Why Rocket Internet is throwing millions of dollars at food delivery startups like HelloFresh

Getty/Ian Waldie

German investment outfit Rocket Internet thinks the food and grocery sector is the next big thing in e-commerce and is throwing millions of dollars at startups around the world in the hope it lands on a winner.

The venture firm estimates the global retail food industry is worth about €4.7 trillion ($AU6.95 trillion) and believes the online market currently represents less than 3% of this market.

They’re not alone. It’s a concept online retailers around the world have been experimenting with. Amazon has launched a grocery delivery service AmazonFresh and Google has Shopping Express.

US-based grocery-delivery startup Instacart announced a $US220 million Series C round at a valuation of $US2 billion in January. It took the total raised by Instacart to $US275 million. Just last June the company raised $US44 million at a valuation of $US400 million.

Rocket Internet’s single largest investment has been in meal kit delivery company HelloFresh. This month the firm tipped in another €100 million ($AU147 million) taking its total investment to €130 million ($AU192 million). Insight Venture partners also invested €10 million ($AU14.78 million) in the latest round.

To date HelloFresh has raised almost $250 million. The latest round was raised on a valuation of €623.8 million ($AU921 million) before further dilution through management participation.

The funding will be used to expand HelloFresh’s US operations as well as develop new products and potentially fund launches into new markets.

Rocket Internet has also acquired a 30% stake in Delivery Hero and invested in Italian-based Pizzabo, Spanish-based La nevera roja as well as foodpanda and food delivery business 24h.ae in the Middle East.

Last Friday, foodpanda acquired competitors in a number of Asian markets. Now, the group is active in 40 markets in Asia, Europe, Middle East, Africa and Latin America.

In Australia the founders of ride sharing startup RideSurfing, a Rocket Internet-backed company, last month announced they were pivoting slightly to launch a grocery delivery service called ShopWings.

“RideSurfing is still going but we came across a huge opportunity and decided to go for it,” ShopWings CEO Manu Dupont told Business Insider.

Rocket Internet CEO Oliver Samwer said he sees enormous potential in the global food and groceries sector.

“We are extremely excited about the opportunity in the global food and groceries sector.

“Our investments in the past months and the performance of our Proven Winners clearly demonstrate and further strengthen our deep confidence in the long-term success of the business models we launch and operate.”

The company believes consumer behaviour is changing and food and groceries is a segment that is ready to be disrupted.

It’s a view Australian entrepreneur Ruslin Kogan also shares. Last month the online retailer launched Kogan Pantry in an effort to disrupt local incumbents like Coles and Woolworths by offering home delivered groceries with significant discounts.

According to IBISWorld’s 2014 report, online grocery sales failed to match the growth in online retailing over the past five years, leaving significant room for improvement. Revenue was just under $2 billion by 2013-14, on annualised growth of 11.95, which is expected to rise by 14.3% annually over the next five years to reach $3.4 billion.

“Coles and Woolworths contributed to the underdevelopment of the industry, as consumers generally live close to grocery stores,” IBISWorld says, predicting that experimentation with delivery systems – the majors both developed click-and-collect programs – will continue as retailers capitalise on the use of mobile devices.

Woolworth has 35.3% of the market, followed by Wesfarmers (Coles) with 31.7% and Farmers Direct in third place at 14.9%.

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