US: Kroger explores boxed acquisition

Kroger, the grocery store chain operator that is struggling to compete with Amazon now that it owns Whole Foods Market, is considering buying the online wholesaler startup Boxed.

CNBC, citing a person familiar with the matter, reported that a Kroger deal could value Boxed at between US$325 million and US$500 million. The idea of a sale came as the New York startup was looking for funding.

Boxed sells bulk items, including staples such as toilet paper and pet food, and delivers to consumers’ front doors. The startup expects to get competing offers in the coming weeks, noted the report. Morgan Stanley is acting as the advisor to Boxed.

In December, Target announced it would pay US$550 million to acquire Shipt, the same-day delivery platform.

In April, Boxed revealed it spent tens of millions of dollars on a new automation system in hopes that it would reduce the company’s costs. According to a report in Bloomberg News at the time, the new automation system was expected to triple the output of its warehouse in Union, New Jersey, without the need for more space or added employees.

“By having a smaller number of products, Boxed can get stuff out the door more cost-effectively by reducing the warehouse footprint and the complexity of the operation,” said Clint Reiser, director of supply chain research at ARC Advisory Group, in an interview with Bloomberg. “It becomes a competitive advantage.”

With warehouses in New Jersey, Dallas, Las Vegas and Atlanta, Boxed offers bulk-sized products similar to those found at big warehouse retailers like Costco Wholesale. Boxed told Bloomberg the company had sales of roughly US$100 million last year, which is up from US$50 million in 2015. According to the report, the average order size is US$100 and includes 10 items. Orders must total at least US$50 to get free shipping.

“Our strategy is to not chase Amazon,” Boxed founder Chieh Huang said. “We have to build our business our own way.”

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