Why Walmart Is Buying This Startup Delivery Service

To gain an edge in the coming same-day delivery battle, the giant retailer acquires Brooklyn's four-year-old Parcel

Jesse Kaplan, founder and CEO of Parcel (Photo courtesy of Parcel)

The contrast between the two companies could not be sharper. Walmart is the No. 1 company on the Fortune 500 list, with $486 billion in sales last year and 2.3 million employees. Parcel is a four-year-old company with a handful of employees operating out of a warehouse in East Williamsburg. But the corporate giant apparently decided that the little delivery company with a fleet of leased vehicles has a certain something it needs to go up against another Goliath: Amazon.

Walmart announced today that it has acquired Parcel for an undisclosed amount, reportedly under $10 million. Parcel, a tech-based, last-mile delivery company, has leveraged its algorithm and logistical savvy to gain a foothold in the fast-delivery business in New York City. The city is expected to be proving ground and competitive arena for Amazon and Walmart in developing their capabilities for same-day delivery service.

“It’s the perfect place for high-impact innovation. Born and bred in New York City, Parcel has developed unique expertise delivering to customers in a distinctly challenging and essential market,” said Nate Faust, senior vice president of Walmart’s U.S. eCommerce Supply Chain, in a post on the retailer’s blog. In a much larger acquisition last year, Walmart bought Hoboken-based internet retailer Jet.com for $3 billion to accelerate its e-commerce business.

Parcel is Kaplan’s second startup, the first being a student-run cafe and gallery at Harvard (Photo courtesy of Parcel)

Parcel is not just a concept, but a wheels-on-the-ground service that has proven itself in a short time, delivering for retailers including online clothier Bonobos and meal-kit maker Chef’d. Part of Parcel’s formula is to collect data as it delivers, compiling detailed info about buildings and service entrances for faster dropoff. “New York City is a really unique and complicated market, and that mastery is really rare,” Parcel founder and CEO Jesse Kaplan told Recode.

Kaplan, 25, a native of Newton, Mass., is a startup prodigy, moving as swiftly as his delivery trucks. As an economics major at Harvard, he founded the Cabot Café, which his bio describes as the university’s “only student-run coffee shop, performance venue, art gallery, and social space.” Starting the café, he told The Bridge, sparked his entrepreneurial drive and made him realize “how much I enjoy operationally intensive businesses.”

He launched Parcel the same year he graduated, in 2013. “I moved to New York last summer and came home every day to all these missed package lists cluttering my door,” Kaplan told the New York Times the following year. “I spent weekend after weekend waiting in line, only to learn that my package had been transferred elsewhere or lost altogether.”

THE BRIDGE WEEKLY

SIGN UP FOR BROOKLYN BUSINESS NEWS

One of his insights was that customers, especially those without doormen, appreciated being able to schedule deliveries within a narrow time window. At first, Kaplan delivered packages himself, and focused the business as a consumer-facing service. But working with several retail partners offered a much faster path to growth. “Our volume from those partnerships doubled three months in a row,” he recalls, and the company pivoted to a business-to-business model. The company quickly scaled up and was able to hire drivers, making a point of enlisting several as full-time staff to ensure reliability. In 2014, Parcel raised $1 million in seed capital and nearly that amount the following year.

Why sell the company now, with many funding choices apparently available? Kaplan said that he had been talking with Walmart about linking up “for quite some time.” He saw the Walmart acquisition as “the most exciting path to build our growth. It felt like a once-in-a-lifetime opportunity, far superior to any other funding route.”

Kaplan and his team at Parcel, comprising seven full-time employees and 40 to 50 part-timers, will join the millions of employees at Walmart. However, “Parcel will continue operating as an independent entity,” said Kaplan. Walmart seems to be on the same page. “Our immediate plan is for Parcel to continue serving its existing clients and growing its customer base,” said Faust, who was a co-founder of Jet.com, on the Walmart blog. “There’s a lot of upside and I’m excited about the potential there.”

Steve Koepp is the editor of The Bridge. Previously, he was editorial director of Time Inc. Books, executive editor of Fortune and deputy managing editor of Time.