Farmstead, the Bay Area internet grocer now expanding in the Carolinas behind a “dark store” strategy, has raised $7.9 million in Series A funding it said will accelerate national expansion.
The new funding, led by Aidennlair Capital with participation from Y Combinator, Gelt VC, Duro, Maple VC, Heron Rock, 19 York, Red Dog Capital and others, brings total funding to $14.5 million for the San Francisco-based company, which touts a proprietary AI-powered model to facilitate efficient order fulfillment and free delivery of affordably priced groceries in markets where it does business—and as a software offered to other food retailers.
Farmstead said its business has grown swiftly this year behind a consumer trend to adopt grocery delivery amid the global pandemic, with founder and CEO Pradeep Elankumaran saying earlier this year that orders increased by roughly 500% in San Francisco once shelter-in-place orders were issued there in the spring. The company this week made its first deliveries in the Charlotte, N.C., market as part of its first expansion outside of the Bay Area and said it has begun taking names for a waiting list of shoppers in the Raleigh-Durham market. Farmstead is partnering with Alex Lee Inc.’s wholesaler Merchants Distributors Inc. to on a supply deal in the Carolinas and is reportedly operating out of a 30,000-square-foot warehouse near Charlotte.
Farmstead delivered our first orders to waitlisted Charlotte customers yesterday, 15 working days from getting keys in hand to our shiny new hub there.— Pradeep Elankumaran (@pradeep24) November 16, 2020
Big launch coming soon! https://t.co/sR8RqT8XNjpic.twitter.com/ncCjtf6moa
Farmstead said its delivery-centric warehouses, which it describes as a “dark store” model—can serve customers in a 50-mile radius. It says that offering eases geographic expansion. Around 75% of its customers are on a weekly recurring delivery program which reduces complexity and helps Farmstead offer groceries at what it says are better prices than stores.
“In order to fix grocery delivery and make it profitable, Farmstead took the bold approach of breaking the traditional model and starting completely from scratch, while opening up Grocery OS to other retailers,” said Tim Reynders of Aidennlair Capital. “There is an inevitable path to growing an impactful and powerful company, and we see that potential with Farmstead—we’re excited to work with Pradeep, [co-founder] Kevin [Li] and team to grow the company nationwide.”
“The Farmstead team worked hard in 2020 to perfect the dark store model and the underlying proprietary technology that makes Farmstead so incredibly efficient,” Elankumaran added. “We are laser focused on expanding Farmstead’s national brand and adding more partnerships with grocery chains, helping them increase their daily delivery capacity while driving long sought-after profitability with each order. This industry has been stagnant for long enough—customers demand change and we are building the foundation for sustained e-commerce growth in grocery while exceeding their expectations.”
The collision of grocery and technology in the digital age and its effect on how people shop; how stores look, feel and operate; and how brands go to market was the theme of the inaugural Groceryshop conference, held Oct. 28-31 at the Aria Resort & Casino in Las Vegas.
The show, an offshoot of the popular ShopTalk conference, drew 2,200 attendees and more than 400 exhibitors exploring shifting consumer preferences and experiences and how the digitization of the industry now underway is resulting in new strategies and constructs. Emerging themes included how retail is shifting to automation in everything from labor to supply chain and fulfillment; the growth of digital native brands behind new consumer demands; and how strategic investment in technologies—often in the form of partnerships with those providing them—can separate winners and losers in the digital age.
What follows are some scenes and themes from the show floor and education sessions at the event.
Yael Cosset, chief digital officer of Kroger Co., discussed the importance of staying true to the company’s underlying strategy while taking advantage of new technologies and new partnerships that can broaden its capabilities. He noted that the company’s digital shoppers also tend to its best, achieving higher “share of mind,” more frequent trips and higher rings.
Tom Ward, VP of digital operations for Walmart, explained how the company was quickly iterating new means of fulfillment, from its Pickup Towers to its self-controlled Spark delivery platform, the “Ajax 2.0” grocery pickup facility and pilots of automated warerooms and self-driving cars. When the company finds a solution that resonates, it will “lean in hard as only Walmart can,” Ward said, emphasizing that its shoppers have come to trust the brand to save money, but need it to save them time.
Walmart’s $16 billion acquisition of India-based retailer Flipkart brings with it the opportunity to introduce grocery e-commerce to India’s massive population. Anuj Bhagat, Flipkart’s head of grocery supply chain, noted this was challenging in a country with great demand but with many residents whose homes don’t even have a precise address.
Automation is making a difference for retailers big and small. Schnuck Markets VP of IT Infrastructure and Application Development David Steck announced a new partnership with Simbe Robotics to roll out robots at 15 stores that will inventory shelves three times a day, freeing up employees to tackle more sales-based tasks, while providing the groundwork for integration with its new loyalty program providing the opportunity for in-store offers and navigation.
In a spirited address, Lowes Foods President Tim Lowe spoke of the value of “small data” in helping Lowes revamp stores behind improved assortment and experiences that resonate beyond the store walls. The practice of employees doing a “chicken dance” when its deli rotisserie opens has drawn positive reviews through customers who spread the word through social media, for example.
Store experience is more important than ever in the digital age, said Ted Frumkin, chief development officer of Sprouts Farmers Markets (left, with interviewer Rachel Elias Wein of WeinPlus), while delivery is changing how the chain thinks about real estate. Frumkin spoke about how a new store prototype bringing service deli, meat and seafood departments to prominence is helping to improve customer perception of the brand. Some customers, he said, were unaware the chain even sold fresh fish before making the change in some existing and all new stores.
In the meantime, experience gleaned through a delivery partnership with Instacart is providing new intelligence on real estate decisions, with Sprouts seeing average draw radii expanding, obviating the need to place stores as densely as it might once have. This is helping the fast-growing chain tackle new markets more rapidly. While Sprouts reached the Mid-Atlantic states only this year, Frumkin confessed the chain is already looking ahead to the Boston area, where he said Sprouts’ price- and health-focused format would find a receptive audience.
Digital retail brands are also resonating with price- and health-conscious consumers. Nick Green, co-founder and CEO of Thrive Market, said the online membership club is appealing to what he called a “conscious consumption” megatrend, reflected in a private label portfolio built around better ingredients and high standards.
New means of fulfillment and delivery were a theme. Shipt, the outsourced delivery unit owned by Target, believes service is a key to its success. When a customer has a good interactions with a particular personal shopper, Shipt will endeavor to align the customer and shopper again, Chief Marketing Officer Harley Butler said.
Ocado CEO Luke Jensen gave a presentation demonstrating how the chain’s automated pick centers are smashing long-held myths of grocery e-commerce, as the company’s facilities are poised to guide Kroger in the U.S. Jensen maintained the U.S. would soon reach the 8% online grocery penetration in Ocado’s native U.K., saying 61% of U.S. consumers would shop online for groceries “if only there were a compelling proposition.”
Enabling offerings like Marketplace and the new Kroger Ship is the concept of blind drop ship, or fulfilling retail orders that never need to move through the seller’s supply chain, said United Natural Foods VP of E-Commerce PJ Stafford. This can head off loss of the “long tail” to alternatives like Amazon, get new products into a retailer’s offering faster by skipping the category review stage, and play into the notion of “subscribe-and-save,” where Stafford argued much of the center store is headed.
The online subscription model for distribution of meal kits proved problematic, but their underlying philosophy met changing demand from shoppers thinking of grocery shopping in terms of meals and not ingredients, Plated founder Josh Hix said. While online provided consumer data guiding high-speed iteration, retail was always an element of the Plated solution, he maintained, and its acquisition by Albertsons Cos. last year is now resulting in a nationwide rollout in stores.
Plated’s evolution today is something of a case study for fast-growing online brands fueled by venture capital, Hix noted. “They tend to take smallest spark of consumer traction and pour gas on it.”
In San Francisco, Farmstead is an online retail grocery concept built nearly entirely behind artificial intelligence, which guides selection ordering, picking and packing, and logistics, said founder and CEO Pradeep Elankumaran, who sees himself a technologist solving grocery, not a grocer adapting technology. In his presentation, he announced a new driverless delivery pilot with Udelv.
JB Osborne, whose Red Antler agency has helped craft branding for some of the hottest online products and concepts, including Allbirds and Brandless, noted that in the post-big-brand world of digitally native companies, branding is more important than ever. That’s because the speed of the digital age assures “fast followers,” no matter how original the idea. “Having a great product is table stakes,” he said, forcing marketers to carry a brand’s ideals “every place you show up.”
A concurrent evolution in all channels of retail are private brands, said Diana Leza Sheehan, VP of shopper insights for Kantar Retail. While the acquisition of physical stores dominated the conversation around Amazon’s Whole Foods takeover, it also got a “darn valuable brand” in 365, which she said “gave Amazon the means to be credible in CPG retail.”
About 85% of all shoppers today buy private label at least sometimes, and those buyers cut across age, ethnic and demographic groups. “It’s every shopper,” Sheehan said.
Larry Cheng of the venture fund Volition Capital shared the stealth success story behind the fast-growing online pet store Chewy.com, which he predicted would surpass the sales of the brick-and-mortar retailer PetSmart that acquired it, within two years. One key to Chewy’s success, he noted, was the explosion in consumer appetite for premium pet food, raising online basket sizes to a ring that could support the cost of delivery.
CEO Jose Aguerrevre and President and COO Max Pedro of Takeoff Technologies were all smiles after Albertsons revealed it would install the company’s innovative micro-pick warerooms at select stores next year. The deal was the third announced in October; Pedro told WGB there were just as many on the way.
Narayan Iyengar, SVP of digital and e-commerce for Albertsons, likened the digital disruption in grocery happening today to the changes impacting the recorded music industry over the years, which he noted has changed shape multiple times. Though he grew up playing records, he said his son doesn’t know what a compact disc was.
Asked to assess what they felt were the companies to have made the most of digital transformation in retail today, Wall Street analysts Simeon Gutman of Morgan Stanley (pictured here) and Joe Feldman of Telsey Advisory Group were in agreement: Both said Walmart. Gutman added he was impressed with the notion of micro fulfillment, mentioning exhibitor CommonSense Robotics. “Something’s happening there.”
Responding to a question on how to assess the ambitions of companies in the space, Gutman remarked, “There is no playbook for the change we are seeing in retail today.”