Published on: February 14, 2019
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Hi, Kevin Coupe here and this is FaceTime with the Content Guy.
I had an interesting conversation the other day with Pradeep Elankumaran, the co-founder and CEO at Farmstead, a San Francisco-based e-grocery startup. Now, I’ve been around long enough to know better than to drink the Kool-aid that a lot of dot-come startup folks would live to serve, but I’ve also been around long enough to try to keep an open mind. And there was something about Pradeep’s business model that struck me as interesting, though I certainly think there are challenges ahead.
Farmstead has been in business since 2016, and it is closing in on its 10,000th customer, serving only homes and businesses within a 50-mile radius of San Francisco as it has tested out its value proposition.
Which is this - instead of offering a so-called “long tail,” which a lot of e-commerce companies try to do, Farmstead has an exceedingly short tail: between 1,500 and 3,000 items, depending on the time of year. Much of the focus is on fresh, with Pradeep saying that their highly edited selection is targeted at having the best item in a category at several different price points, with the goal of always being cheaper than the local supermarket.
What really intrigues me about this is the fact that Farmstead is using AI to keep the selection tight, which also means that there is a minimum of waste and shrink. Combine that with the fact that they are operating out of a small warehouse of about 3,000 square feet, with a relatively small corporate and warehouse support staff, and you have a model that seems like it could be expandable without enormous cost, especially as the machines keep learning and the algorithms keep being sharpened.
As Pradeep explained the business model to me, I kept thinking of Farmstead as a kind of online Stew Leonard’s - which, as most people in the industry know, has built a business out of offering a tightly edited selection, largely focused on fresh foods, and generating millions in weekly revenue by offering a compelling place to shop. Farmstead has everything but the store … and Pradeep told me he’d never heard of Stew Leonard’s, so the commonality is happenstance. (I don’t blame him … he’s on the other coast, and it is only recently that he’s begun to think of himself as a grocer; until now, he’s been a technology and logistics guy who worked at places like Lyft.)
I’m intrigued by what Farmstead is trying to do … especially because I think it might sense for a traditional retailer trying to find an e-commerce path to partner up with them. After more than two years testing the concept in San Francisco, it is time for Farmstead to spread its wings a bit … and Pradeep told me the company has its eye on three markets where it could expand this year, one of them on the east coast.
I also think that Farmstead could do a better job on its site of telling its story … to me, it is all prose and no poetry, and I like a bit of poetry … especially since we saw that Google and Bain study that just came out saying that most customers, given a choice, would rather shop for groceries online at a bricks-and-mortar retailer where they’ve been doing business, not a pure play. If Farmstead is going to go against that trend, it needs to romance customers a bit.
Depending on who you talk to, the numbers are all over the place, but nobody would argue that e-grocery is a runaway success at this point. Eight percent market penetration is about as high an estimate as you ever hear. But I think it would be foolish to think it is going to stay that way, and I think it is heartening to continue to see startups that are trying to slice the bread in different ways.
It’s funny … over the past few months I’ve run into startups in this space that I find intriguing. First there was Fleat. Then there was Filld. And now there’s Farmstead.
Which leads to the obvious question: WTF?
That’s what is on my mind this morning. As always, I want to hear what is on your mind.
- KC's View: