Wal-Mart acquires final-mile startup to compete with Amazon in New York City

Wal-Mart Stores continues to strive toward a more efficient final-mile delivery solution in its retail business, and the latest play is the purchase of New York City-based startup Parcel for less than $10 million. The deal closed Sept. 29.

Nate Faust, senior vice president of Walmart U.S. supply chain, said the company is seeking ways to make faster deliveries for customers, and Parcel is a leader in e-commerce package delivery, namely fresh, frozen and perishable foods.

“Our immediate plan is for Parcel to continue serving its existing clients and growing its customer base. There’s a lot of upside and I’m excited about the potential there,” Faust said. “Jet has been testing free same-day delivery of certain orders to customers in New York City. We can build upon that and plan to leverage Parcel for last-mile delivery to customers in New York City – including same-day delivery – for both general merchandise as well as fresh and frozen groceries from Walmart and Jet.”

Wal-Mart said Parcel will operate as a subsidiary from its New York City headquarters and add to its regular customer base the customers of Walmart.com and Jet. Wal-Mart says it plans to scale and accelerate the Parcel business.

Parcel was founded in 2013 and recently raised $2 million from investors, having pivoted from a consumer-facing startup to a business-to-business startup about two years ago. Founder Jesse Kaplan and Parcel’s other six full-time employees will join Wal-Mart. The company’s 45-to-50 part-time employees, who sort and deliver orders, will also move over in the deal.

Keith Anderson, vice president of strategy for Profitero, said if the reported cost of this deal is accurate (less than $10 million) then it seems like a worthy, low-risk experiment to see whether the model can lower operating expenses for same-day delivery in a complex and dense metro like New York City.

“It’s a positive that it will cover both shelf-stable and perishable goods and that both Jet and (Wal-Mart) will leverage the service. Not sure this can be extrapolated too far yet, however, since Parcel only operates in NYC,” Anderson added.

Carol Spieckerman, CEO of Spieckerman Retail, said beyond the literal capabilities that come with the deal, Wal-Mart’s acquisition of Parcel exemplifies its determination to win in urban markets and willingness to address opportunities through niche plays.

“Wal-Mart doesn’t have to have to hang a shingle, big or small, to grab share. Wal-Mart is building out a kind of hub and spoke platform with Walmart.com and Jet.com serving as the hubs and various delivery partnerships and mechanisms serving as spokes. Retailers that have yet to fully integrate basic online and offline synergies would find this kind of cobble-together strategy hard to pull off. Through the integration of multiple acquisitions, Wal-Mart has gained the confidence to keep going with it,” Spieckerman told Talk Business & Politics.

Annibal Sodero, assistant professor of supply chain at the University of Arkansas, also responded to Wal-Mart’s newest acquisition.

“If Wal-Mart is only intending to use Parcel for itself, then it will have much more control over its delivery network, will rely much less on third parties like FedEx and UPS, and will be able to scale up its delivery operations,” Sodero wrote in an email. “This can only add to the already unbearable congestion in big cities like New York City and other markets where Walmart will want to enter with Parcel.”