Dive Brief:

• Online grocer FreshDirect Monday announced a $189 million investment round led by J.P. Morgan Asset Management on behalf of its PEG Digital Growth Fund II L.P., returning investor W Capital and other investors advised by J.P. Morgan Asset Management, including the AARP Innovation Fund.

• FreshDirect, launched in 2002, says it will leverage the funds to expand beyond its key operations in the New York City and Philadelphia metro areas, but hasn’t elaborated where that will be.

• FreshDirect also announced two additions to its board of directors: Larry Unrein, chief of J.P. Morgan Asset Management’s Private Equity Group, and managing director Ashmi Mehrotra.

Dive Insight:

New York-based FreshDirect is a profitable enterprise, with more than $600 million in annual revenue centered on its dominance in the New York and Philadelphia areas. And it recently launched FoodKick, a one-hour delivery service available for customers in the Brooklyn area.

That's impressive, considering how fresh food grocery delivery market is hot with competition and fraught with difficulties. In its own latest expansion in grocery delivery announced earlier this month, Google Express said that it’s eliminating fresh food and other perishables requiring refrigeration. Meanwhile, Amazon continues to experiment with better ways to deliver fresh food, including its Seattle “Project X” grocery pick-up program that includes an elaborate system of ordering, parking and picking up.

Competition is so stiff in the space that FreshDirect CEO / co-founder Jason Ackerman told Reuters he doesn’t yet want to let rivals in on what markets the company plans to move into next, but he added that “We've always felt like a majority of the competition is fought at the local level." 

Several startups in the last-mile delivery space have found it difficult to scale and investors have become impatient. It’s not that there’s no way for same-day (or even speedier) delivery services to thrive. But the right business and market conditions must exist. Food delivery, especially fresh groceries, have particular challenges, such as how to keep them adequately stored on route.

But Unrein says that FreshDirect’s investors see a lot of potential. “As demand for fresh ingredients delivered to your door continues to rise, high quality food, produce and packaged goods providers are drawing significant attention from the investment community,” he said in a statement. “[T]he company is also expanding its reach through the new mobile, on-demand offering FoodKick. By meeting the demands of the modern shopper on these two fronts, FreshDirect remains a forward thinking leader in this growing market segment.”