Dive Brief:

• Online grocery delivery startup Farmstead said in a news release Monday that it plans to expand to at least 14 new markets in 2021. This comes on the heels of its push into North Carolina and a $7.9 million funding round announced in November.
• The startup also said it is now profitable on a per-order basis in the San Francisco market, where it's based, thanks to its reliance on micro-warehouse distribution facilities and its proprietary operating software. The grocer's average basket size has doubled since March.
• Farmstead aims to capitalize on growing online grocery demand by rapidly expanding its own retail operations while simultaneously offering its in-house software to other grocers.

Dive Insight:

Four years into its online grocery journey, Farmstead is going to significantly accelerate its expansion plans in 2021. The news reflects the same fundamental shifts in e-grocery that led Ahold Delhaize to acquire a majority stake in FreshDirect, and that are spurring grocers across the U.S. to quickly grow their pickup and delivery services.

Details on the planned expansion were not included in the announcement, and a spokesperson for Farmstead declined to provide further information Tuesday morning. The startup recently launched its service in Charlotte, North Carolina, and has opened a waitlist in the Raleigh-Durham market ahead of an early 2021 launch there. Farmstead expects that it will reach a per-order profitability in its expansion markets in less than a year.

In its core Bay Area market, meanwhile, Farmstead has gradually extended its delivery reach while injecting new technology and processes into its operations. It now offers two-hour delivery to customers in a 50-mile radius around its micro-warehouses and offers discounts to customers that reorder the same products week-in and week-out. Its AI-powered ordering systems and focus on buying products at wholesale prices have kept operating costs low, the company said.

In addition to its average basket sizes doubling since the onset of the pandemic in March, Farmstead saw a fivefold increase in its order volume, which precipitated its move to a larger warehouse in Burlingame, California, and a hiring spree to support fulfillment. Pradeep Elankumaran, Farmstead's co-founder and CEO, predicted that the Burlingame warehouse would facilitate the startup quadrupling its delivery capacity in the San Francisco Bay Area. 

Elankumaran said in the latest announcement that the startup’s proprietary Grocery OS technology, which projects future orders and creates a “hyper-efficient” ordering operation, is central to the delivery service’s milestone achievement. The e-grocer built the software from the ground up, and announced in September that it would make Grocery OS available to U.S. grocers to strengthen and streamline their e-commerce operations amid the rise of dominant players Amazon and Walmart. According to Farmstead, a top-three grocer is using its software to expand delivery in multiple East Coast markets.