Dive Brief:

• H-E-B has acquired on-demand delivery company Favor for an undisclosed amount, according to a press announcement. Started in 2013, Austin-based Flavor operates in 50 cities across Texas, and contracts with around 50,000 workers who deliver to shoppers from restaurants, grocery stores and other establishments in under an hour.
• H-E-B officials did not say how they might integrate Favor's services with the grocer's operations. H-E-B currently offers home delivery in select markets through Instacart, Shipt and its H-E-B To You platform. It also offers curbside pickup in about a quarter of its stores, according to the Statesman.
• H-E-B, which brings in an estimated $25 billion annually and operates close to 400 stores in Texas, has seen demand for online ordering take off in recent years. 

Dive Insight:

H-E-B, the largest grocer in Texas, hasn't made many acquisitions in its more than 100-year history. It prefers to grow organically — and there's really no reason to argue with that approach, given its reputation for customer loyalty, execution and faithfulness to its Lone Star roots.

But online grocery has come to Texas in a big way, and H-E-B figures it needs to make a big move to defend its position in the market.

Whole Foods stores in Austin and Dallas are now offering same-day delivery through Amazon's Prime Now service, while Target just rolled out its same-day service through newly acquired Shipt. Kroger has beefed up its store count in Houston and Dallas, and has rolled out its ClickList service to stores in top markets. Walmart, which has nearly 600 outlets in Texas, including Supercenters, Neighborhood Markets and Sam's Club stores, has aggressively rolled out store pickup, and sees several hundred orders a day come in from its Dallas locations.  

H-E-B offers home delivery through Shipt and Instacart in select cities, but those relationships may seem tenuous in such a competitive market. Shipt was recently acquired by Target, meaning H-E-B would have to line the coffers of a competitor to keep the agreement going. Instacart, meanwhile, is a strong player, but its platform may not be differentiated enough for H-E-B, considering the provider has partnered with so many chains over the past several months. Amazon also seems to be zeroing in on Instacart's pricing by offering free shipping for Prime members on orders $35 and over (Instacart offers the same service for a $5.99 fee).

With Favor, H-E-B picks up a company that has an established network throughout Texas. A few years back, the delivery company tried expanding to more than two dozen cities across the country, but quickly pulled back to focus on its home state. It has since strengthened its presence in college towns and large cities alike.

Favor's tuxedo T-shirt wearing workers will pick up and deliver from restaurants, grocery stores or anywhere else customers want to order from. H-E-B will be able to plug into this labor network for its own stores, and will likely learn a thing or two about app technology, customer data and other enhancements. One unique feature Favor offers is the ability for customers to track a personal shopper and communicate with them directly. This could address concerns consumers have over quality and control in the grocery buying process.

"They'll know how close their buyers are to stores and what they do when in-store, allowing them to cater to consumers' preferences using a mobile-first environment," said Casey Gannon, vice president of marketing with Shopgate, a mobile commerce firm with offices in Austin, in an email sent to Food Dive.

The acquisition also signals H-E-B's interest in the broader on-demand ordering industry. Just as Target, with its Shipt buy, picked up a service that can contract out to other retailers, so has H-E-B bought a service that can make money for the company beyond its own store operations. The delivery service market is crowded, with everyone from GrubHub to Uber Eats and Deliv duking it out in profitable markets. But with online ordering set to grow rapidly in the coming years, there could be plenty of room for Favor to profit, and even take a second shot at expanding beyond Texas.