Dive Brief:

• Shipt, an on-demand online grocery delivery service, announced on Wednesday that it has secured $20.1 million in Series A funding. Investors include Greycroft Partners, e.ventures and seed investor Harbert Growth Partners.
• The two-year-old startup, based in Birmingham, AL, allows consumers in 27 metro areas across the South to select grocery items via smartphone app or the desktop, and have the order delivered to their homes within an hour by personal shoppers.
• Shipt, which partners with more than 5,000 shoppers, earns revenue based on a membership model. Consumers pay $99 a year or $14 a month to receive free deliveries on order over $35.

Dive Insight:

For Shipt, a relative newcomer to large-scale on-demand grocery delivery, such a sizable investment is an optimistic sign that the company could coexist with Silicon Valley-grown competitor Instacart, which by comparison has raised over $270 million in six rounds of funding (including its own $8.5 million Series A round in 2013, CrunchBase reports). Shipt also faces increasing competition from grocery delivery offshoots of large retailers like Amazon, Wal-Mart and even Google.  

“The grocery e-commerce space is an extremely competitive environment but, in spite of the odds, Shipt has reached a dominant position in a short period of time,” Ian Sigalow, co-founder and partner of Greycroft Partners, said in a statement.

Shipt founder and CEO Bill Smith said that over the last year, the company has laid a foundation to scale up its service across the country. It currently serves cities scattered across southern states like Alabama, Florida and Texas.

Smith said in a statement that the funding is the “catalyst that will propel us to the next level" and will be particularly helpful in cultivating new partnerships—a model that has fared well for Instacart, which has garnered partnerships with national grocery chains such as Whole Foods and media companies like the Food Network. Shipt's largest partners are grocer HEB and Florida liquor distributor ABC Fine Wine and Spirits, TechCrunch reports.

When Shipt started in 2014, it thrived in markets largely untouched by Instacart and other competitors. Shipt is profitable in most of its markets, Smith told TechCrunch, but it may need to explore alternate revenue streams as it expands into areas where consumers already have loyalty to another national delivery service or local grocery store.

For the time being, Shipt's membership-based business model is undercutting rival Instacart. Shipt currently charges an annual fee of $99 to members, compared to Instacart at $149 a year (a fee it raised from $99 earlier this year). But in a market booming with new players, Instacart and other services have had to experiment with alternative revenue models, such as developing buy online, pickup in-store (BOPIS) options and using ride-sharing services like Uber for delivery (an idea Wal-Mart is toying with). 

Greycroft's Sigalow told TechCrunch he’s not worried about Shipt being edged out by competition. “There’s 38,000 grocery stores in the U.S. that do over $2 million each in revenue,” he said. “There are more grocery stores than there are gas stations.”