Farmstead, a startup that runs an online grocery business by selling software to other grocers, announces that it has raised $ 7.9 million in Tier A funding.
While there has been a lot of demand for food delivery this year, major players like Instacart are making purchases and deliveries from existing supermarkets. Farmstead co-founder and CEO Pradeep Elankumaran said this model places a big limit on the number of possible deliveries, which is why you may have a hard time getting a delivery slot.
There have been fewer success stories in Farmstead approach, where a company sells groceries from its warehouse (and in the case of Farmstead, employs its own warehouse staff and drivers).
In fact, Elankumaran said that when the company started in 2016, "the warehouse model was incredibly unattractive to everyone else," due to the hassles and operational expenses.
To address these issues, Elankumaran said Farmstead created software to "reorganize" warehouse operations and make them more efficient. The startup claims it has been able to reduce food waste by 3-4 times, even serving thousands of orders per day within a 50-mile radius, with no delivery costs, from each warehouse hub. Indeed, in the first market of the San Francisco startup, Farmstead is allegedly "marching towards profitability, and we are very close to this point."
Next: Geographic expansion, starting with North Carolina, with Charlotte and Raleigh-Durham (where Farmstead has just opened its waiting list). Elankumaran said he hopes to launch between 15 and 30 new markets in the next 12 months.
"A better way to put it is: two years ago we weren't ready [to expand], and right now we're ready, "he said.
Additionally, Farmstead has begun selling its Grocery OS software to other food companies looking to move online. Elankumaran said that in some cases the grocer can simply buy the software, while in others Farmstead might even work with them to manage the warehouse. In any case, he said the key is the need to "fork the demand," so that offline shoppers go to a store, while online orders are fulfilled from a separate location.
"It's not possible to get this industry online unless capacity increases," he said.
Elankumaran also said that while opening a new supermarket may cost $ 10 million, Farmstead can launch a hub in 4-6 weeks, costing $ 100,000.
As for whether grocery stores have some hesitation in buying software from a potential competitor, Elankumaran said the opposite is true: they trust Farmstead more because "the fact that we are not a B2B software company that does not manage a grocery store. "
Farmstead has now raised a total of $ 14.7 million. Series A was led by Aidenlair Capital, featuring Y Combinator, Gelt VC, Duro, Maple VC, Heron Rock, 19 York, Red Dog Capital, and others.
