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OG Online Grocer FreshDirect Gets $189 Million to Expand Outside of NYC

Grocery delivery has never been hotter

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Hate schlepping groceries home? That household chore may be on the wane as food delivery technology expands and earns high marks from busy humans in major cities across the country. Venture capitalists have also taken note: Online grocer FreshDirect is the latest company to garner the attention of investors. The New York City-based venture just received $189 million in funding, according to TechCrunch, which will allow it to expand outside the Northeast and into major metropolitan areas nationwide.

The grocery delivery landscape is an increasingly crowded one with several big-name players in the space: Amazon’s PrimeNow includes grocery delivery in some areas, and Google has tested a similar service. And then there are startups like Instacart and Postmates, which allow customers to order goods from stores like Whole Foods and regional grocery chains as well as farmers markets. Users never have to interact with the store; delivery personnel are paid a flat or hourly fee.

Venture capitalists have made no secret of their love for food-meets-tech startups. In recent months, Silicon Valley investors have poured capital into meal kits, delivery companies, and virtual restaurants. But grocery delivery is considered more of a chore than cooking or picking up take-out, so it’s no wonder investors are pouring money into related technology.

FreshDirect, which was founded in 1999, is ready to expand. CEO Jason Ackerman tells TechCrunch he believes grocery delivery is a trillion dollar industry. The new capital, he adds, will be used to help FreshDirect build its “manufacturing capacity” and expand to new areas. The company currently delivers to select cities in New York, New Jersey, Delaware, Pennsylvania, and Connecticut. Like Amazon Fresh, FreshDirect ships out of a central commissary. The delivery-only grocer does not have consumer facing stores nor does it source from existing physical grocery stores. This has given it a competitive edge in the past as it therefore spent less on prime real estate and more on marketing and customer service.

According to a company spokesperson, FreshDirect isn't making any announcements on where it will expand next. The company can confirm, however, that it is expanding its service for FoodKick: an on-demand delivery service that offers “a curated selection of meals and groceries,” all delivered in under an hour. FoodKick launched in Brooklyn and Queens in January and will expand to Manhattan "within the next couple of weeks."

Grocery delivery has proved a popular investment as of late. Instacart recently received a multi-million-dollar infusion of capital from Whole Foods — this in addition to the $280 million it had already raised. It’s a trend that shows no sign of waning. In fact, according to research from investment database CB Insights, grocery delivery startups now see more funding that prepared meal/restaurant delivery startups. It’s not too surprising that delivery is the hottest part of the food sector right now. A rapidly changing social and economic environment fueled by technology; congested urban areas; and the fact that no one likes to schlep jugs of milk, jars of pickles, and unwieldy packages of paper towels mean grocery delivery is poised for growth.

According to the report, grocery delivery startups have raised $429 million in 2016 so far, compared to $352 million for meal delivery startups. For the first time ever, perhaps influenced by lower food prices, grocery delivery is on track to beat prepared meal delivery.

All Delivery Coverage [E]
FreshDirect raises $189 million for grocery delivery [Tech Crunch]