Fierce competition in the $13 billion grocery delivery sector is about to become a little more heated.
FreshDirect, the 14 year-old online grocer that has been growing its market share for years, is expected to ramp up its expansion plans — as well as rev up its one-hour delivery service, called FoodKick — with the help of a $189 million investment from JP Morgan Asset Management, and others, to announced on Monday.
It’s the largest investment to date for the Queens-based grocer known for its prepared foods, high-quality produce, meats and ubiquitous white trucks that have already expanded well beyond New York City.
The fledgling FoodKick operation, which launched this year in Brooklyn, delivers smaller orders via bicycle and mopeds within an hour and is aimed at folks who absolutely must have a few crucial items for the dinner party or special occasion.
FreshDirect, like its rival, PeaPod, which delivers for Stop & Shop, is built for a 14-to-24 hour turnaround, but it’s aggressively moving into the space occupied by Instacart, which delivers groceries within an hour for Whole Foods, Fairway and Costco.
FoodKick is expected to expand into Manhattan where competition is red-hot, with AmazonFresh and Prime providing one-hour service.
“FoodKick’s customers are buying for the moment — a Friday night dinner party or quick dinner — rather than the person who is planning for the week,” said co-founder and Chief Executive Jason Ackerman, whose uncle Peter Ackerman, a former Drexel Burnham investment banker, was seed investor.
The average FreshDirect customer spends $140 per transaction while the average FoodKick customer spends about the same amount spread out over several transactions that are placed more frequently, Ackerman said.
The one-hour delivery fee, $5.99, is the same as FreshDirect’s original grocery service delivery fee, though customers who can wait more than an hour are charged $3.99.
Instacart Express, by contrast, offers free delivery for orders of $35 or more with a $149 membership fee, and AmazonFresh customers pay $299 per year for free grocery deliveries.
“FoodKick will bring new customers that FreshDirect doesn’t cover today,” Ackerman added.
FreshDirect’s added muscle in the $13 billion online grocery space — which is projected to double in sales by 2020, according to IBISWorld — comes at a time when the traditional grocery stores, like A&P and Fairway, have been contracting.
“FreshDirect has been capitalizing on all the bankruptcies and also hitting Whole Foods hard while crushing Peapod in the city,” said Burt Flickinger, managing director of Strategic Resource Group.
“As demand for fresh ingredients delivered to your door continues to rise, providers are drawing significant attention from the investment community,” said Larry Unrein, head of JP Morgan’s private equity group in a statement. Unrein and colleague Ashmi Mehrotra have joined FreshDirect’s board.
As to a long-rumored initial public offering, Ackerman was cautiously optimistic. “We’ll see,” he said. “We have a great plan and investor in the building.”
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