Instant Alert: One of Whole Food’s biggest competitors just inked a deal that could help it compete with Amazon — and the stock is surging

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One of Whole Food's biggest competitors just inked a deal that could help it compete with Amazon — and the stock is surging

by Graham Rapier on Jan 9, 2018, 9:31 AM

Amazon’s purchase of Whole Foods sent shockwaves through the grocery industry, and now competitors are bulking up on competitiveness in order to stand out.
Sprouts Farmers Market, a $3 billion natural grocery chain, has teamed up with Instacart, which already powers delivery for other local-area chains like Whole Foods, Costco, Safeway, and CVS.

Sprouts Farmer’s Markets, one of the largest natural grocery chains in the US, announced Tuesday that it has inked a deal with courier startup Instacart to power its home grocery delivery, sending its stock soaring 5% ahead of the opening bell.

The service will begin in the Phoenix and Tuscon, Arizona areas, and later expand to other large Sprouts markets which have yet to be announced.

Instacart, which is based in San Francisco, was most recently valued at $3.4 billion in March 2017. The company already powers delivery for other large chains in Arizona, including CVS, Whole Foods, Costco, and CVS Pharmacy, according to its website. The service is also available in the large metros like New York City, Los Angeles, Chicago, San Francisco and more. Sprouts is notably absent from the East Coast, with most of its 280 stores in the West.

"We are excited to respond to customer demand for fast, convenient home delivery of their favorite Sprouts products in all of our major markets across the country,” Sprouts chief executive officer Amin Maredia, said in a press release. “Home delivery is a natural way for Sprouts to engage with our customers on their healthy living journey, and our partnership with Instacart allows us to quickly scale for growth."

Many delivery services have closed shop in recent years after having trouble turning a profit. Amazon in November scaled back its Fresh grocery delivery service across large swaths of the US east coast. Other startups, like Sprig, Maple, and SpoonRocket have also gone out of business. Meal delivery service Blue Apron which went public last year, has struggled with an almost always declining stock price ever since its IPO.

"With natural and organic growing at a 7-8% CAGR (per SPINS), we believe there's room for more than one player in this rapidly growing category," UBS said in a note to clients Tuesday. "Further, SFM's new customers have historically been more likely to come from traditional grocers vs. from other natural & organic competitors."

Shares of Sprouts are up 5.85% over the last six months, but the stock price has seen wild swings with dramatic drops. Still, Wall Street remains fairly bullish, with an average target of $25.84 — 2% above where shares were trading ahead of Tuesday’s opening bell, according to data from Bloomberg.