In the battle over the future of food purchases, Walmart is making moves to maintain a fighting chance against Amazon and Whole Foods.
On Monday, meal kit company Gobble announced a partnership with the retail giant to sell its products through Walmart’s e-commerce site, Gobble founder Ooshma Garg told Fortune in an exclusive.
The business relationship between the San Francisco-based startup and the largest retailer in the world comes after Amazon’s acquisition of Whole Foods in June 2018 sent Walmart and Kroger scrambling to improve their digital offerings. (Kroger announced the addition of meal-kits in June after it acquired Home Chef.)
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E-Commerce’s ‘Last Frontier’
Ordering food online is “the last frontier of e-commerce,” Fortune‘s Beth Kowitt wrote in her analysis of the Amazon-Whole Foods deal: About 20% of retail spending goes toward food, but only 2% of those sales currently take place on the Internet, she says.
The battle over online food spending has seen traditional retailers turn to the subscriber model of companies like Blue Apron and Hello Fresh. Overall, U.S. meal-kit sales grew 40.7% last year, according to Earnest Research.
What Is Gobble?
For Gobble’s founder, the business is more than just making sure raw ingredients are prepared, measured, packaged, and arrive to customers safely.
“To me, food is family,” says Garg, the daughter of a nutritionist who realized the need for quick and healthy dinner options. She talks about meals in these terms, calling Gobble’s product “a cooking equalizer.”
Gobble’s niche in the crowded meal-kit market is dishes that can be prepared in 15 minutes or less and require only one pan. Each kit contains two servings and costs about $24.
The company says nearly 50% of the company’s customers are between 35 and 44 years old (25% of Blue Apron’s customers are in the age group) and on average, customers spend more during their first year with Gobble than any other meal kit service, according to industry research.
Garg says Gobble aims to distinguish itself from the competition by focusing on busy parents and taking time to find out what they need, rather than only prioritizing rapid growth.
Angel Investment by Alexis Ohanian
She raised about $11 million in Series A funding just a year after the startup launched from the Y Combinator program in order to take the company national in 2015. After raising $15 million in Series B funding last year, Gobble’s investors include Khosla Ventures, Andreessen Horowitz, and Trinity Ventures.
Reddit founder Alexis Ohanian was an angel investor in Gobble, first backing the company in 2012. He says his firm, Initialized Capital, was attracted to the quality of product and the vision of its founder.
“This was before meal kits were a thing,” Ohanian told Fortune. “Even then, [Garg] was thinking of this business really intelligently.”
He says the Walmart news is proof that Garg’s vision is paying off.
“Walmart is the largest retailer in the world. It bears mentioning that Amazon is the largest e-commerce company in the world. And clearly there is a battle—not even brewing, there’s a battle being waged right now,” he said. “I think it’s a huge opportunity for Walmart.”
Walmart v. Amazon
Last year, 40 cents of every dollar spent online went to Amazon. The company could surpass Walmart this year as the world’s biggest seller of apparel, according to Morgan Stanley estimates, and Amazon may match Walmart sales in the U.S. by 2021, according to JPMorgan projections.
This means, as Kowitt described in Fortune’s June issue, that retail domination will turn on capturing the items on our plates and in our pantries.
In the meal-kit space, this objective has seen more and more companies trying to find the sweet spot of convenience, variety, and consistency. It’s hard to do and even more difficult to turn a profit, and Gobble is no exception.
Fortune estimates Gobble brought in between $25 million to $50 million in annual revenue last year, but the company has not yet made money.
But Ohanian says he believes Garg’s methodical approach and engineering background will pay off in the long-term.
“With more than 75 million items on Walmart.com, we continue to look for new options to offer customers. This includes specialty food items like the meal delivery kits by Gobble, farm fresh crates and snack boxes that give customers convenient options to plan and prepare meals,” corporate spokesperson at Walmart told Fortune in an email statement confirming the partnership.
Prior to this, Walmart offered customers kit options from companies like Sun Basket, Takeout Kit, and Home Chef, allowing shoppers to try the meal services out before subscribing.
Walmart’s stock took the largest dip in three decades in February after reporting that e-commerce sales declined in the last quarter of 2017, but the company knows about growing food sales.
While Amazon is arguably the most disruptive and innovative company in retail, it’s Walmart that became the biggest retailer in the U.S., in large part, by turning itself into the nation’s largest grocer. Since fiscal 1998, the company has grown grocery sales from 14% of its total U.S. revenue to 56% this year.
“This is a game-changing partnership for Gobble with the world’s largest retailer. It leapfrogs our customer reach to the very highest level. Private companies entering similar deals in the past now show up to 70% of their sales coming from nationally-dominant retailers like Walmart.” says Garg.
Now it’s about keeping up with scale.
How Will Gobble Scale?
“I have applied the same efficiencies, process engineering, and intelligent automation to Gobble as I did when I managed the supply chain at Walmart,” Steve Robinson, Gobble’s vice president of supply chain and operations, and previously vice president of supply chain at Walmart, told Fortune in an email. “It is phenomenal to see my past and present teams now working together.”
The company has built a vertically-integrated East Coast facility and invested heavily in automation over the last year to prepare the new location to handle new product development, food manufacturing, and order personalization, he said.
“Our state-of-the-art supply chain infrastructure is agile and built for scale to capture opportunities such as this new partnership with Walmart. We are ready for more Gobble families who need this level of convenience in their daily lives,” says Robinson.