Global Food Delivery is Attracting So Much Money and Failures: Does Shipt Have the Keys for Success

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June 06, 2017

Global Food Delivery is Attracting So Much Money and Failures: Does Shipt Have the Keys for Success

It seems that the food meme of the moment is venture capital funding for food delivery, including restaurants and supermarkets across the globe after this sector saw investments wane as more of these companies continue to implode and go out of business.

Originally published on Forbes.com.

It seems that the food meme of the moment is venture capital funding for food delivery, including restaurants and supermarkets across the globe after this sector saw investments wane as more of these companies continue to implode and go out of business. In the past thirty days, London’s Quiqup raised just over $25 million while fellow UK start up Jinn (who operates both in the UK and Spain) raised an additional $10 million bringing its funding to $20 million. Germany’s Deliver Hero which operates in 40+ countries attracted $425 million while in India, Swiggy’s $80 million and Zomato’s VC total was upped to $225 million (as coincidentally they discovered that its global data base across 23 countries of 17 million customers had been hacked). And that’s just a tiny few of the deals.

CB Insights reports that while deals in meal delivery has substantially declined (2017 is on track for 88 deals), it is the grocery delivery start ups that are on the path to continue growing strong and attracted $1.4B in funding in 2016; and funding in 2017 should exceed that number.

This morning, Shipt announced that it raised a $40M Series B financing (on top of the two initial rounds totaling $23M) and hopes to provide grocery delivery service to 100 metro areas within the next 12 months. While that financing may pale in comparison to Instacart’s additional $400 million round in March, there are some key differences that may push the attention away from Instacart and on to this much smaller company.

I spoke with Shipt’s CEO and founder Bill Smith back in March and again yesterday about why he feels Shipt’s formula for success may be the winner. First, Shipt operates much like Amazon Prime does on a membership model of $99 per year (which includes free delivery for orders over $35, spend less and it will cost $7) which Smith says has created a “buy in” from customers and has resulted in a higher number of repeat customers especially from their core customers who are moms and families who typically place larger size orders than the convenience-starved Millennial singles. The average number of orders is 3.5 times per month or 42 orders per year.

Smith also points to his laser focus on The Shipt Shopper, made up of independent contractors who have to be vetted by a grocery knowledge quiz, a video interview, background check as well as in person orientations. The company says that only 10% of the applicants “make the cut.” Like the Instacart model, Shipt’s Shoppers are paid by the order and make between $15-25 per order. There is a flat fee of $5 and percentage of 7.5% on orders unlike Instacart’s multi level compensation program that many of their independent contractors  grumbled about and took to social media to complain. I spoke with Nilam Ganenthrian, VP of Business Development & Strategy at Instacart who told me the company is looking to increase its full-time staff (the ratio of shoppers is approximately 20% full time to 80% independent contractors) and revising its payment structure.

Art Sebastian is Director of Digital Shopping at Meijer, Inc. a regional chain with 224 stores that covers the greater Grand Rapids metro area and is a retail partner of Shipt. Sebastian told me he selected Shipt as their delivery partner after meeting with its competitors “because of their culture, which embodied the start-up mentality, their personalized customer service to the shopper and a stellar training program.”

"This new round of capital will allow Shipt and our retail partners to bring the highest quality online grocery shopping and delivery experience to many more consumers across the country," Smith told me.

IRI, a Chicago-based market research firm released its findings yesterday from its new study analyzing e-commerce behaviors and found that only eight percent of US shoppers have used supermarkets’ delivery-buster “click & collect” model, where shoppers place orders online a pick up their groceries a retail location. Grocers around the country including Wegmans, Amazon Fresh, ShopRite, Hy-Vee, Kroger, Walmart, Publix and others are piloting or rolling out this offering. The report also found that 68% of shoppers who have used “click & collect” would definitely use it again, and 23% said they would probably use it again for everyday items; reinforcing IRI’s prediction that in just three years from now these programs would reach $6.6 billion in sales annually. Seven in ten of the shoppers surveyed said they used click & collect to avoid charges for shipping. 

I reached out to Sam Kass, whom I got to know and first respect his insights when he was in the White House and launched the Lets Move! campaign with First Lady Michelle Obama and is the founder of Trove Worldwide and partner in Ace Venture Partners a food & agriculture technology investment firm to weigh in on grocery delivery - and if he would invest. By phone he shared that he feels that “grocery delivery is part of the future and a lot of money is to be made for making cooking at home easier and more convenient,” he continued to say that until “future technologies and innovations automate it, the service has a real ceiling and that you need a huge scale to make it profitable.” He looks to driverless cars to bring the cost down to a time where delivering groceries is commonplace, a standard practice for retailers and free. He says, “It’s hard to overestimate the disruption that will occur from that, but for now, it’s a tough tough business”. I don’t expect Sam to write that check.