Online Grocery Apps Are Thriving During the COVID-19 Crisis. Are They Here to Stay?

Taylor Soper, GeekWire
Taylor Soper is GeekWire's managing editor, responsible for coordinating the newsroom, planning coverage, and editing stories. A native of Portland, Ore., and graduate of the University of Washington, he was previously a GeekWire staff reporter, covering beats including startups and sports technology. Follow him @taylor_soper and email taylor@geekwire.com.
Online Grocery Apps Are Thriving During the COVID-19 Crisis. Are They Here to Stay?
Photo from Flickr Creative Commons

More people are ordering groceries online due to the novel coronavirus outbreak, leading to a permanent consumer purchasing shift — and a giant revenue boost for Amazon.

That's according to an analysis from RBC Capital Markets, which just ran its fifth annual user survey on online grocery trends. It concluded that Amazon's online grocery arm could produce $70 billion in gross merchandise volume by 2023 — more than 3X from 2019 — becoming a material portion of its total revenue.


"We view Amazon as one of the largest structural beneficiaries of this accelerated secular shift to online grocery shopping, along with Walmart and Instacart," wrote RBC analyst Mark Mahaney in the report.

The 1,500-person survey, conducted over the past two weeks, found that 42% of respondents purchase groceries online at least once a week, up from 22% in 2018. Amazon is the most frequent destination for shoppers, with 60% using the tech giant to buy groceries online, compared to 47% for Walmart.

RBC Chart

Mahaney said the pandemic has "created an inflection point for online grocery shopping." One-third of respondents said they made their first online grocery purchase in the past month. More than half of online grocery shoppers surveyed said COVID-19 is "leading them to permanently boost their willingness to buy groceries online." And of the people who don't buy groceries online, 41% (up from 19% in 2018) said they would do so in the next six months.

"We believe that online grocery shopping may now be coming a habitual practice among shoppers," Mahaney wrote.

RBC also found that online grocery purchase frequency, basket size, spend, and intent to spend reached all-time highs.

The report cited increased recent Google searches for "online grocery," surging app downloads for Amazon's Prime Now and other delivery services, and an Adobe study that cited 100% growth in daily sales for U.S. online grocery shopping last month as social distancing orders keep people inside their homes.

RBC also spoke with Instacart president Nilam Ganenthiran, who said customer demand over the last few weeks has hit record levels and is up 300% year-over-year. The company said it will hire 300,000 shoppers over the next three months to keep up. This week it added new features to open up more delivery windows.

The New York Times reported that orders for Amazon groceries have been as much as 50 times higher than normal. The company has struggled to fulfill orders, with some customers reporting extended delays or no open delivery windows for weeks.

Instacart is one of many companies investing heavily in grocery delivery.

Flickr

"This, to us, implies that there is demand for online grocery shopping, and service providers are struggling to meet this customer need," Mahaney wrote. "Could this be a short-term issue? Probably. That said, we believe COVID-19 has brought a dramatic increase in awareness for the value, ease and convenience of online grocery shopping that could last for a long time."

The spike in online grocery purchasing could also help Amazon boost its Prime membership base. Amazon requires a $119/year Prime membership to access its 2-hour Prime Now delivery service and Amazon Fresh.

Nearly 75% of the survey respondents said they were Prime members, up from 59% last year. RBC estimates that there are about 90 million U.S. Prime subscribers, of Amazon's reported 150 million members worldwide (Amazon does not disclose country-specific numbers).

This past October, Amazon made grocery delivery a built-in benefit of Prime membership — no longer charging an extra $15 per month, or $180 per year, for Amazon Fresh delivery on top of the $119 annual Prime fee.

"I've been working in grocery delivery a long time, and I think this offering is truly a game-changer," Stephenie Landry, Amazon's vice president of grocery delivery, said in an interview with GeekWire in October. She predicted that free Amazon Fresh grocery delivery would become "one of the most loved benefits of Prime."

Amazon's online grocery arm also includes its AmazonFresh Pickup service. The company also offers BOPIS (Buy Online PIckup in Store) at Whole Foods, which it acquired for $13.7 billion three years ago.

Amazon offers discounts to Prime members when they shop at Whole Foods, and has integrated Whole Foods ordering into its Alexa voice assistant.

Groceries are an estimated $678 billion U.S. market that is increasingly going digital. Research firm eMarketer estimates that U.S. food and beverage e-commerce sales will grow 23.4 percent to more than $32 billion this year, making it "both the fastest-growing and least penetrated ecommerce category." Those projections came before the COVID-19 crisis.

"Aside from the many brick-and-mortar retailers watching foot traffic and sales drop to near zero, the most profound shift in consumer behavior is happening in grocery ecommerce—and this shift is likely to have one of the longest-lasting consequences," eMarketer wrote.

Amazon has been trying to solve the economic problem of grocery delivery for more than a decade, dating back to the 2007 launch of Amazon Fresh as a pilot in Seattle.

The infrastructure and other costs associated with delivery cut into the already thin profit margins of the grocery business. But the expanding consumer appetite for online grocery ordering appears to be changing things.

"Years ago people didn't think that consumers would buy things like clothing online," Amazon's Landry said in October. "And now we know that consumers are doing it in great numbers. We believe we're at a similar turning point for fresh groceries and we're ready to make a fresh grocery delivery a great new part of Prime."

Also aiding Amazon's grocery delivery efforts is the company's huge investment in its delivery network that is enabling 1-day delivery promises for Prime members.

Instacart, Walmart, Target, Kroger, and others are also investing heavily in online grocery. Walmart, which brought in more than $250 billion in revenue for fiscal year 2020, said in September it would offer grocery pickup from 3,100 stores and grocery delivery from 1,600 stores by the end of 2019.

Walmart's expansion into online ordering, and Amazon's expansion into brick-and-mortar retail, show how the retail industry is increasingly becoming one large market, blending online and in-person sales.

RBC's Mahaney said Amazon's grocery sales could reach around one-third the size of Walmart by 2023.

"Given that Amazon has over the past 25 years reached closed to parity with Walmart in terms of non-grocery global retail sales and online adoption is dramatically greater today than it was 5, 10, 20, 25 years ago, we believe our one-third ramp is gut-check reasonable," the report noted.

This story first appeared on GeekWire

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🏰 Disney's Epic Investment Stands Out Amidst Gaming Industry Layoffs

Christian Hetrick

Christian Hetrick is dot.LA's Entertainment Tech Reporter. He was formerly a business reporter for the Philadelphia Inquirer and reported on New Jersey politics for the Observer and the Press of Atlantic City.

🔦 Spotlight

In the midst of widespread gaming industry layoffs, a glimmer of positive news emerges as Disney announces a significant move: a $1.5 billion investment in Epic Games. 🏰💰🐭

Image Source: Disney

Disney's $1.5 billion investment in Epic Games, disclosed late Wednesday, signals a strategic alignment aimed at expanding the success of "Fortnite." The deal enhances Epic's growth prospects after financial setbacks, including layoffs, and strengthens the partnership between the two companies. With Disney gaining a larger equity stake in Epic, the collaboration will broaden the integration of beloved Disney franchises like Marvel, Star Wars, Pixar, and Avatar into the game, potentially boosting its appeal and longevity. This significant investment underscores Disney's commitment to interactive entertainment and signifies a shift towards games as a primary revenue stream, aligning with the growing trend of digital engagement among younger demographics. Moreover, the potential for crossover sales of physical Disney products within "Fortnite" and the exploration of new content distribution channels are just some of the opportunities arising from this partnership.

For LA tech, the Disney-Epic Games partnership represents a validation of the region's burgeoning tech and gaming ecosystem. The substantial investment in Epic, who maintains a large Los Angeles office with 1,000+ employees (according to LinkedIn), reflects confidence in the LA’s talent pool and innovation potential. Additionally, this partnership between two industry giants fosters an environment for further collaboration, investment, and growth within LA's tech sector. As Disney and Epic Games deepen their ties and explore new avenues for content integration and distribution, it not only elevates the prominence of LA as a tech hub but also stimulates economic growth and job creation in the region. This partnership highlights LA's unique position as a hub where technology and entertainment converge. With its ability to integrate diverse industries, LA is driving innovation and expansion in digital entertainment. 🚀💸🎮

🤝 Venture Deals

LA Companies

  • ProducePay, a financing and marketplace platform for the fresh produce market, raised a $38M Series D led by Syngenta Group Ventures joined by Commonfund, Highgate Private Equity, G2 Venture Partners, Anterra Capital, Astanor Ventures, Endeavor8, Avenue Venture Opportunities, Avenue Sustainable Solutions, and Red Bear Angels. - learn more
  • Blush, an invite-only dating app that drives users to local businesses on dates, raised a $7M Seed Round from individuals like Naval Ravikant. - learn more
  • Mogul, a startup founded last year that provides an overview of an artist's royalty earnings and identifies areas where money is owed but has not yet been collected, raised a $1.9 million seed round from Wonder Ventures, United Talent Agency, AmplifyLA, and Creator Partners. - learn more
  • Avnos, a hybrid direct air capture startup, raised a $36M Series A led by NextEra Energy and joined by Safran Corporate Ventures, Shell Ventures, Envisioning Partners, and Rusheen Capital Management. - learn more
  • AI.fashion, startup whose mission is to help retailers enhance the online shopping experience by providing consumers with virtual try-ons and personalized fashion recommendations, raised a $3.6M Seed Round led by Neo. - learn more
  • Suma Wealth, startup that aims to demystify financial topics and provide culturally relevant content, virtual experiences, and resources to help Latino users navigate financial challenges and opportunities, raised a $2.2M Seed Round . Radicle Impact led, and was joined by Vamos Ventures, OVO fund and the American Heart Association Impact Fund. - learn more
  • 222, a startup that helps users discover their city and meet new people through unique social experiences, raised a $2.5M Seed Round. Investors included 1517 Fund, General Catalyst, Best Nights VC, Scrum Ventures, and Upfront Ventures. - learn more
  • LimaCharlie, a security operations cloud platform, raised a $10.2M Series A led by Sands Capital. - learn more
  • Polycam, an app that uses a smartphone’s sensors to capture 3D scans of objects, raised an $18M Series A co-led by Left Lane Capital and Adjacent, and joined by Adobe Ventures and individuals like Chad Hurley and Shaun Maguire. -learn more.

LA Venture Funds

Actively Raising

  • ReelCall, Inc., an entertainment technology company focused on powerful apps and platforms that help build and maintain the professional network of connections vital to career growth, is raising a $850K Pre-Seed Round. - learn more
  • CZero, a startup building software to decarbonize logistics for logistics businesses and goods business through a vetted marketplace and optimization software. - learn more
  • Couri, a technology startup addressing last-mile delivery issues, is raising a $450K Pre-Seed Round at a $2.2M post money valuation. - learn more
  • Sweetie, a marketplace to help people plan date nights, is raising a $1.5M Pre Seed Round. - learn more
  • StartupStarter, an investment platform that provides real-time data and analytics on startups, is raising an $850K Angel Round. - learn more

If you’re a founder raising money in Los Angeles, give us a shout, and we’d love to include you in the newsletter!

Venture Waves, Climate Tech Wins, and Silicon Beach's Ongoing Evolution

Christian Hetrick

Christian Hetrick is dot.LA's Entertainment Tech Reporter. He was formerly a business reporter for the Philadelphia Inquirer and reported on New Jersey politics for the Observer and the Press of Atlantic City.

Anduril Seeks $1.5B in VC Funds

Defense company Anduril Industries Inc., based in Costa Mesa and founded by Palmer Luckey, is seeking to raise $1.5 billion in fresh funds to boost its valuation to $12.5 billion or more, according to sources quoted by The Information. This fundraising effort, if successful, would mark one of the largest venture capital rounds of the year.

Image Source: Anduril

Anduril recently secured a contract to develop and test small unmanned fighter jet prototypes under the Air Force’s Collaborative Combat Aircraft (CCA) program, beating out major defense companies like Boeing, Lockheed Martin, and Northrop Grumman. Alongside General Atomics, Anduril will design, manufacture, and test these aircraft, with a final multibillion-dollar production decision expected in fiscal year 2026. This program aims to deliver at least 1,000 combat aircraft to fly in concert with manned platforms and is part of the Air Force’s Next Generation Air Dominance initiative. Central to Anduril’s success in this contract is the Fury autonomous air vehicle, acquired through the purchase of Blue Force Technologies. This victory underscores Anduril's rapid advancement in the defense sector, aligning with Luckey's vision of building faster and more cost-effective defense assets. - learn more

Los Angeles Ranks Number 1 in Emerging Climate Tech Hub

The 2024 Emerging Climate Tech Hubs Report by Revolution highlights Los Angeles as a burgeoning center for climate tech innovation. LA's growth in this sector is driven by its diverse talent pool, strong research institutions, and a culture of environmental consciousness. The city's unique mix of legacy industries, such as entertainment and aerospace, alongside emerging tech companies, positions it as a pivotal player in the climate tech landscape. This shift reflects a broader trend of decentralized climate tech funding across the U.S., reducing the historical dominance of California's traditional hubs. - learn more

Silicon Beach: Looking Back, Moving Forward

Assessing the overall health of the startup market is challenging, especially as venture capital funding has decreased by an average of 61% from 2021 to 2023 across the top VC markets in the US. Markets with robust ecosystems in AI, SaaS, Biotech, Healthtech, and Fintech appear to be weathering the downturn better than those focused on Consumer and Gaming industries, areas where Los Angeles traditionally excels.

Percent Change In VC Funding By Region

CB Insights

LA Times paints a rather bleak outlook on the Los Angeles tech scene noting venture capital funding in Greater Los Angeles plummeted 73% from 2021 to 2022. Silicon Beach, once a vibrant tech corridor, currently faces high vacancy rates and lacks late-stage financiers, especially in the AI sector. However, there are positive signs, including growth in aerospace startups and increased venture capital investment in early 2024, suggesting a potential rebound for LA's tech ecosystem.

While LA may not be exceeding expectations during this period, its tech ecosystem warrants a nuanced evaluation, given the broader market dynamics and its strong performance in specific sectors. Reach out to us with your thoughts.

🚀 SpaceX gears up for another stellar year, active raises, and more

Christian Hetrick

Christian Hetrick is dot.LA's Entertainment Tech Reporter. He was formerly a business reporter for the Philadelphia Inquirer and reported on New Jersey politics for the Observer and the Press of Atlantic City.

Happy Friday Los Angeles! You made it through the first week of 2024!

🔦 Spotlight

Elon Musk may be a divisive (albeit entertaining) figure, but the continued success of SpaceX is pivotal for the aerospace industry in Los Angeles and more broadly around the world.

Image Source: SpaceX webcast

What happened with SpaceX in 2023?

  • Elon Musk challenged Facebook founder, Mark Zuckerberg to a cage fight.
  • SpaceX launched 96 successful missions with its Falcon series of rockets, a 57% increase over its previous annual record.
  • SpaceX conducted two test flights of the largest and most powerful rocket ever built, Starship.
  • Roughly two-thirds of SpaceX's launches in 2023 were devoted to building out Starlink, the company's satellite-internet megaconstellation.
  • Isaacson’s Elon Musk biography was published in September including everything from Musk’s tumultuous relationship with his father to his work ethic and “demon mode”.

Moving forward what can we expect from SpaceX and its controversial founder? Continued innovation pushing the aerospace industry to new limits? Yes. More drama? Without a doubt.

Here is some of what is to come in 2024:

🤝 Venture Deals

Just Announced

Check back next week!

LA Exits

  • CG Oncology, an Irvine, CA-based developer of immunotherapies for bladder cancer, filed for a $100M IPO. It plans to list on the Nasdaq (CGON) with Morgan Stanley as left lead underwriter, and has raised around $317m in VC funding. - learn more
  • McNally Capital agreed to sell Advanced Micro Instruments, a Costa Mesa, CA-based maker of gas analyzers and sensing technologies, to Enpro (NYSE: NPO). - learn more

Actively Raising

  • ReelCall, Inc., an entertainment technology company focused on powerful apps and platforms that help build and maintain the professional network of connections vital to career growth, is raising a $850K Pre-Seed Round. - learn more
  • CZero, a hard-tech startup that is developing a technology for decarbonizing natural gas, is raising a $1.5M Seed Round. - learn more
  • Couri, a technology startup addressing last-mile delivery issues, is raising a $450K Pre-Seed Round at a $2.2M post money valuation. - learn more
  • Sweetie, a marketplace to help people plan date nights, is raising a $250K Angel Round. - learn more
  • StartupStarter, an investment platform that provides real-time data and analytics on startups, is raising an $850K Angel Round. - learn more

If you’re a founder raising money in Los Angeles, give us a shout, and we’d love to include you in the newsletter!

📅 LA Tech Calendar

Sunday, January 7th

Wednesday, January 10th

  • Startup Cafe: Networking with a Kick - Entrepreneurs, Startups, and Tech Enthusiasts join together to meet and connect with like-minded people, industry professionals and investors, while enjoying a nice cup of coffee in Venice at The KINN. This week’s interactive discussion about AI’s evolution in entertainment will feature Dr. Sam Khoze and Rachel Joy Victor.
  • Venice Tech Happy Hour- Join Startup Coil and FoundrHaus Wednesday evening and enjoy the sunset from the rooftop, grab a bite overlooking Abbot Kinney, and mingle with other tech enthusiasts and entrepreneurs by the bar on the patio.

Have an awesome event coming up? Reach out to be featured on next week’s Newsletter!

📙 What We’re Reading

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