Walmart already has grocery warehouses with their stores, so bolting on pickup/delivery to those makes sense. I don't know how much pickup/delivery could potentially negate the need for the store, but I'd assume the pickup/delivery load of a store has huge room for growth before you start questioning why the store needs to be open to the public.
I haven't used their grocery delivery service but their pickup service is well-executed and convenient, in my experience, so I'm assuming they can figure out how to be competent in delivery as well.
For someone in the position of Walmart, and with the many startups that doing delivery, it seems realistic.
As for why do i think Amazon will win the high end? really, the biggest reason is that it's Amazon. But yes, that's not a good enough reason, but still, they win an awful lot.
But maybe there's a chance for instacart to win the higher end, especially by offering the largest variety any merchant can offer.
i am not entirely clear how you arrived at "Does instacart fit ? it seems not.", so it would be good to understand that. we have spent 5 years with hundreds of engineers building a fulfillment/logistics network just for groceries that any grocer can just leverage off the shelf.