Door to Door Organics CEO: Amazon/Whole Foods deal a ‘huge wake-up call’

Colorado-based Door to Door Organics now operates in 17 states

Americans buy everything online, from books to vacations. But when it comes to groceries, bricks, not clicks, still rule. That was until Amazon struck a deal to buy Whole Foods, and gave everyone a “huge wake up call,” says Door to Door Organics CEO Mike Demko.

While Amazon and Whole Foods together command a tiny percentage of the overall grocery market, the deal still sent shockwaves through the industry, and is already impacting the investment landscape, with strategic investors (retailers, CPG brands etc) now just as likely as venture capital funds to be eyeing up emerging brands in the food ecommerce arena, he told FoodNavigator-USA.

“I’m expecting some M&A and strategic investment in this space, and I can also see consolidation among equals – so existing players in the space we’re in, and also companies in the meal kit space, joining together to expand their footprint. When we merged with Relay Foods for example it was in part a technology play but it was also about expanding our footprint into an area were weren’t in geographically.”

Bulls and bears

Right now, Door to Door (which according to Crunchbase has raised $32m in three rounds between 2012 and 2015 although Demko did not confirm the figure) is looking to raise more capital to fund its growth plans, and is talking to a wide range of potential investors.

“I’d say that strategic investors - people in the food business - see the Amazon Whole Foods deal as a huge wakeup call, they see that this channel is alive and growing and feel that Amazon is going to take all the share unless we do something,” said Demko.

Financial investors, meanwhile, typically fall into two camps, he claimed: The bulls who think the market is big enough for multiple players; and the bears who believe Amazon will crush all available competition and don’t want to invest in minnows that will ultimately be eaten by a big shark from Seattle.

We’re helping people put a meal on the table, not just a fill a grocery list

Right now, however, Demko is pretty confident he has found a winning business model, which is all about focusing on what Door to Door Organics – based in Lafayette, Colorado - does best: Providing weekly deliveries of organic produce, meat, dairy and other natural and organic foods fulfilled from a network of warehouses across the country, providing excellent customer service, building critical mass in target neighborhoods, and building a service that become habit-forming.

It’s not about offering two-hour delivery windows, offering every product known to man, or trying to copy what Amazon is doing, he said.

“We’re focused on natural and organic products – Thrive Market does that but it’s just offering shelf stable products, whereas we’re offering fresh produce, meat and dairy – and we’re operating a subscription-based model, that starts with a produce box, and then you add in other organic and natural grocery lines.  

“But what also makes us different is that we’re not just offering endless aisles of goods for people to refill their pantries with, we’re helping people plan meals. We’ve been repositioning the company in some respects by offering a meal planning capability. It’s all about how to plan your purchases so you can put a meal on the table, not just a fill a grocery list. It’s all about making life easier and more convenient for people.”

Groceries arrive in a 100% recyclable box. To keep meat, eggs, and dairy cool, insulated sleeves and reusable ice packs are used.  Delivery is $5.00, or is free on orders of $75+.  Customers can choose between weekly & biweekly (every other week) deliveries and can cancel their subscription at any time or put orders on hold for up to six weeks.

Users can leave boxes, packing materials and milk bottles outside on their delivery day and the company will pick them up for recycling or re-use. 

Strong double digit growth

But unlike meal kit companies, Door to Door also acknowledges that a lot of people don’t necessarily want to cook new dishes every week, but want to stick to a fairly narrow repertoire of dishes and then periodically mix things up and try new recipes, he said.

And so far, the strategy is paying off. Door to Door Organics now operates in 17 states (75 cities) and is confident of generating strong double digit growth in the year ahead, said Demko, who joined the company in March.

The heaviest users are Moms aged 35-45 in more affluent households and skewed “a bit more suburban than urban,” he said.

Third party logistics

As for logistics, he said, orders are currently fulfilled by the Colorado-based company’s own delivery fleet from fulfilment centers in Colorado, Detroit, Kansas City and the east coast, but working with a third party logistics provider could expand the company’s footprint.

“Without doubt we can control quality better if we deliver ourselves, but using a third party logistics provider could help us expand our reach, so we’re going to test it, and it’s also going to help us work out where to build our next distribution facility. Because of the unit economics, you need a bigger basket to make a third party logistics carrier work successfully, though, so from rough numbers that basket size is roughly around $60 before it makes economic sense to work with a third party carrier.”

Warehouse vs store picking

Unlike established grocery retailers trying to extend their offer online, Door to Door is optimized for home deliveries, fulfilling orders from warehouses designed for fast picking of individual customer orders, said Demko, who was VP of operations at grocery ecommerce brand Fresh Direct between 2011 and 2013.

The InstaCart model - whereby an army of independent contractors picks orders from stores and delivers them to shoppers’ doors in their own vehicles – might make sense in a “low density environment," but “doesn’t make economic sense” once you start looking at the unit economics, he claimed.

“It’s just not as efficient as warehouse picking. I also don’t think it makes sense from a brand perspective. Why allow a third party to come between you and your customer? I just don’t get it. It’s a toe in the water option for retailers that are trying to understand the demand in the customer space without making a big investment.”

‘It’s a constant balancing act’

When it comes to a warehouse picking model, meanwhile, you have to strike a balance between SKU proliferation and restricting yourself by carrying too few items, he added.

“It’s a constant balancing act, but a curated assortment allows you to be more efficient.”

But the key to future growth will be the ability to harness the power of the internet to foster relationships with shoppers via things such as planning and shop-by-recipe tools that try to move the relationship with customers beyond a purely transactional one, he predicts.

FOOD VISION USA: THE ECOMMERCE CHALLENGE

Find out how CPG brands can navigate the changing food retail landscape to ensure they don't miss out as shoppers explore new direct to consumer options at FOOD VISION USA 2017 .

Held at the W Hotel in Chicago on November 13-15, FOOD VISION USA  will bring together a clutch of industry luminaries from PeaPod CMO Carrie Bienkowski to Chobani’s new COO Tim Brown , VMG Partners md Wayne Wu, Sir Kensington’s  co-founder Scott Norton, and execs from several leading meal kit companies.

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