When Nick Green and Gunnar Lovelace came up with what they thought was a brilliant idea in 2014 to start an online grocery store focused on health and sustainability, they trotted the concept out to rooms full of venture capitalists and private-equity investors.
Their efforts netted zero dollars.
“It was disillusioning and also eye-opening,” Green, Thrive Market’s co-founder and CEO, told WGB. “They didn’t recognize the problem or see the opportunity to bring healthy, sustainable products to the masses.”
In the years since, Thrive Market has grown to more than a million members who pay $60 a year to shop from a carefully curated selection of products that are ultra-focused for those who care about organics, ethically sourced goods, environmentally friendly packaging and shipping, and having the ability to filter by more than 90 different “diet and lifestyle filters,” to find foods without gluten or dairy, or those that fit a keto or Whole 30 diet.
These aren’t coastal elite consumers in big cities, Green said. Fayetteville, Indiana, has the highest concentration of Thrive Market members, and the average member has a household income of less than $100,000 a year. Shoppers in the Midwest and Southeast make up half of Thrive’s membership base.
The annual fee is a barrier to entry, to be sure. But Green wouldn’t have it any other way.
“We’re incredibly confident in the model,” he said, adding that each paid membership supports one for a person or family in financial need. “It enables low pricing and sustainability and our giving mission … It also is a filter for bringing in high-quality, conscious consumers who want to use the business for a year.”
Thrive has a renewal rate of more than 70% on an annual basis, Green said.
“We never wanted to get into that short-term, churn-and-burn model,” he said. “We’re doing hundreds of millions of dollars in sales and have an engaged member base. But I also feel like we’re just getting started.”
Inside Thrive Market’s operations
Los Angeles-based Thrive Market has three fulfillment centers, totaling about 1 million-square-feet of warehouse space. The facility in Hanover, Pennsylvania, debuted last year, joining centers in Reno, Nevada, and Batesville, Indiana.
The two oldest warehouses are certified Zero Waste and the third will be by the end of the year, Green said.
“We felt it was important to control our own fulfillment experience,” he said. “Having a Zero Waste fulfillment network is something we’re super proud of.”
Those centers can get orders out to 60% of Thrive Market's membership base in one day or less, 90% of members in two days, and 98% of members in three days or less.
Eventually, Green would like to see Thrive Market doing its own last-mile delivery as well, using a fleet of sustainable electric vehicles.
“We’re focused on fast delivery,” he said. “We’re also deeply focused on the sustainability of our shipping practices. We only do ground shipping because the carbon footprint of air freight is 10 times higher. We only give free shipping on orders over $50 because if you’re ordering onesies and twosies, the carbon footprint per item is so much higher … We’ve been carbon-neutral from day one.”
The average Thrive Market basket is $90 and contains 14 items, he said.
But sharply rising shipping costs in the last year or so have made sticking to that environmental mission tricky—and expensive.
So, Thrive Market has worked with its delivery partners to negotiate lower prices. And the company did a full audit on its shipping boxes and packaging. This quarter, the grocer unveiled a new box, from a new vendor, that’s made with 100% post-consumer recyclable ingredients. Thrive Market also reduced the number of colors on the box.
“It will save us several million dollars per year,” to help offset higher shipping costs, Green said. “But it also is better for the environment.”
But some price increases have been an unavoidable “method of last resort,” he said.
“In certain instances, if vendors are raising prices on us and we can’t absorb them, we are having to pass that along,” he said. “A lot of times, we’re working collaboratively with the vendors. A lot, we choose to absorb.”
We’re getting further and further away from what a brick-and-mortar grocery store experience is. What we’re doing would be the equivalent of magic in a brick-and-mortar grocery store. -- Thrive Market CEO Nick Green
Thrive Market has also recently added pricing incentives, to encourage shoppers to buy in bulk. With inflation, customers are looking for more ways to save, he said. Plus, the program boosts efficiency at the fulfillment center.
Launching new channels
Thrive Market’s bread-and-butter is non-perishable grocery items. Think pantry staples like honey and ghee, boxed macaroni and cheese, better-for-you snacks, and “green” cleaning products.
The grocer recently added frozen foods, as well as sustainable wines. Those products are handled via third-party distribution centers and are shipped separately from non-perishable orders.
“We don’t have fresh foods,” Green said. “We can cover about half the things (in a typical grocery order). “Fresh produce, it’s definitely on our radar. The history of the business has been one of category expansion. We’re always looking for opportunities to deliver more value to members. We see a future where we could be a one-stop shop … But fresh is incredibly difficult to do well.”
One segment that has performed very well for Thrive Market, though, is the retailer’s private-label brands.
The company has launched about 700 of its own products, everything from foods, to cleaning supplies to supplements. Thrive Market's private labels are the company’s best-sellers and best-reviewed items.
“Even though we’re very much a retailer at heart, we’ve also become a CPG brand, doing more than $100 million a year on those products,” Green said.
Thrive Market is using internal research to see what products shoppers are searching for and not finding.
“Let’s use our own brand as the tip of the spear for innovation,” he said. “Instead of just being a copycat, we’re actually launching our own brands’ products that are totally new and filling a gap in the catalogue.”
The “usual suspects” of retailers have come knocking on Thrive Market's door, asking to sell some of the private-label line, Green said. But the grocer has refused all offers.
“We really view it as a benefit of membership,” he said. “To offer the pricing we do on them, we need to do that on our platform. To do it wholesale, the economy totally changes.”
Why Thrive Market will (probably) never go brick and mortar
Green has a grocery list of reasons of why Thrive Market would likely never build a physical grocery store. (“Never say never,” he said. “But we think there is so much advantage to our model as it is today.”)
By existing solely online, the grocer can be nimble. The company doesn’t have to rely on capital investments and real estate trends.
Plus, the company doesn’t need to worry about population density. “We are very committed to access,” he said. “It tends to be in higher-income areas where you’ve got the population density.”
But, more than those factors, Thrive Market as it exists now can do things a traditional grocery store couldn’t envision.
Thrive Market tracks more than 1,000 different data points on its site to create a “360-degree profile” of every member, he said.
“We’re doubling down on our data science team and creating more personalized experiences,” Green said. “What do they buy? What do they browse? When they come to the site, everything is personalized to them. The algorithm keeps getting better and better. We’re getting further and further away from what a brick-and-mortar grocery store experience is. What we’re doing would be the equivalent of magic in a brick-and-mortar grocery store.”