Grocery Delivery Behemoths Expand, Bringing Local Businesses with Them

With end-of-year occasions on the horizon, food delivery players are pushing hard to deliver what New Yorkers want.

Must-have bags of the season. #totesmagotes #amazonfresh

A photo posted by AmazonFresh (@amazon_fresh) on Sep 23, 2015 at 6:05am PDT

A few weeks before turkey day, a happy holiday hostess tweeted that she had found the solution to throwing a feast without having to stain an apron or brine a turkey. “Easy. I order @FreshDirect #delish #righttomydoor.”

Indeed, the convenience and ubiquity of online grocery delivery has pushed eaters into a brave new world of cooking, or not-cooking, as it were. With end-of-year occasions on the horizon, food delivery players are pushing hard to meet sales goals, even as they fend off competition from a long list of meal delivery start-ups.

But these digital-enabled companies have one big advantage over brick and mortar shops: data. “We know how many people are going to be making sweet potatoes with marshmallows and without. How many people are going to have Brussels sprouts and how many like to ladle on the cranberry sauce. We have the data,” says Jodi Kohn, CMO of FreshDirect.

They are not alone. While A&P declared bankruptcy in August and plenty of legacy grocers are struggling to figure out what their shoppers want, whole remaining brick and mortar chains are rolling out digital products as fast as they can. King Kullen has unleashed a Tweetstorm of specials, ShopRite is pumping its new app with a big ad buy on SNL.com declaring “same variety and great deals as in the store, all in the palm of your hand, all delivered to your home.” And while Seamless offended some in the food community for its misanthropic ad campaign that claims New Yorkers don’t want to interact with any other humans in order to get their dinner, New York is home to a particularly rich diversity of offerings for those who want to summon commestibles just as they might ping an Uber driver.

Earlier this summer, AmazonFresh, the food and drink delivery arm of Amazon, which launched in Brooklyn ZIP codes in the fall of 2014, expanded its service across the East River toward New York’s wealthiest borough — and the one with the most potential for daytime lunch deliveries. Its viridian trucks can now be seen from Harlem to Battery Park City and everywhere in between.

“We’re excited to start offering AmazonFresh to customers throughout New York City as we think they’ll truly enjoy the selection and convenience of the service,” said Pia Arthur, an Amazon spokeswoman in an e-mail last November. When asked about “the near-term expansion plan in NYC,” she said, “We can’t comment on our product road map but we can tell you that we’ll continue to expand selection and neighborhoods where AmazonFresh is available.”

These digital-enabled companies have one big advantage over brick and mortar shops: data.

While Amazon has generated buzz in the tech community for experimenting with delivery drones, their strategy in New York actually included some smart, old-fashioned infrastructure investments. At Chelsea Market, the company built a refrigerated cooler to ease fulfillment for all Chelsea Market vendors, and to speed loading into AmazonFresh trucks. This is a great (albeit surprisingly low-tech) way to make it easier for small, artisan producers. While Amazon wouldn’t comment on whether this strategy was typical for AmazonFresh based in San Francisco or Seattle, they did make the same investment at Brooklyn’s Pfizer Building to help onboard foodmakers there.

Otherwise, this rapidly growing food arm of the e-commerce behemoth will be offering a very similar service to what comestibles it delivers in Seattle and San Francisco. In addition to the vast selection of grocery items, AmazonFresh also offers restaurant foods and specialty grocery items from local merchants via the “Neighborhood Shops and Restaurants” selection. Customers find ready-to-eat prepared meals as well as meals that can be prepared in 15 minutes or less, including live lobster from The Lobster Place, charcuterie from Dickson’s Farmstand Meats, local salad kits from Gotham Greens and daily fresh baked bread from Amy’s BreadAt last count, the company had over 50 local merchants on the platform. “And we are always continuing to add selection,” said Arthur.

Amazon prides itself on next day or same day delivery. And that has raised the bar for others in the space. Earlier this year, Mouth.com, which some folks have called the Amazon of indie food and drink, announced its own rapid delivery option. “We use the same people that Amazon Now uses, a company called Dynamex,” says founder Craig Kinarick. “It’s exciting. It opens up a lot of new things for us. We get a lot of offices asking for same day or next day delivery.” With visions of farmstead ice cream dancing in his head, Kinarock continues, “We can deliver more cold things easier without needing so much packaging. Also, frozen will be an option soon.”

Online ordering is still just a meager 3% to 5% of all grocery sales. So the potential for growth is massive. Which is part of what has pushed companies like Instacart into the ranks of tech unicorns and has allowed firms like Farmigo, which is disrupting the traditional CSA (taking the traditional CSA online), or Blue Apron (another unicorn) that has focused on pre-portioned, ready-to-cook ingredients, or Purple Carrot, the vegan meal delivery service that just added food writer Mark Bittman as its CIO. In a recent interview in National Geographic, Randy Komisar, a partner at venture firm Kleiner Perkins Caufield & Byers, which is making some big bets in foodtech and agtech, “sees suppliers like Amazon serving the need for storable, prepackaged goods, while local, small-plot or even urban farmers will become the main sources of fresh foods and specialty products.”

At last count, the company had over 50 local merchants on the platform. “And we are always continuing to add selection,” says Arthur.

For now, AmazonFresh is trying to meet the needs for both storable groceries, fresh produce and everything in between. It just rolled out a “farmers market” basket option, which is a bundle of in-season produce from nearby farmers, part of a collaboration with the tech firm FreshNation, which picks up food at farmers markets and delivers it to your home.  

And the local vendors we spoke to have been universally happy with the Amazon relationship. “We are very happy to be part of their store,” says Mitchell Soodak, owner of Union Square Wines, which was supplying all the wine and spirits for the site.

Vendors, like Jake Dickson of Dickson’s Farmstand Meats, reported that Amazon regularly shares data with them on which products are trending and which categories need to be built out, especially as it pushes into new ZIP codes and neighborhoods. “I think it has tremendous potential for us for the future. It will allow us to reach a huge audience we otherwise would not (mainly in the suburbs and outer boroughs where our delivery service won’t go). It will also allow us an outlet for product we have too much of due to whole animal economics — I can choose to list products there are in overabundance due to their proportions on the animal not lining up with in-store retail demand.”

“They pick up daily whenever there is an order,” says Scott Ketchum, founder of Sfoglini pasta, which sells a range of its products on AmazonFresh. “Amazon has been very helpful in getting our online store built and their system for pickups and orders is pretty good.” Last year, just after the launch, Ketchum admitted that there were only a few pasta orders coming in every day. But more recently the number has jumped.

“I think it has tremendous potential for us for the future,” says Jake Dickson of Dickson’s Farmstand Meats. “It will allow us to reach a huge audience we otherwise would not.”

“There is a fairly large amount of data that needed to be supplied but this seems normal when doing Internet sales through another vendor’s portal — especially one as large as Amazon’s,” says Jason Durham of Rick’s Picks, which is offered through AmazonFresh in New York and Philadelphia. “We are looking for this to be a convenient way for new and existing Rick’s Picks customers to get our pickles.”

The proliferation of AmazonFresh trucks will remind some New Yorkers of the Silicon Alley heydays of the 1990s, when firms like Kozmo and Webvan crawled the gritty streets of Manhattan making same-day deliveries of everything. “Kozmo got tremendous traction, but the barriers were too high,” says Matt Higgins, a partner at the venture fund VaynerRSE. “We all weren’t connected with smartphones, people didn’t want to use their credit cards online, the delivery algorithms were primitive.” Today, Higgins jokes that “Now, for me saying, ‘I believe in an on-demand economy,’ is like saying, ‘I think the Internet is going to be really big.’ It’s so obvious.” VaynerRSE is an investor in Drizly, the on-demand alcohol company, among others in the space.

Back at Union Square Wine, Soodak, who lives in Manhattan with four children, says he orders a lot of stuff to his house. “I’m eager for our family to start to use AmazonFresh.”

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Brian is the editor in chief of Edible East End, Edible Long Island, Edible Manhattan and Edible Brooklyn. He writes from his home in Sag Harbor, New York, where he and his family tend a home garden and oysters. He is also obsessed with ducks, donuts and dumplings.