What's the appetite for 15-minute food delivery from a "Cloud Grocer"?
Sylvain Perrier is president and CEO of Mercatus Technologies Inc., a Toronto-based provider of enterprise grocery e-commerce management tools, and a Winsight Grocery Businesscontributor. WGB rang him up to talk about a recently announced $15.4 million Series A funding round for Fridge No More, a Brooklyn-based "cloud grocer" that promises deliveries within a 1-mile radius in 15 minutes or less.
Fridge No More, which bills itself an instant delivery grocery service, said in a news release that it will use its new funding to expand in New York and along the East Coast, as well as build out its operations and engineering teams.
Christine LaFave Grace: $15.4 million for 15-minute grocery delivery. What's your take? Amid all of the startup and app-focused activity in the food-and-beverage e-commerce space, is a ghost-grocer concept with limited SKUs promising hyper-speedy delivery novelty or something with legs?
Sylvain Perrier: I’m of two minds. Consumers are looking for convenience, there’s no doubt about it. And convenience has become even more important during the pandemic. There are reasons for that.
One is, the challenges that we consumers have had with our traditional brick-and-mortar operators. You don’t want to go in because you don’t feel safe; you don’t want to queue up in line. And the second one is when you’re using online services, there may be challenges because there may not be availability of time slots and you’re not getting an accurate representation of what’s available as far as inventory in the store, so that becomes very frustrating. We saw 60% of consumers shift away from their current brick-and-mortar operator to someone else.
That’s the main reason why you’re seeing a lot of these “cloud” e-commerce operators without a foothold into brick-and-mortar becoming really interesting. There’s also a second reason, and this lays squarely at the feet of Instacart: What Instacart has taught consumers is to disassociate themselves from their preferred brick-and-mortar operators. So now, a can of tuna is a can of tuna. A gallon of milk is a gallon of milk. Unless you’re an extreme foodie and you have certain brands and experiences you want to live through a store, you’re buying online.
E-commerce is a hot market right now—we’re predicting by 2025 that the compound annual growth rate will be 21.5%. There’s tons of room in this space to do this, and I think a Series A at north of $15 million for this little company is a drop in the bucket in what they will raise for capital.
That’s interesting when you look at Instacart relative to a DoorDash or an Uber Eats, because if you're ordering dinner, you’re not necessarily seeking out a particular neighborhood Thai restaurant anymore, right? You’re saying, “I feel like Pad Thai,” and then you choose whoever can deliver it fastest. That said, for that transaction to lead to repeat business, everything's got to go right. And it seems like when you’re promising something like 15-minute delivery, there’s very little room for error. Can you tell me what you see there?
If you look in the case of an Instacart, the margin for error is significantly larger compared to Fridge No More. That margin of error for Instacart is, the first is—you’re using gig workers. Are they going to show up? Are they going to pick the right items? The second series of variables in that total margin of error is, will the retailer have this in stock? Will it be of good quality? When you start stacking up these variables together, the risk profile is so much more significant.
If you look at Fridge No More, because they’re sourcing their own products from distributors and using these "cloud locations"—they’re controlling the supply chain to a certain extent. So what they’re representing on their app that is available for sale, they control, so they know. So you just lost a bunch of variables from the risk profile. Now you’re kind of down to, are the people that they’re recruiting to do the delivery, are they good? It doesn’t sound like they’re using gig workers, so I think for them if they’re not, they’ve eliminated another series of variables, and they will be able to have service quality levels greater than most.
