Thrive Market co-founder Gunnar Lovelace says several retailers have expressed interest in buying his company since Amazon announced it will acquire Whole Foods.

Amazon.com Inc.’s $13.7 billion acquisition of Whole Foods has made Thrive Market CEO and co-founder Gunnar Lovelace a popular man.

Since news of the deal broke on Friday, three to four “big strategic retailers” have approached Lovelace unsolicited about acquiring Thrive Market, he says.

Lovelace says he and co-founder Nick Green aren’t interested in selling Thrive Market, No. 244 in the 2017 Internet Retailer Top 500, which grew its online sales by an Internet Retailer-estimated 380% in 2016 to $120 million.

“We like to hear people out, and it’s been striking to hear the level of interest that has happened in the last few days as a result of that deal,” he says. “Whenever one of the big retailers reaches out, it’s understood that that (acquisition) is an option. People are scared and they realize that Amazon is going to be an existential threat.”

The Amazon acquisition of Whole Foods could prompt other large retailers to snap up online grocers, say two investment bankers who work with e-commerce companies.

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“Traditional brick-and-mortar grocery chains have been working and continue to work on home delivery models,” says Eric Roth, managing director and head of the consumer retail group at Lazard Middle Market. “They are very expensive, with significant customer service challenges. That said, grocery will continue to migrate to more of a delivery business and, as a result, the brick-and-mortar players will need to innovate.” Roth says that in many cases will lead to them acquiring companies with e-commerce expertise.

“Blue Apron is filing for an IPO, others are fielding offers,” adds Stuart Rose, managing director of investment banking firm Tully & Holland. “Walmart and other grocers are going to increase their online and delivery/pickup business.  Grocers are going online and will be in play.”

Even though he’s not looking to sell, that doesn’t mean that Lovelace and other online-only food retailers aren’t interested in teaming up with bricks-and-mortar retailers in other ways. “There are other types of deals that can be done that are not acquisitions, like stores within stores, that we can explore,” Lovelace says. “We did not build the business to flip it quickly.”

Even before Amazon’s announcements last week, retail chains had been reaching out to web-based meal kit ordering service Chef’d, says Kyle Ransford, founder and CEO.

“We’re in conversations with a significant number of people pre-this announcement about helping them bring meal kits into brick and mortar,” says Ransford, who declined to give specifcs. “We haven’t had any overtures in the past week.” Chef’d is No. 838 in the 2017 U.S. Top 1,000.

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Mike Demko, CEO of organic grocery delivery service Door to Door Organics (No. 415), says his company hasn’t been approached by any investors since Amazon disclosed plans to buy Whole Foods, but he welcomes the interest the deal has generated as Door to Door is likely to seek funding from outside investors in the near future.

Amazon’s acquisition of Whole Foods, as well as Amazon’s same and next-day grocery delivery service AmazonFresh, of accelerating online grocery shopping, Demko says.

“When you merge those two brands together, it really accelerates awareness from a consumer and investor perspective how online grocery is a thing and is growing,” Demko says. “There’s this humble confidence that we know what we’re doing. It’s still anybody’s game because Amazon has yet to figure (online grocery) out.”

Currently, Amazon’s grocery offerings are varied and a bit complex. For example, an Amazon Prime member can buy non-perishables via Prime Pantry, which offers free shipping if the shopper buys five qualifying items or; if she buys fewer items, she can pays $5.99 per box for delivery. Amazon also enables Prime members in certain U.S. cities to buy perishables via AmazonFresh for a $14.99 fee. Amazon shoppers also can sign up for regularly scheduled delivery of consumables and get 15% off those products via Amazon Subscribe and Save.

“This just speaks to the fact that Amazon is trying to figure out this space and it is a difficult space to execute in,” says Door to Door Organics’ Demko. “To me, it speaks to how challenging online grocery is.”

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In acquiring Whole Foods, Amazon (No. 1) is getting a brand with a physical store count of more than 460 store locations that’s known for its high-quality  produce, meat and other fresh food. According to Whole Foods’ 2016 annual report filed with the U.S. Securities and Exchange Commission, 67% of its total sales come from perishable goods.

Online grocery, however, is still in its infancy. According to Internet Retailer’s 2016 Online Food Report, online grocery sales accounted for only 2.4% of total grocery sales in the U.S. in 2015, leaving plenty of room for growth. According to Adobe Inc.’s Digital Price Index, which surveyed 2,000 shoppers in late February, 31.7% of all millennial shoppers and 22.1% of adults ages 36-55 say they are more open to buying groceries online now than they were in 2014.

The acquisition will likely force the more traditional retailers to step up their innovation and online presence, Chef’d’s Ransford says.

“As a player in the online space, the more people that are buying online, the better for us,” he says.

Amazon says it expects to close its acquisition of Whole Foods during the second half of this year. While the combination of Amazon’s logistical prowess, financial capital and Whole Foods’ physical footprint may seem formidable, retailers say they’re not changing what made them successful just because the world’s largest online retailer decided to come and play on their turf.

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“As we watch to see what Amazon does with its newest purchase, I expect this deal to contribute positively to the meal-kit industry as it will further encourage consumers to consider trying new methods of procuring groceries,” says Rich DeNardis, chief revenue officer at meal kit delivery service Home Chef (No. 291).

Chef’d sells meal kits through Amazon’s online marketplace and plans to continue doing so, Ransford says. Sales via Amazon account for less than 10% of Chef’d’s overall sales, Ransford says.

“Whole Foods merging with Amazon doesn’t change either of their capabilities in meal kits,” he says. “Most online grocers have just taken products that are in grocery stores and sold them online.”

“For us, it’s about doubling down on the core customers that we’ve made, around a hyper-curated (product) catalog, community building, advocacy work that we do as a business,” Lovelace says. “Anybody who underestimates Amazon is a fool but we’ve never been focused on out Amazoning Amazon.”

Lovelace says that among organic foods shoppers, Thrive Market is banking on some Whole Foods shoppers being upset about the Amazon acquisition.

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“You look at consumer feedback and sentiment to the deal, there’s a lot of concern and cynicism about Amazon being a monopoly and not representing (shoppers’) values,” he says. “If anything, it will make us be more vocal in our advocacy work as a brand. There’s an opportunity for a counterpoint to emerge and we have the opportunity to be positioned that way.”

 

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