Farmstead, the first online grocer to deliver fresh groceries for free, announced that it is now contribution-margin positive in its San Francisco hub, meaning the service is profitable on a per-order basis. The company says it achieved this milestone without markups, service fees or delivery fees – in the most competitive and highest-cost market in the U.S.
The key to keeping Farmstead’s operating costs low has been:
- Buying wholesale, selling retail, which allows for margins without fees or excessive markups;
- Utilizing micro-warehouses, or dark locations, which have a delivery radius of 50 miles versus 5 miles for traditional stores, and cost one-tenth as much to build; and
- Its proprietary Grocery OS software for automatically procuring inventory while cutting food waste, and orchestrating order picking/packing/delivery to ensure cost-effective, reliable daily operations.
Since March, Farmstead’s average basket size has doubled, while it’s continued to hone its Grocery OS software platform. This increase in revenue and efficiency, and decrease in costs driven by software and data, helped the online grocer reach this important profitability milestone.
The news comes on the heels of Farmstead’s Series A funding announcement, and its expansion to both Charlotte and Raleigh-Durham, North Carolina, with plans to expand to at least 14 more markets in 2021.
“The key to our becoming contribution-margin positive at this early stage has been our ability to programmatically predict our immediate future and also be hyper-efficient in our operations,” said Pradeep Elankumaran, co-founder and CEO of Farmstead. “When you sell perishable products online, higher volume usually means higher losses and negative profits.
“In contrast, Farmstead’s Grocery OS stack helps cut perishable food waste to best-in-class, single-digit numbers, and transforms higher volume into lower pick and delivery costs. This means we reach per-order profitability faster.
“If we can do this in the expensive Bay Area market in under two years, we believe we can reach per-order profitability within one year in our expansion markets, where our operating costs are much lower. No other grocery e-commerce startup is taking this approach.”
To learn more about Farmstead, headquartered in Burlingame, California, click here.