on Jun 1 2015
Drivers pick up from farms in the morning, sort the food midday, and deliver to restaurants and homes in the afternoon.
No need for expensive warehouses for food to sit getting old.
Food is delivered within 12 hours of farm pickup.
Farms typically make only 16% of anything you see at the supermarket, with 84% going to middlemen and grocers.
Farms now make 100% more, and charge customers 40% less.
Only costs $3,000 / month to expand to a new city.
Now restaurants can order through GrubMarket, there are already 135 on the platform.
Expanded to seven cities in the last three months, and plan to add 10 more this year.
See the variety of farmers and food options.
We are building an online farmer's market. Farmers list their goods directly online, customers shop for fresh goods on the site, and we source and deliver the goods from farm to customer kitchen fresh every morning.
The platform is sort of like an online e-commerce platform for farmers and their goods, except we handle efficiently all logistics and shipment after a sale is made, without warehouse. Farms have always had a hard time reaching out directly to their customers. We aggregate all the farms in one place, so consumers can find all the goods they need at once - like the largest most diverse farmers market you’ve ever seen, all online.
First we find the farmers and sign them up for the site. Then we help them open an online store on our platform and aggregate all farms in one place. Customers can browse all the farms and their offerings in the area in one place, they can sort by food type or by specific farm. When a customer orders we coordinate the pickup from the farmer, organize all the goods and then deliver everything to the customer the next morning or even that same day.
Everyone wins with our model, farmers make more money and customers spend less money. Farmers can sell their goods on our site for 50-60% less than Whole Foods prices and still make at least 30% more money than if the same goods went through middlemen to the Whole Foods shelves.
Just recently we had a farmer describe how much better GrubMarket is with real numbers. They used to sell cherries to a large supermarket chain for $2.50 a pound, which would get resold for $9.99. Now they use GrubMarket to sell directly to consumers and make 80% of $6 a pound, while we make 20%. The farmer makes nearly 100% more, and the consumer pays 40% less for fresh cherries delivered right to their door.
We take a 20-25% cut of every order made through the platform. But our margins will rise a little bit over time as we bring on more farmers and prove just how valuable this is for them. We also have room to charge customer a little bit on delivery fees to increase our margin.
We’re selling direct to consumers at home and delivering in larger quantities to restaurants. Part of the online marketplace is directed at regular consumers who like healthy farm fresh goods. But these orders are typically much smaller, and logistically much more difficult than our direct to restaurant business. The other part of the online marketplace is directed at restaurants. Restaurants order large batches in regular intervals with generally predictable order patterns. So restaurants will be the largest part of our business for the next couple of years as we grow the customer base, because each new restaurant we bring on is as much volume as dozens of individual customers.
Restaurants and regular consumers require a very different sales approach. We give restaurants a high touch initial experience because their quality standards are so high. Our salespeople, who have a lot of experience in the restaurant industry, find chefs and send them samples of our produce. Because our produce is directly from the farm and the price is competitive they usually sign on right away. Once we get a sample in hand and make a successful delivery to show the kitchen they can depend on us we’ve sold the skeptics.
We acquire regular customers in two ways, one by word of mouth and the other with the contact lists that these farms have built over the years. Many of our customers tell us how often they recommend GrubMarket, and we’re working hard to improve the product so more of them continue to recruit their friends. But we also get 30-40% of our customers with help from the farms that love our platform. They asked their existing customers to order their products from GrubMarket. Many farms have extensive email lists they’ve compiled over years at farmers markets, and they gladly give us the lists to recruit customers for them. Some individual farms can bring us hundreds or thousands of customers at a time.
No, we are currently only doing the restaurant business in the San Francisco Bay Area. The other markets are devoted strictly to consumers but we plan to expand to restaurants in all of our cities soon. But the restaurants business has proven very lucrative, so we plan to use this new round of funding to hire one sales person in each region to start and expand the restaurant business.
We launched the site almost one year ago, and we currently have over 500 farms listed with over 5,000 fresh products for sale and over 18,000 customers. The number of farms on the platform has grown nearly 40% in just the last couple of months. And in San Francisco, the first city we’ve offered where we offered GrubMarket to restaurants, we’ve already signed up 135 restaurants in the first three months.
Every new city is like a new small company. We hire a local entrepreneur who is excited about the business and the farm-to-table movement. Their first job is to recruit as many local farms as possible. Once they have enough farms listed for a decent initial offering they coordinate a marketing plan with the regional manager to launch the beta site to a few consumers in the new city. After an initial launch, and a few weeks of beta testing to ensure all the farms and the delivery operation is running smoothly, we’ll do a big PR event to kick off organic growth. Our cost to kick off a new city is ~$3,000/month. And because we don’t warehouse it’s very easy and cheap for us to add new cities. We’ve expanded to seven cities over the last couple of months, and plan to add 10 more by the end of the year.
Regular consumer growth is really cheap at this point. All of our customer growth has been organic so far, so aside initial PR pushes when we launch a new city and website design our cost of customer acquisition is close to zero. The CAC for the vendors and producers is about $50 to $100 and it's also mostly the salary of the business development we hire in each new city. We also pay around $100 to acquire each new restaurant via our inside sales rep.
But the lifetime value of these customers and seller is tremendous. Every new regular customer comes back 85% of the time, orders once a week, and makes us $800. Every new farm makes us $5,000.
$800 billion is spent by U.S. consumers on at-home food every year. There are 1.6 million small farms in the United States but only 144,000 sell direct to consumers, and that sales value was still $1.3 Billion in 2013. If we can expand the number of farmers selling direct to consumers, and make it easier for consumers to spend a portion of that $800 Billion on farm fresh goods we can grab a significant market.
There are no dominant players in direct to consumer farm fresh food. Good Eggs is a company based in San Francisco that has raised a lot of money, but we already make revenue not far away from what they do. Their problem is that they rely on warehouses, so their operational costs are super high. If they ever want to enter a new market, they first have to build a new warehouse and hire people to manage the warehouse. Only then could they acquire farms, and launch to consumers. We don’t have these costs, we’re much more nimble and have much better margins.
Instacart’s model is based on B2B relationships with grocery stores and the convenience the network of grocery stores provides their contract shoppers. It’s a convenience layer that sits on top of the current grocery store model, it’s essentially just one more middleman between farmer and consumer. We are a totally different concept built on direct relationships with vendors and farms. These relationships take time to build, Instacart is used to just ‘walking’ into the grocery store, marking up the price, and selling it online. It would be very difficult for them to add the direct relationship with vendors and farms (which could be conflicting with their current relationship with groceries), and sourcing system that we’ve built.
We were initially inspired by the terrible cut that farmers receive for their goods. For every dollar spent on food in the U.S. only 16 cents gets paid to the farmer, and 84 cents are paid to middlemen who merely distribute food from farms to grocery stores. Not only do farmers lose out, but store customers also pay a premium for all the extra margins that distributors take.
We set out to remove all the middle men and build a direct sale marketplace for farmers. Farmers make more money for their hard work, customers get lower prices, and the food is fresher. Also we’re big supporters of locally grown food in general, society is caring more about where their food comes from, and locally produced food is more sustainable. Cutting out the middlemen, and making farm fresh food more accessible was our mission from the beginning.
There are two ways of a farmer to open a GrubMarket online store. If they’re computer savvy they can create and online store by themselves. They snap some photos of their products, upload to the site, throw in a description of the farm and the goods, and they’re good to go. They can manage their inventory much like an ecommerce store owner would do on Shopify with an easy to use backend manager. But there are certain portion of farmers who are not computer savvy. We help these select few build their online stores, and work with them personally to keep their inventories up to date with an online (text) messaging system and semi-weekly update chats scheduled via the website.
Our delivery schedule is slightly longer than Instacart, because our customers expect that the food is coming fresh from the farm so they’re happy to wait more than two hours - in fact they expect it when living in a city. The moment we get an order we notify the producer to prepare the order which normally takes the rest of the day. We pick up from our producers in the next morning, sort the orders for customers who order from multiple farms, and then deliver in the afternoon. The 24 hour wait time eliminates the need for a warehouse and allows us to batch orders for cheaper delivery, while also be fast enough that the customer knows all the goods are fresh.
The logistics of pickup and delivery work in a way that each metropolitan area is broken into regions, which makes the pick up more efficient. Just like the mailman, our pickup guys cover those regions as one region per person, go from farm to farm of the same region, in a line before bringing the entire batch to the sorting space where drivers combine packages for delivery to individual customers. Then the same drivers who picked up in the morning go on to deliver to our customers in the afternoon. And in the same way we pick up, each driver has a region for delivery. Its super efficient, we only have one team that handles pickup, sorting, and delivery all in one shift.
I started my career in Fortune 500 software companies like Oracle and eBay. And then I built my way up to engineering management, from an engineer to Vice President of Engineering at several companies like Rocket Lawyer. I was lucky to accumulate experience running large-scale execution, building highly-scalable products and then managing / building huge engineering / product teams.
Jeff Bordes who is my business partner used to run the sales and marketing of several farms in the San Francisco Bay Area. He's very knowledgeable about local food and local farm business. Paul Han is our CTO. He and I worked at eBay together with me on the same platform engineering team before he went on to work in the Twitter platform team. And finally, MikeStefanko just joined as VP of Engineering, after he worked as an engineering manager reporting to me in my previous job. We are also doing some key hiring for a Chief Marketing Officer and another Sales Director.
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