The moving parts include much more than the two companies involved. For those looking ahead, there’s the impact the merger could have on a whole host of venture-backed delivery starts.
This includes Instacart Inc., which recently raised at least $300 million at a roughly $3.4 billion valuation. Instacart currently delivers groceries for Whole Foods Market but has been aggressively seeking out new delivery partnerships.
Complications For Delivery Startups
Others in the mix include Blue Apron Inc., Doordash and Postmates. Blue Apron is important because it is currently in a quiet period ahead of an initial public offering (IPO). Blue Apron declined to comment on the proposed takeover.
DoorDash co-founder and CEO, Tony Xu said any competition in the retail space is good for the company’s business. Menlo Ventures managing director, Venky Ganesan, said Amazon’s move was “massively disruptive.”
The Bad And The Good
Food hasn’t exactly been tearing up retail recently. Low margins and slow sales growth have definitely been a problem along with the fact so many new players have entered the market. Even big chains like Wal-Mart Stores Inc. (NYSE:WMTB) and Kroger Co. (NYSE:KRC) have been fighting to attract and retain customers.
Amazon isn’t the only one struggling to figure out how to sell fresh food online – especially now that consumers are demanding online access to fresh fruits and vegetables. Amazon comes to the game with a built in advantage – namely an intact distributions system.
A New Reality
The real challenge for everyone in retail food is the fact people no longer want to grocery shop if they can avoid it. As much as they like the ability to touch and smell fresh fruits and vegetables in the store, they are also willing to try ordering online.
They come to the table (so to speak) from two different buying philosophies – cheap prices and high quality. Those expecting high quality are not as concerned about price as they are freshness and flavor. And those going online for cheap prices want the most bang for their buck.
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The Last Mile
The biggest problem for any entity that wants to deliver fresh food ordered online is that last mile – the distance from the warehouse to the kitchen table. Amazon feels it has greater ability to solve the last mile riddle in fresh food because it is a problem it has wrestled with regarding other goods and services.
Amazon, after all, was willing to forgo profits for years to build market share. Not every other would-be online giant has the wherewithal to do that. On the other hand, grocers that want to compete may look into solving their issues with acquisitions, seeking out online businesses that already know how to deliver the goods.