Just when we thought that we’d reached the peak of the food delivery craze, FreshDirect, a company that’s been around for 17 years, raises almost $200MM from investors who see silver lining in the super-thin margins of grocery delivery.

The news was widely reported from a variety of perspectives, including in a fairly exuberant article on Eater.com, which included a tidbit that grocery delivery investing was on-trend to outpace investment in food delivery startups.

Say what? The darlings of the food logistics landscape have been usurped (by grocery delivery no less)!

What wasn’t mentioned is that investments in both sectors are down from their peaks. In fact, what was widely missed were the challenges that grocery delivery startups face, the razor-thin difference between an order that’s profitable and one that isn’t. It’s telling that Instacart, a company that’s been around for 4 years, still is at least 1 year away from breaking even, and perhaps many more.

But, there are a few interesting elements to the FreshDirect funding that could be worth watching. There are three issues in particular that could signal wider trends in the grocery delivery space:

Focusing on Fundamentals – it’s no secret that Instacart, and most other grocery and food delivery startups lack strong fundamental business models (long are the stories of startups that operate at a loss, subsidized by investor capital). One of the most intriguing elements of the FreshDirect story is that the company has been profitable since 2010. In fact, they’ve had almost 2 decades to figure out their business model, and presumably have more operational expertise than many of the new players in the space. To what extent they can leverage what they’ve learned in NYC remains to be seen, and how significant their capital expenditures will be as they expand could be a deciding factor in their long-term viability. But it’s a safe bet they are coming to new markets on a better footing than many competitors.

Delivery for the Masses – it seems that many startups follow the mantra of Frank Sinatra, specifically that if you can make it in NYC, you can make it anywhere. We’ve seen a tremendous number of food logistics companies trying to crack major urban areas (NYC included) and indeed FreshDirect is among them. But, the real battlefield for continued success in food delivery is going to be in unlikely geographies: looking to the Midwest, the South, New England and elsewhere, places where food delivery is really difficult because you don’t have the population density of a NYC or a San Francisco. Meijers is piloting such tests in Michigan with Shipt, but the arena lacks a player with the heft of FreshDirect. Their operation in Philly suggests they can move into atypical markets and make it work, so hopefully we’ll see some of that $189MM earmarked for such expansions.

Disintermediating Grocery Retailers – Unlike Instacart, Rosie’s, Shipt and others, FreshDirect is truly independent of any major grocery retailer. Other startups have been lured by the promise of setting up and utilizing their own infrastructure, trading on the promise that they could be more efficient if they didn’t rely on the old-school infrastructure of major grocery chains. Unfortunately, what was missed in that equation is how expensive that infrastructure is to replicate, even on a startup scale. But, FreshDirect seems to have done it in the markets in which they operate. As they expand, it’ll be insightful to see whether their calculus shifts to working with major retailers, or if they try to lease more fulfillment and distribution centers (my money is on the latter, as their margins and business model are largely based on having their own operation up and running). If the company is able to build such a nationwide network on their own, then grocery retailers may have something to worry about as online grocery ordering takes up a larger portion of consumer wallets.

What do you think about the FreshDirect news? What are you expecting to see as they expand westward? I’d love to hear your thoughts, questions and insights about the announcement.