the cost. DinnerCall is committed to competing with fast food, and that’s why its approach is all software that leverages existing deli counter staff. It can’t put people in stores and sustainable deliver low prices. Instacart and Whole Foods will almost certainly take a different approach. And Whole Foods isn’t known for low prices. But this space is so crowded, it’ll have to if it wants to become a regular habit for people.

But, hey, this doomsday scenario for the startups relies on large food chains getting this right. That’s a big if. Safeway did with delivery. I order from them every week, and I actually like the service better than when I’ve used Instacart. But that’s the exception in the tech world, not the rule. At least there’s fair warning now that Whole Foods not only should be going after this market, but it absolutely is.