Direct to consumer (D2C) delivery models have disrupted consumer product industries from books and electronics to retail stores, web services and increasingly food. Online sales of food and beverage growing at 19% year-on-year, making it one of the top five fastest growing online sales sectors in the US. The market size equates to $17.5 billion in 2018 and is expected to rise to $30 billion by 2021.
Peapod and Ocado – online food delivery is older than Amazon
There are examples of successful grocery delivery platforms that have been around for twenty (in the case of Ocado) or nearly thirty (in the case of Peapod) years that built the delivery service around the grocer. On the US’s East Coast, Ahold Delhaize have realized over $1 billion synergistic savings since the Ahold and Delhaize merged in 2016. Part of that is due to the growth of Peapod, its home delivery service. Peapod has captured 5.3% of the $16 billion market in North America (Amazon 12.5%, Walmart 11%, Kroger 6.3%). The service continues to innovate, most recently by opening Peapod Digital Labs to drive digitization and e-commerce development.
In Europe the delivery provider Ocado, founded in 2000, spent 10 years as an independent e-grocer before drafting supply agreements with a list of brick and mortar retailers including Waitrose, Morrisons, Casino Group, and others. Most recently, Ocado inked a deal with Kroger to build 20 Customer Fulfillment Centers using Ocado’s automation technology. Ocado, like Peapod, continues to innovate to offer an efficient food logistics and delivery service, most recently by leading an investment in Karakuri, a robotic food preparation developer.
Incumbent food retailers can compete by adopting innovation
The Ocado and Kroger deal is one route to adapt to Amazon entering the space, but more recently start-up innovation is offering off-the-shelf solutions for incumbent retailers to install a delivery logistics system of their own. Takeoff Technologies offers an automated grocery fulfillment solution that lets retailers bolt D2C order fulfilment centers onto existing logistics infrastructure. Another provider, Fliit, specializes in a platform that connects fresh food shippers with transportation solutions in one place. The company offers the platform that is needed once Takeoff Technologies has fulfilled the order itself to get the order where it needs to go. Early customers for Fliit include HelloFresh Go. The company recently raised $10 million from investors including Maersk Growth, which is building a food chain innovation portfolio that includes Telesense, Ripe.io, Spoiler Alert, and ImpactVision, a network of technology services that are key to the food supply chain.
Start-ups are bringing your local farmers’ market online
The key technical challenge is logistics. Many food producers and are not the size required to make a D2C distribution network economically viable. For these producers, a D2C platform acts as a service provider, connecting a distributed network of producers to a dedicated customer base. The service provider aims to balance a network of guaranteed, often localized, supply with a network of fluctuating demand. While these models aim to provide a better farmgate price for products by reducing the number of steps in a supply chain, this can create supply chain risks and high delivery costs.
There are a number of different approaches and business models being employed in this space:
- Farmstead and Milk & Eggs that provide a doorstep delivery service for produce and products coordinated from local producers.
- Imperfect Produce and Hungry Harvest have a similar service, but emphasize that a good portion of the produce they sell would otherwise have been wasted.
- GrubMarket and Good Eggs provide a more general supermarket experience, selling high-quality packaged goods, beverages, health, and kitchenware, alongside locally sourced produce.
The added value varies from selling premium goods, to helping solve food waste and delivery services optimized for delivery of food items (temperature-controlled packaging, narrow delivery slots, repeat deliveries). Each added value helps offset the high cost of creating a reliable food logistics supply chain from scratch, but the specter at the feast would be the story of Webvan. This is just one of the failed ‘your premium online local grocer’ models seen in the last decade, as the logistics challenge was too great without an established grocer or logistics provider as an anchor partner. The remains of the company, which burned through $800 million of VC money and IPO’d within three years, was bought by Amazon and forms the basis of its Amazon Fresh systems. For more insight into innovations and the rapidly evolving food delivery market, download the Agriculture & Food Sector Report from the 2019 Global Cleantech 100.
Keep an eye on …
- Retailers still have the best data on what food people buy and will look for ways to optimize their businesses using this data. Solutions such as TotalCtrl will help them optimize their inventory and improve this competitive advantage from in-store data unavailable to online-only providers.
- Ride-hailing and taxi apps looking for ways to generate revenue have often turned to food delivery to create additional revenue streams. Whether its Uber Eats, GrabFood, Ola’s struggle to make its acquisition of Foodpanda profitable, leading to refocusing on in-house food brands delivery, there are an increasing number of players in the food logistics last-mile space. Amazon, having attempted to enter this space with Amazon Restaurants in the UK, is instead entering the market by investing $575 million in Deliveroo.
For detailed discussion on the market for food and food delivery, join us in Singapore on 8-9 October at Cleantech Forum Asia.