San Francisco Chronicle - (Sunday)
Market growing for online grocers
Small startups getting big fast as customers, orders soar
With long lines at stores and alarm over the coronavirus spreading, online grocery shopping has gotten supercharged. Instacart’s value doubled this year to $ 17.7 billion, and Amazon’s grocerydelivery orders tripled in the three months after shelterinplace.
The growing number of shoppers who fill carts with a click hasn’t just benefited those two giants. Smaller Bay Area grocery startups like Good Eggs, Zero Grocery and Farmstead have also seen a sharp rise in orders, lifting their business beyond even their most ambitious prepandemic plans.
“I've never seen a faster consumer behavior shift than this one, for a habit that was so deeply ingrained before,” said Bentley Hall, CEO of San Francisco’s Good Eggs.
Started in 2011, Good Eggs sources its products directly from local growers, does sameday delivery and offers to collect and reuse the boxes and ice packs in which it sends groceries to customers. Hall said the company hired hundreds of workers in the spring over five weeks and that the average basket size for Good Eggs customers has been consistently 25% higher this year compared to 2019. He expects Good Eggs to break even within the next two years. The startup could expand into Southern California next year, Hall said.
Zero Grocery, a nowaste online grocery store that began operating in the Bay Area in early 2019, also experienced significant growth throughout the tumultuous year
“I've never seen a faster consumer behavior shift than this one.” Bentley Hall, CEO of San Francisco’s Good Eggs
of 2020.
Consumers who shop through Zero Grocery get their deliveries in glass jars, silicone bags, and other reusable containers, which are then sent back to the company in a tote bag to be sanitized and reused. Zero Grocery offers a $ 25 a month membership for shopping without delivery fees and discounts on products. Nonmembers pay a $ 7.99 delivery fee and higher prices.
“We had a huge drive of customers who came to us in February and March, but we continue to grow organically through customers sharing with others who we are and what we are,” said Zuleyka Strasner, the company’s founder. “Everything has increased; the number of customers that we're servicing has exponentially increased, the size of their baskets, the amount that they're spending, every single facet of what we are doing has not only increased, but it is about three or four times what you would typically see from another grocery store in the market.”
Strasner said her Berkeley company, which now has fewer than 100 employees, saw less than $ 10,000 in revenue in
February, but is now raking in “hundreds of thousands of dollars of revenue a month.” Zero Grocery raised $ 4.7 million from investors this year, finishing the fundraising in September amid the pandemic.
Farmstead, a Burlingame online grocer that serves the Bay Area, said it is now profitable on a perorder basis in its San Francisco hub. That measure of profitability doesn’t take into account corporate overhead, marketing or other costs, but it is still a financial milestone for startups.
” It's very difficult to get to a breakeven in online grocery unless everything is perfectly orchestrated and enough customers are happy,” CEO Pradeep Elankumaran said.
Since March, Farmstead’s average basket size has doubled. The company expects to expand into at least 14 other markets in 2021.
He added that Farmstead’s software can pinpoint how much of each product to keep in stock to maximize efficiency. Such inventory management software is common in the industry, but performance varies. A botched introduction of inventory software at Whole Foods led to some shelf shortages in 2018.
“Our ability to pick the right products for the right markets goes very far and as a result, our basket is about 80 to 90% of the U. S. average with a vastly smaller number of products,” he said. Farmstead customers don’t pay delivery fees.
Elankumaran said Farmstead saw a surge of customers when the Bay Area went into shelterinplace in the spring, but that growth remained consistent the following months.
But will folks still shop for groceries online after coronavirus restrictions lift?
Joan Driggs, a vice president at Chicago research firm IRI, said the momentum for online grocers is likely to carry on.
New habits, she said, form over the course of two to nine months: “We’ve been at this for way longer.”
“What we’ve experienced throughout the pandemic is that we’ve got at least three years worth of growth crammed into just a couple of months,” Driggs added.