The explosion of e-commerce demand during the pandemic has caught brick-and-mortar grocers by surprise. As they labor to add workers, open up fulfillment slots and, in some cases, come online for the first time, many of their shoppers are drifting to online startups.

Imperfect Foods, a company that specializes in low-price produce, has seen its active customer base grow by more than 40% this year, according to CEO Philip Behn. It’s rapidly expanding its operations in response and bringing in new items for shoppers like organic meat, cheese trays and popcorn snacks.

Thrive Market has also seen an influx of new customers as well as elevated demand from existing ones, Jeremiah McElwee, the company’s chief merchandising officer, told Grocery Dive. The surge began in late February, with demand quickly growing to three times above average. This has shifted the company’s growth trajectory ahead by at least a year, McElwee said.

In Canada, online grocer Spud is on track to grow its business by 200% this year, already surpassing its growth goal for next year. Spud delivers to shoppers in Victoria, Edmonton, Calgary and Vancouver.

“We had a staggered growth approach of 20% to 25% a year, and we just blew the doors off that,” Peter van Stolk, Spud’s CEO, told Grocery Dive. “We’ve added two secondary warehouses to support the inbound activity in two of our markets.”

Many e-grocery startups are just a few years old. While they frequently boast loyal shoppers committed to their specific mission or selling angle, growth can be hard to come by due to higher prices and lower brand awareness than major grocers, not to mention tepid enthusiasm for online grocery shopping among U.S. consumers up to this point. Numerous firms have gone out of business in recent years, including Brandless and Door to Door Organics.

But pandemic-fueled demand has put a welcome charge in these businesses as consumers have turned to online shopping amid stay-at-home orders and as their local grocers struggle to meet demand.

"We are looking to fill in the gaps in this industry that supermarkets are having a hard time filling right now," Pradeep Elankumaran, co-founder and CEO of Farmstead, which delivers groceries to shoppers in the San Francisco Bay Area, told Grocery Dive. 

Fulfillment difficulties

However, these smaller companies are having their own troubles meeting all the demand that’s landed on their virtual doorsteps. Farmstead has had to waitlist new customers as it prioritizes existing customers and vulnerable shoppers, including those that are elderly, immunocompromised or disabled. The company has doubled its workforce and is rapidly adding fulfillment capacity as it lets in more and more new shoppers each week.

Spud also had to waitlist new customers, usually for no more than a week, said van Stolk. The company adds around 500 new delivery slots each day.

“As soon as we add them, they’re gone,” van Stolk said.

Thrive Market normally tells shoppers they can get their orders in three days or less, but the crush of orders the company received beginning in late March set that time back as much as two weeks. “We weren’t happy about that,” McElwee said. The company has since begun limiting the number of hours each day that it takes orders and has hired more than 400 additional workers for its fulfillment centers in Indiana and Nevada. It’s looking to add additional distribution facilities, said McElwee, but traveling and touring buildings has become difficult during the pandemic.

The e-grocer weighed making new customers wait to sign up for memberships and place orders, but ultimately decided on the limited-hours approach. Some existing members were displeased with this, McElwee said, but CEO Nick Green has communicated to them that one of the company’s core values is democratized access to food, including for customers in underserved communities.

“Nick was really proactive, just communicating to them, ‘Hey, we get it. We understand we're doing everything we can to expedite orders,’” McElwee said.

Thrive Market has struggled to keep certain items in stock, like baking supplies, pantry staples and select private label products. McElwee said the company is working with suppliers and reaching out to some new ones to fill up its warehouses. Imperfect Foods, meanwhile, has hired hundreds of workers and is working with new as well as existing suppliers to boost product flow.

“We’re working proactively with all of our growers and producers right now to bring in extra inventory for future weeks, and are in daily talks with our farmers and partners to ensure that we have a continuous supply moving forward,” Behn wrote in an email to Grocery Dive.

Demand has trickled down to all sorts of small-scale grocery businesses. Farm to People, a Brooklyn-based company that sells seasonal farm boxes and assorted groceries, saw business shoot up 400% across March and April, according to Bloomberg. A milk delivery firm in Maryland now delivers to 9,500 customers a week, NPR recently reported — nearly double the number it served before the pandemic hit.

Dumpling, a Seattle-based tech firm that helps individuals start their own personal shopping service, has doubled the number of people on its platform from 1,000 to 2,000 over the past two months and gets between 50 and 100 new entrepreneurs coming online every day, said spokeswoman Olivia Yates O’Donnel. In February, the company introduced a faster onboarding process that has helped it usher in new shoppers. The shoppers, many of whom have worked for companies like Instacart and Shipt, earn an average of $30 per order right now due to higher tips from customers.

“We've seen not only an influx of new business owners coming on, but also a huge influx of new customers looking for shoppers in their area,” O’Donnel told Grocery Dive.

Brick-and-mortar grocers have been steadily improving customer wait times as they hire warehouse workers and delivery drivers and altogether beef up their operations. That likely means some of the customers will drift back from the startup grocers they’ve recently tested. But McElwee said his company and others like it have gotten crucial exposure in recent weeks, and should see elevated demand over the long-term.

“We don't view this as a blip at all in terms of the demand,” he said. “We view it as, this is our future steady state and we need to be prepared for this and be able to serve a larger and larger audience.”