Dive Brief:

• Online ordering and delivery service Shipt announced it has raised $40 million in Series B funding led by Greycroft Partners, e.ventures and Harbert Venture Partners, according to a company release. This follows a Series A financing round of $20M less than a year ago.
• With the new capital, Shipt plans to double the number of metro areas it serves, from 47 to 100.
• The company has partnered with retailers such as Meijer, Costco and Whole Foods to offer its online ordering and delivery services, which offers customers unlimited free delivery on orders over $35 in exchange for a $99 yearly fee. Average basket size, according to the company, is $110.

Dive Insight:

In these relatively early days of grocery e-commerce, grabbing market share quickly is critical for third-party companies’ to survive. Shipt’s new financing will go a long way toward this end, but an increasingly competitive market will challenge its future growth prospects.

Started in Birmingham, Ala., in 2014, Shipt has leveraged its subscription model to quickly expand to 47 metropolitan markets. The company recently forged some key partnerships with retailers in the highly competitive Florida market, including Publix and Costco. After a successful pilot with Meijer in Detroit last year that saw 65,000 orders placed in just six months, the big-box retailer decided to enlist Shipt’s services across its six-state footprint.

Shipt’s solid growth has nabbed 20% of the online grocery market, putting the company just about even with AmazonFresh but well behind Instacart, which controls 50% of the market and recently closed a $400 million round of financing atop a $3.4 billion valuation.

Shipt’s membership model encourages customer loyalty and large basket sizes, which is what grocers love to see. But can the e-commerce company continue to resonate as the competition heats up, and as new models like Deliv, which offers a last-mile solution to retailers, enter the market? Although Shipt is running even with Amazon, the Seattle e-commerce giant has significant resources behind it. Instacart, meanwhile, has proven to be a fierce competitor, running promotions for its own subscription service, Instacart Express, that match or undercut Shipt’s offer in markets where the two compete.

With e-commerce comprising just 2% of grocery sales, there’s lots of room for Shipt and its competitors to grow their business. And studies show consumers are becoming increasingly comfortable with the idea of online grocery shopping. According to Nielsen’s “Future of Grocery” report, by the end of this year 55% of consumers will have tried online order pickup, while 57% will have tried online grocery delivery — up from the 12% and 9%, respectively, who reported they’d tried each service in 2015.