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maltatoday, WEDNESDAY, 21 JUNE 2017 11 Business Today www.creditinfo.com.mt info@creditinfo.com.mt Tel: 2131 2344 Your Local Partner for Credit Risk Management Solutions Supporting you all the way Amazon and Whole Foods could revolutionise grocery delivery. But do shoppers want it? A giant in the technology indus- try had a bold idea: reinvent the way people shop, rendering gro- cery stores a quaint reminder of the past. That company was Webvan, and it attracted $800 million in funding before filing for bankruptcy at the peak of the dot-com bust nearly two decades ago. The lesson in all this? Building a grocery business on wheels is terrifyingly expensive and inherently difficult because many shoppers simply aren't ready to outsource their supermarket visits. "Many people want to touch and feel their groceries," said Peter Relan, the former head of technology at Webvan. "In focus groups, we found there was some deep evolutionary biology there. People said, 'You're not going to do what I'm going to do for my family.' "It's a challenge that continues to ring true today, even as interest in grocery delivery services has risen — culminating in news last week that the biggest of all e-commerce platforms, Amazon.com Inc., had bid $13.7 billion for one of the biggest names in the grocery industry, Whole Foods Market Inc. The question now is whether the partnership between the two established firms will finally blow grocery delivery past its niche interest into the mainstream. Consumers ultimately got used to browsing for books online rather than on bookstore shelves; and they got over the fact they couldn't try on clothes before shelling out cash online. E-commerce sales now total 8.5% of all retail sales in the US, according to the Department of Commerce, doubling its share since 2010. If shoppers begin to embrace grocery delivery on a wider scale, that share will increase significantly given the size of the $800-billion grocery industry. But despite a host of services, including AmazonFresh, Instacart and Peapod as well as many supermarkets themselves, interest has been far from explosive. Having a stranger pick out and delivery your ribeye steak, it turns out, is not the same as having someone deliver your Christmas presents. Despite the difficulty, the business holds breathtaking potential. Unlike purchasing other consumer goods, shopping for groceries is a weekly endeavor for most households. Disrupting that task holds so much promise that money has been pouring into the sector the last five years — just as it did during the dot-com boom. Grocery delivery companies have raised $713 million in funding globally through May, according to CB Insights, which puts it on pace to exceed last year's record funding of $1.4 billion. In 2013, grocery delivery funding amounted to a paltry $83 million. Among the chief barriers to success is warehousing and distribution. Perishable goods like fruit, dairy and meat need to be replenished regularly and delivered quickly. That requires intensive capital investment in cold storage, software, vehicles and labor. These costs, coupled with rapid expansion, is what ultimately doomed Webvan. Amazon hopes to solve this problem with its acquisition of Whole Foods, which augments the Seattle company's vast network of fulfillment centers with the grocers' warehouses and 460 stores worldwide. That reduces the time that shoppers have to wait for food to appear on their doorsteps, and the distance that Amazon must travel to transport each order. But that convenience comes at a price. Consider Amazon's existing grocery delivery platform, Amazon Fresh. First, subscribers need to sign up for Amazon Prime, the premium subscription service that gives consumers free shipping and access to Amazon's streaming entertainment for a fee of $99 a year or $10.99 a month. Amazon Fresh costs an additional $21.99 on top of Prime. Other players in the space such as Instacart and Shipt don't have to shoulder the infrastructure costs a more vertically integrated company like Amazon does. Instead, they act as a third-party delivery service selecting food from chains such as Publix and Costco. Subscribers to Birmingham, Ala.- based Shipt can choose between a $99 annual fee or a $21 monthly fee. Instacart, headquartered in San Francisco, charges $3.99 for two-hour deliveries and $5.99 for one-hour deliveries on orders of $35 or more. Those fees run counter to what many consumers want: a discount. Analysts at HSBC studying the British market last year found that no-frills grocers Aldi and Lidl were growing faster than the top online supermarket brand Ocado. They concluded that a discount was more important than convenience. "Online retailing may be glamorous and exciting for those involved in developing it but the fact that the online grocery market continues to grow at only half the rate of discounters (and a quarter of the rate in cash terms) suggests consumers value lower prices over home delivery," the bank said. One hope among delivery service founders and investors is that norms have changed. So much commerce is conducted online — thanks in large part to smartphones and apps — that getting milk delivered may soon become second nature, especially among young people. Will the partnership between two established fi rms fi nally blow gro- cery delivery past its niche interest into the mainstream? Nestle has acquired a minority stake in US healthy ready meals group Freshly, as the Swiss food giant seeks to hone its distribution network in a rapidly changing US market. Nestle said yesterday it was lead investor in a $77 million (60.5 million pounds) round of new funding for Freshly, helping it gain access to the $10 billion market for prepared meals in the United States, which it expected to grow at "very attractive rates". Nestle did not disclose its exact in- vestment, which it said would help Freshly build a new East Coast kitchen and distribution centre in 2018 as it prepares to expand its US service nationwide. Nestle USA's Food Division Pres- ident Jeff Hamilton would join Freshly's board of directors. Nestle shares rose 0.8 percent by 0920 GMT. The world's largest packaged foods maker is becoming more health and nutrition-focused as a new generation of savvy consum- ers demand fresher and healthier foods. It said last week it could exit its US confectionary business. The deal comes just days after Amazon.com Inc said it would buy Whole Foods Market Inc for $13.7 billion, in a deal that could turn the high-end natural and or- ganic supermarket chain into a mass-market retailer. Freshly is headquartered in New York with operations in the west- ern state of Arizona. Founded in 2015 and with 400 staff, its sub- scription-based model offers vari- ous meal plans to consumers via a rotating menu on its website. Nestle USA Chairman and CEO Paul Grimwood said consumers still bought most food in super- markets but were increasingly turning to direct-to-consumer op- tions. "Acquiring a position in Freshly not only gives us access to this growth market, but it also brings reciprocal benefi ts for both com- panies. Nestle will gain visibility into Freshly's advanced analytics and its highly effective distribu- tion network and Freshly will benefi t from our R&D, nutrition and sourcing expertise," he said in a statement. Its Phoenix facility lets Freshly ship to around 40 percent of con- sumers. Nestle estimated a new plant in Maryland should let Freshly serve about 93 percent of the US population with prepared meals that can be heated in two to three minutes. "This investment and close part- nership will allow Freshly to con- tinue to expand and rapidly scale our reach in order to achieve our goal of being in every household in America," Freshly CEO Mi- chael Wystrach said. Nestle its trying to capitalise on the growth of the market for de- livered food, which range from HelloFresh and Blue Apron to Delivery Hero, which on Mon- day said it aims to raise around 927 million euros ($1.03 billion) through a stock market listing that could value it at up to 4.4 billion euros. German meal kit company Hel- loFresh is also preparing a stock market fl otation which could come this year. Market research group Euromoni- tor International said Nestle is market leader for ready meals globally and in the United States, with 8.2 percent and 17.4 percent shares respectively, although its US market share slipped from 18 percent in 2011. Nestle buys stake in US ready meals group Freshly