Good Eggs

Yesterday when online grocery delivery service Good Eggs announced that it had raised a $50 million Series C round, much of the news coverage focused the looming threat of Amazon + Whole Foods. But I think the more interesting question to ask is how will Good Eggs fend off the smaller competition, including the small stores of Amazon Go.

To be sure, giants like Amazon, Walmart and Albertsons are threats to any startup in the grocery space. And in one sense, Good Eggs is taking them head-on. Good Eggs CEO Bentley Hall told me in an interview yesterday that he wants his company to be a “complete solution” for customers, offering everything from fresh produce to booze to meal kits, all delivered within a two-hour window.

But a broad selection and fast delivery are table stakes for an online grocer anymore. To set itself apart from its bigger competitors, Good Eggs has created a niche: focusing on locally sourced food, only carrying products that meet a strict set of quality and ethical criteria, employing its own drivers rather than contracting out, and growing slowly and only within California (for the foreseeable future).

This attention to sustainable and ethical detail will play well in lefty California locales like the Bay Area and Los Angeles, giving Good Eggs a sizeable customer base where its niche approach can differentiate against those bigger players. Perhaps even more so now that Amazon Fresh is no longer selling goods from local third-party vendors.

But it’s on the smaller end of the spectrum where I think Good Eggs will face its bigger challenge.

One startup that could give Good Eggs a run for its money is Farmstead. Also servicing the Bay Area, grocery delivery service Farmstead uses a combination of micro-hubs and artificial intelligence to heavily curate and optimize inventory management to reduce over-ordering. It’s almost like a mini version of Good Eggs, with a few key distinctions:

First, Farmstead’s micro-hub stores are small, so they can be set up in more residential neighborhoods — closer to the people they deliver to. Good Eggs is sticking with the bigger store strategy; they have one in the Bayview area of SF and, with their new funds, they’re building another big facility in West Oakland.

Farmstead’s micro-hubs also serve as pickup points. So rather than waiting at home for a delivery, customers can pull up to Farmstead location while they are already out and about and a Farmstead runner will load their grocery order directly into their trunk. Additionally, if Farmstead’s AI works as promised, it will help the company control inventory and costs by knowing what its customers want and sourcing the exact right amount to meet demand.

Hall brushed aside concerns, this saying that after being in groceries for six years, Good Eggs has the experience Farmstead, which only recently got its seed round, lacks. “You need to know a lot about the supply chain,” Hall said. And it’s not just supply chain knowledge; Hall went on to describe all the technology Good Eggs has built over the past six years, including its own demand forecasting, warehouse management, driver tools and website.

Good Eggs is also focused on being the “complete solution” for its customers. Farmstead, on the other hand, is splitting its attention between managing its own stores and licensing its inventory AI platform out to other restaurants and grocery stores.

But part of Good Eggs’ complete solution is in meal kits, which consumers want more of as part of their grocery store experience. It’s not in the meal kits themselves where Good Eggs will face competition, but in the convenience — namely, where and how meal kits are sold.

This is where Amazon comes in one of their potential competitors with its Amazon Go stores. The cashierless grab-and-go concept sets up in dense urban areas, which means that hungry city dwellers can literally walk into an Amazon Go on their way home from work and grab a meal kit to match their appetite. Granted, Amazon Go is only in Seattle now, but it’s expanding to San Francisco and Chicago, and you can bet it won’t stop there.

And if going to the Amazon corner store is too much of a hassle, Chef’d and Byte Foods announced a partnership today that will let workers grab and pay for a meal kit from a special fridge located inside office buildings on their way out the door. If that catches on, it will offer a convenience that’s hard to match.

My point isn’t that Good Eggs is doomed, or that it was a bad investment by Benchmark. Grocery is a big market that won’t be winner take all. But when looking at grocery competition, we shouldn’t let the shadows cast by Amazon and Walmart keep us in the dark about the smaller upstarts who could change the game.