Online wholesale retailer Boxed.com will begin licensing its in-house services to the German grocery chain Lidl in the U.S. starting in June. Lidl will get access to Boxed’s end-to-end technology that tracks purchases, provides warehouse management, and handles transportation logistics. Shoppers will also be able to browse Lidl’s product assortment on Boxed.com, adding fresh meat and produce to the Boxed assortment that already includes perishables sold through its Boxed Express service (in which orders are fulfilled through nonaffiliated local stores by a Boxed personal shopper).
Boxed’s move into leasing its technology comes as no surprise after it raised $110 million in August 2018. The funding was led by Aeon Group, one of Japan’s largest retail chains. In return, Aeon received access to Boxed’s in-house technologies to help scale its digital capabilities. Lidl is Boxed’s first retailer partner since this funding round.
The partnership will allow Lidl’s U.S. eGrocery offer to take a step forward. Lidl notably does not work with third-party fulfillment provider Instacart, but does have an agreement with Target-owned Shipt. Lidl has several similar partnerships in other countries with local fulfillment specialists, such as Supermercato24 in Italy, Buymie in Ireland, and Lola Market in Madrid. If the Boxed test run in Staten Island, N.Y., and Powder Springs, Ga., goes well, look for Lidl to invest more heavily in the partnership and expand it beyond those two markets. Lidl’s test-and-learn culture means these new grocery eCommerce trials are no longer surprising. While the Boxed partnership should resonate with younger, digitally enabled shoppers, whom Lidl has had some success with in the U.S., Lidl is ultimately trying to understand and get comfortable with new ways of discovering, shopping, and buying products as many of its out-of-channel competitors invest in the space.
For Boxed, this new advancement brings its future into question. Recently, Boxed has faced a flurry of rumors surrounding its potential acquisition by larger players in the space. Following Target’s acquisition of Shipt for $550 million in 2017, Boxed reportedly rejected a $400 million offer from Kroger. As Boxed CEO Chieh Huang told Forbes, “I don’t think a lot of folks really believed me when I said we were staying independent. Now that we’re licensing the technology out, it shows that we’re in this for the long haul.”
That said, this strategy forces Boxed into the unique position of competing with retailers while also providing them with retail as a service. Boxed is also now at odds with Instacart and other fulfillment providers as it looks to expand this new revenue stream. For Lidl, though, outsourcing its online grocery to Boxed as a short-term solution is not risky even if a retailer does acquire Boxed. That’s because Lidl is not a mature retailer in the U.S. market and is likely to evolve. As Lidl continues to look for new ways to understand the specific needs and habits of U.S. shoppers, it will ultimately adapt its offer and operations over the short and long term.
Kantar Point of View
Boxed is opening new revenue streams. Traditionally only an eCommerce retailer, Boxed is further entering the retailer service industry and will directly compete with the Instacarts and Shipts of the world. Monetizing its technology will allow Boxed to capture immense amounts of data and further optimize its in-house services.
Partnering with Lidl widens Boxed’s assortment. Boxed has begun making moves outside of the traditional club model of large pack sizes and will now offer fresh produce and groceries through this partnership. Doing so enables the retailer to capture new missions beyond the stock-up trip, ultimately boosting shopping frequency on its site.
Partnerships carry the potential of long-term threats. With more retail service providers popping up, the threat of competitors acquiring these startups grows. While Boxed currently remains confident about staying independent, sensitive data could fall into a competitor’s hands if additional retailers choose to partner with Boxed in the same way that Lidl has.
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