Why Instacart may be Walmart and Amazon's biggest rival

If the enemy of my enemy is my friend, then Instacart may soon have a whole lot of friends.

To be fair, the same-day delivery service isn't quite Amazon's (NASDAQ: AMZN) enemy -- the two companies actually became inadvertent partners when the online retailer bought Whole Foods. At the time of that deal in mid-June, Whole Foods not only owned a small piece of Instacart but accounted for 10% of its sales.

Amazon buying Whole Foods, however, put the entire grocery industry on notice. The online giant was coming for their customers, and it was going to go after them by offering same-day home delivery -- and not with Instacart, but using its new grocery chain's locations as a base to expand its Amazon Fresh business.

None of this has actually been said by Amazon executives, but it makes sense. Even before it bought Whole Foods, the online retailer had been slowly expanding its grocery delivery business. That forces it rivals to either build their own alternatives or work with a third party. And the clear third party of choice has been Instacart.

Instacart uses personal shoppers to pick your order. 

How has this helped Instacart?

Amazon already has the technology infrastructure for same-day delivery. Adding Whole Foods gives it more locations around the country to ship from. That, in theory, should allow it to offer the service in the generally upscale communities that have Whole Foods stores. (Though there may be limitations to what Amazon can do immediately, as Whole Foods' deal with Instacart runs through 2021.

To protect their customer bases and fend off Amazon, the top-five grocery chains in the U.S. -- Kroger, Albertsons, Ahold, Publix, and H-E-B -- have all made deals with Instacart. In addition, the delivery service has expanded its partnership with Costco, works with Target in some markets, and has a deal with CVS.

"Ever since the Amazon-Whole Foods deal happened, things are very different," Instacart CEO Apoorva Mehta told CNBC's Deirdre Bosa. "After that deal happened, we were every major retailer's first call." 

RELATED: Check out these 10 sneaky supermarket traps you should avoid: 

10 supermarket traps
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10 supermarket traps

Large shopping carts

According to Martin Lindstrom, the larger the shopping cart, the more likely you are to spend. The marketing consultant told The Consumerist"We doubled their size as a test, and customers bought 19% more."

Pleasing aromas and colorful sights

Walking into a grocery store and smelling freshly baked goods and flowers, especially if you're in a good mood, is a surefire way to get you to throw a few unnecessary items into your cart as your begin shopping experience.

Fresh produce first​

After you've already been tricked into picking up a loaf of bread or some flowers, supermarkets also get you by placing the produce in the front of the store. By doing this, they fool you into believing you're being healthier by shopping for fruits and veggies first so you won't feel bad if you decide to stock up on a few unhealthier snacks along the way to checkout, too.

Mist on produce

You may think the mist on fresh fruits and veggies is helping the produce, but in all actuality, it makes them rot faster. Also, be sure to shake off the access water before purchasing your produce -- the mist tends to add additional weight, making the price go up.

Slow, boring music

Have you ever wondered why most grocery stores play some sort of elevator music? It's because they want you to take your time while shopping. Many stores play music slower than the average heartbeat, so pop your headphones in and play upbeat music to combat this trick.

10-for-$10 promotions

It's common to believe you're getting a great deal during a 10-for-$10 promotion, but say, if a can of beans was originally 87 cents, you're actually paying more versus buying 10 of the same cans when they aren't on "sale."

Dairy being in the back of the store

The reasoning behind the age-old trick of placing milk and other dairy products in the back of the store may surprise you. Although it forces you to walk through various aisles, the true reason is because trucks unload their shipments in the back of store, and since milk needs to be refrigerated immediately, the easiest place to keep it is in the back.

More expensive items at eye level

If you've ever wondered why all of the expensive items seem to be the most accessible, there's a reason behind that, too. Supermarkets place cheaper items on the lower and higher shelves and reserve the middle, or eyesight level, shelves for their most expensive products.

Buying premium deli products

Just because you are buying a seemingly fresh cut of meat or fish from the deli and paying a higher price, doesn't necessarily mean the product is of better quality. Often times, the meat was previously frozen meaning you may have to use it sooner than meat you would buy from the frozen section.

Changing the layout of the store... often

Don't get too comfortable with your local supermarket's layout. Markets believe that when a person remembers where there items they plan on buying are, they'll spend less time in the store and will ultimately spend less money.



How does Instacart work?

Users log into Instacart and enter their address to see if service is available in their area and, if it is, what stores are offered. Assuming you live in a covered area, users then fill their shopping cart from one or multiple stores to be handpicked by a "personal shopper." You can even leave notes on various items, like telling the person doing the picking how ripe you want your bananas.

After you place your order, you then pick a time for delivery, which can be in as little as an hour. Times can fill up and there can be surcharges for busier parts of the day.

Once your order is underway Instacart confirms it via email, and your personal shopper (one per store) will text message you once he or she gets started. In addition, if an item is sold out or otherwise not available, your personal shopper will inquire about replacements or have the item refunded.

Prices are generally in line with what retailers charge in their stores, though Instacart acknowledges that can sometimes be higher on its website. Delivery fees are per store and come in at $5.99 per order of $35 or more or $7.99 if one-hour delivery is available. Orders under $35 cost $9.99 or $11.99 for one-hour delivery. Customers can also add tips.

In addition, Instacart offers a premium Express service for $149 a year. Paying the annual fee gets members free two-hour delivery on all orders over $35, and they do not pay peak time pricing.

Why is Wal-Mart not on board?

Wal-Mart (NYSE: WMT), like Amazon, has the scale needed to build out its own grocery delivery business, though it has been testing using Uber to deliver orders in select markets. Under that system, Wal-Mart employees pick the order, as they do for online orders picked up at its stores, and Uber drivers deliver them.

While Instacart would offer Wal-Mart access to numerous markets all at once, it's likely that the company does not want to be one among many when it can build its own delivery system. That's not really a blow to the same-day delivery company -- not having Amazon or Wal-Mart makes it more attractive to rivals of those companies.

A big three?

It's simply not worth it for most retailers to launch same-day delivery services. Instacart gives them a viable third-party option that has slowly expanded its name recognition. In addition, Instacart is pretty brand agnostic. It displays all the stores in a given area without showing favor to any. That means that consumers would likely remain loyal to the companies they already use, but would perhaps order from new ones in areas not served by their current favorites.

Instacart has been steadily growing and plans to serve 80% of American households by 2018. Assuming it hits that goal, or at least comes close, that makes the service a viable challenger to Amazon and Wal-Mart, as well as an important tool for the rest of America's retailers.

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