Louisville’s Door to Door Organics is making a big move to grab a bigger bite of the already well-stocked online grocery market.
Door to Door, which delivers organic produce and natural groceries to households in 16 states, inked a merger agreement with online grocer Relay Foods. With Relay Foods, that delivery area grows to 63 markets in 18 states and Washington, D.C., company officials said.
Financial terms of the all-stock merger were not disclosed. Industry analyst Bill Bishop, chief architect of research firm Brick Meets Click, estimated the combined company’s annual revenue to be north of $50 million.
The combined company also announced that it landed $10 million in equity financing provided by The Arlon Group and Relay stockholders.
“The momentum is only picking up in this industry,” Door to Door CEO Chad Arnold said. “Finding another company who shares the sort of discipline that, frankly, Door to Door has, which is really playing the long game. We recognize it’s a big industry about to go through a big transition.”
For the most part, the biggest players in the online grocery industry have been segmented geographically, creating a “coop-etitive” environment, Arnold said.
When Arnold chatted with Relay Foods’ chief in December, the two realized they could leverage each other’s strengths. Relay had invested heavily in technology — from warehouse management to front-end personalization options for customers — and Door to Door had a broader network to utilize those efforts.
The two companies’ management teams had deep experience as did the investor pools, he said.
“We also want to be sure we’re innovating and really building a path for a better customer experience,” he said. “At the end of the day, we’re very focused on both moving healthy and better-for-you-food forward.”
The companies will maintain operations in their respective headquarters cities of Louisville and Charlottesville, Va., and later this year plan to combine under a new name, Arnold said.
As to whether this is a signal of similar moves to come from Door to Door, Arnold said he’s had conversations with other regional online grocers.
“Over the years, we’ve done a number of smaller acquisitions and combinations in various forms to get to where we are now,” he said. “We are certainly open to it.”
Door to Door positioned itself well early on, building a management team with grocery expertise and collecting a pool of well-heeled investors, Bishop, of Brick Meets Click, said.
Bishop said that in his observations of Door to Door, the company’s growth appears to have come from expansions to new geographic markets. The 558-person Door to Door does not disclose its financial information, but expanded to five markets since 2015.
“I don’t think the adoption rate of fuller-basket shopping has been what people had been expected,” Bishop said.
Just as the traditional supermarkets have stepped up their online game, scores of new entrants — including meal kit delivery companies like Blue Apron, mass-merchandise retailers such as Walmart, and e-commerce giant Amazon — have snatched market share, Bishop said.
“If we were in retail or manufacturing, consolidation is more a reflection of the market saturation,” he said. “In this particular case, I think it primarily has to do with the fact that it’s an uneven playing field and people run out of energy and resources to keep pace with where ever this thing is going.”
“Basket bandits” Amazon, Blue Apron and the like are nipping away at the grocery market as a whole, he said. Households that signed up for a regular meal kit subscription cut their grocery spending by about 6 percent, he said, citing recent Brick Meets Click surveys.
“Food has a lot to do with who you are and how you live,” he said. “As a consequence, I think that specialized players (such as those that focus in natural and organic) that know how to position and market themselves, have a better than average chance.”
But it remains to be seen whether that will be enough to counter the colossal competitor waiting in the shadows — a company that is shoring up resources to deliver items in under an hour, he said.
“There really is an 800-pound gorilla here in grocery, and it’s Amazon,” he said. “And they’re coming at this business from a large number of ways.”
UPDATE June 13, 2016: This article was updated to correctly identify Bill Bishop, of Brick Meets Click.