Online grocery startup Farmstead has reached an agreement with DoorDash (NYSE: DASH) to provide delivery services for its current markets as well as potential future markets.
DoorDash will provide one-hour delivery of Farmstead orders in active markets, which cover 19 million households, as well as 15 new markets as Farmstead, which is flush with recent funding, expands its services in the ever-growing and crowded online grocery space.
In November, Farmstead raised $7.9 million in an oversubscribed Series A round led by Aidenlair Capital with participation from Y Combinator, Gelt VC, Duro, Maple VC, Heron Rock, 19 York and Red Dog Capital. Total funding for the company is now $14.5 million.
At the time of the funding announcement, Farmstead said 75% of its customers participated in its free weekly recurring program, receiving a regularly scheduled delivery each week.
In October, Farmstead announced it would be opening in Charlotte, North Carolina, adding the Raleigh-Durham area in November.
In September, Farmstead launched Grocery OS to help traditional grocers take delivery in-house, and go head to head against Amazon’s national expansion.
Farmstead’s technology allows retailers to connect with its platform to fulfill orders using a dark store model or delivery-centric warehouses serving a 50-mile radius. Customers are able to purchase fresh grocery items through the Farmstead app.
“We’re excited to partner with Farmstead to support its national expansion while offering our customers even more local grocery selection on the app,” said Fuad Hannon, head of new verticals at DoorDash, in a statement. “We’re proud to play a part in accelerating the growth of local grocers and serving their local communities, with a focus on selling essential perishable staples customers need.”
The Farmstead-DoorDash tie-up lets Farmstead integrate its Grocery OS platform into DoorDash’s platform, allowing any grocer using Grocery OS to have immediate access to DoorDash’s delivery network.
The growing online grocery market is still in its infancy, according to research from Mercatus, a provider of digital commerce solutions. In a survey of 60,000 American shoppers, the company found that online grocery will account for 21.5% of all grocery sales by 2025, reaching an estimated $250 billion.
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Amazon (NASDAQ: AMZN) and Walmart (NYSE: WMT) are the two largest players in the market currently as smaller grocers have struggled with the logistics of fulfilling and delivering online orders.
“Together, Farmstead and DoorDash can remove the two biggest barriers to grocery e-commerce success: order picking and packing efficiency, and low-cost, high-quality delivery with a production capacity of thousands of orders per day,” said Pradeep Elankumaran, co-founder and CEO of Farmstead. “Farmstead’s Grocery OS facilitates efficiency inside the warehouse, and DoorDash provides the last-mile delivery logistics and marketplace platform to reach consumers. It’s a great combination that will help move the industry forward, while fulfilling the promise of e-commerce for grocery for customers.”
Online grocery’s growth rapidly accelerated during the pandemic with 43% of shoppers having shopped online in the past six months compared to 24% just two years ago, the Mercatus research found. The top three reasons shoppers have shifted to online shopping are COVID-19 concerns (62%), convenience (62%) and time savings (42%).
Farmstead offers customers a 5% discount on products they repeatedly purchase, and delivery is free as Farmstead bundles local deliveries.
Click for more Modern Shipper articles by Brian Straight.
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