Posted February 15, 2018 10:20 p.m. EST
By Joshua Fechter
San Antonio Express-News
Texas supermarket chain H-E-B is making an aggressive push into mobile technology with the acquisition of an Austin digital food delivery company.
H-E-B has purchased Favor Delivery -- a mobile app service that delivers orders from grocery stores and restaurants -- for an undisclosed sum in a rare acquisition by the grocer, H-E-B announced Thursday.
"They're the top-rated delivery service in the state of Texas," H-E-B Chief Operating Officer Martin Otto said in a phone interview. "As we look at who we want to join forces with, there's nobody else who would be a better fit."
Favor, founded in 2013, will become a subsidiary of San Antonio-based H-E-B but remain in Austin. Favor currently operates in more than 50 Texas cities, including Austin and Houston where H-E-B holds sizable brick-and-mortar presences.
Favor CEO and President Jag Bath will remain in his role, and H-E-B will keep Favor's 140 employees at its Austin headquarters, along with its 50,000 contract delivery drivers -- called "runners," H-E-B said in announcing the deal.
No changes to Favor are currently planned as a result of the merger, which has been seriously discussed for at least four months, both companies said Thursday.
"We're not looking for Favor to become an H-E-B delivery service," Otto said.
Bath said, "Favor is going to remain Favor."
The purchase marks a giant leap for H-E-B's food delivery efforts. The food retailer currently partners with Favor, as well as digital delivery companies Shipt and Instacart on grocery delivery from select stores via its H-E-B to You service. H-E-B spokeswoman Dya Campos said the company plans to continue those partnerships.
H-E-B has also added curbside pickup on grocery orders at more than 100 of its 400-plus stores -- an addition intended to add convenience for shoppers.
"It's clear to us that convenience matters a lot to our customers and that technology has enabled convenience to take a different form here," Otto said, later adding, "It's really customer demand that is driving this."
Retailers have been squeezed to add delivery to their offerings in the Amazon era as millennials who have grown up with technology and delivery expect those offerings, said Phil Lempert, a food industry analyst with SupermarketGuru.com.
Amazon, the Seattle-based e-commerce giant, bought Whole Foods Market in 2017 for nearly $14 billion. It announced last week it would deliver groceries to members of its $99-a-year subscription Prime Now two-hour delivery service who live in Austin, Dallas, Cincinnati and Virginia Beach, with plans to expand the service later this year.
Target bought Shipt for $550 million in December and last week said Shipt would handle same-day shipments of groceries, clothes, electronics and other goods while dropping its annual membership fee of $99 to $49 for shoppers who signed up for the service.
"Everybody knows that they've gotta be in delivery," Lempert said. "There's no question about that."
In addition to a large influx of delivery drivers, the Favor acquisition gives H-E-B access to a technology team that specializes in customer-facing technology, Otto said. H-E-B's tech team tends to be focused more on internal operations, Otto said.
"This is going to make us more nimble with technology," Otto said.
The Favor transaction also marks the first time H-E-B, a $25 billion company, has acquired or merged with another company, Otto said.
"We don't have any intentions at this time to acquire any other companies, but we're open-minded to doing whatever we need to do serve our customers in the best way possible," Otto said.
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