While online grocery ordering and local delivery may or may not be sustainable, some entrepreneurs are working to offer those options to a new type of customer: remote and low-budget shoppers and small local grocery chains.
Matt Hatoun, founder of online buying club Wholeshare, believes that the delivery space is burning itself out by offering its services to mostly high-end customers who can afford to pay fees on top of the price of high end products. And smaller local grocery chains often don’t have the means to implement their own online stores – so a Wisconsin-based tech strategist developed GrocerKey, software that costs money only when shoppers use it. By approaching the food distribution industry in a new way, these entrepreneurs are finding new customers and converting old ones with new options.
“What we’re doing is shortening the supply chain by allowing consumers to tap into existing wholesale delivery infrastructure,” Hatoun said. “It keeps prices down, keeps the overall supply chain shorter, and it works for communities that are not at the highest end of the [financial] spectrum.”
Hatoun said that most tech startups in the food space are working to support independent delivery infrastructure with new warehouses and distribution fleets. Wholeshare instead connects shoppers with wholesale markets that are already active in local communities.
The Wholeshare platform combines the purchase orders of a group of people who live nearby each other to place one single order with a wholesaler, and then connects the group with a local delivery option for pickup.
“What we’ve found is that different communities are very different in what they want,” Hatoun said. “We try to find someone local as the coordinator who is passionate about these issues and access to good food. When a group signs up, whatever ZIP code they put in, they’re automatically connected to the local distributors and farms that do delivery to [that area]. They might be connected to Four Seasons Produce, Black River Produce, Regional Access, Hudson Valley Harvest.”
Group coordinators can modify what distributors are offered to their groups, and Wholeshare also partners with small natural food stores to offer extra items beyond what the stores can afford to carry regularly. Wholeshare receives the same wholesale prices from distributors that grocery stores receive, and also adds an average 5% markup on products.
Launched in 2010, the platform has raised $2 million, mainly from technology investors, and currently has about 180 active groups. The company uses its customer base as a network to expand and learn what changes to build into its platform, a process that recently resulted in a new partnership with national natural food distributor UNFI.
“Now we have a unique offering of 25,000 of [UNFI’s] products throughout the country,” Hatoun said. “The prices are great, usually about 25 percent less than Amazon prices. This has opened up whole country to us. We were constrained in where we could grow because previously we only had deals with suppliers in New England.”
Wholeshare’s connections in New England mean that buying clubs in that area have access to a wider selection of foods including fresh produce, dairy, and meat. For locations that do not have established groups already, new supply partnerships will initiate when new buying clubs are created. Often, Hatoun said, group members are the ones who know about local farms, stores, and distributors that they want to buy from.
“The way we’re working with UNFI is kind of interesting new approach,” Hatoun said. “We’re working with a subdivision called Honest Green within UNFI that ships products via UPS directly out of their warehouses. Instead of getting one of these big semi-trucks coming into your neighborhood, this new method via UPS has everything coming in the mail as a regular UPS delivery.”
Hatoun said that the company’s goal is to help smaller communities gain access to organic and sustainable food options — it’s a market that he says so far has been overlooked. Also overlooked are local grocery chains, ones that often have a fiercely loyal customer base already, according to software platform founder Jeremy Neren of GrocerKey.
Neren originally created Madtown Munchies, a meal delivery service that targeted local college students in Madison, Wisconsin. Neren partnered with an Israel-based developer he found on CoFoundersLab and made all of the initial deliveries himself.
“I ran the service out of my apartment,” Neren said. “It was powered by me, on a woman’s bicycle. I was passionate about creating an eco-friendly business, and also Madison happens to be an awkwardly designed town that is easier to get around by bike.”
Madtown Munchies was by design a seasonal business, and over its seven-year duration, Neren’s concept morphed into grocery delivery.
“At the corporate level, we’re all really passionate about empowering brick-and-mortar retailers to survive into the future when they have to compete with Amazon,” Neren said. “They’re dying off because so many consumers are purchasing online.”
GrocerKey has raised $1.7 million in funding, and the platform uses a strictly transaction-based model to grow revenue – the company doesn’t make money unless its customers are, too.
“It removes friction and structures our arrangement as a true partnership,” Neren said. “It’s less risk for the store, it demonstrates our vested interest, and we are incentivized by the growth of a rapidly expanding industry.”
April Nowicki is a contributor at Street Fight.