Editor's note: This article is part of Inc.'s 2015 Best Industries report.
It's hard being a food business. The barriers to entry and layers of bureaucracy are many, especially if you work with a large distributor such as Whole Foods. It's always been difficult to establish a new product brand, and as the industry becomes more consolidated--consider the merger of Sysco and U.S. Foods--experts predict that beating down the door will only take longer.
But a food e-commerce startup? That's a hot opportunity. Food trends suggest overworked Americans increasingly want to eat well on a budget, and the more conveniently they can get this food, the better. So they're either turning to food delivery startups like Blue Apron or upstart online grocers like Instacart, says Forrester retail analyst Sucharita Mulpuru.
As a business opportunity, connecting people to food via the Web is a cost-effective model that offers great exposure for new brands, not to mention a number of different revenue opportunities with consumers, vendors, and other groups, says John Gordon, an analyst with Pacific Consulting Group. And right now, the e-commerce model is where the money is. Funding to online food and grocery delivery startups hit a new high in the third quarter of last year and a total of $1.56 billion for the previous four quarters, according to research firm CB Insights.
But as in any hot industry, new entrants face stiff competition. One such competitor is a company called Wholeshare. It's part farmers' market, part general grocery, all rolled up into an online buying club that offers eco-minded consumers steep discounts for placing orders as a group. Wholeshare aims to modernize grocery shopping and if its initial traction indicates anything, it's that people are hungry for more ways to make feeding themselves easier. Read on for the story of how the company started up in this in-demand industry.
Bringing buying clubs online.
It all began with a desire for good, cheap food. "We all really love food and are thrifty-minded--we love to save money," Miriam Goldberg says of herself and fellow Wholeshare co-founders Matt Hatoun and Peter Woo. Goldberg in particular liked to band together with other shoppers to buy produce directly from farmers. But these buying clubs were logistical nightmares that involved poring over paper catalogues and collecting money from everyone manually. "So when we were going over various problems we could turn our attention to, this one seemed pretty obvious," she says.
The team spent hours talking to farmers, wholesale food distributors, and existing buying clubs to figure out all of the pain points in their businesses. It paid off--they learned the nitty gritty, such as the rate at which products go out of stock and where trucks go to fill orders.
Wholeshare launched its site in 2011. On the backend, vendors can edit their catalogues of products and manage, track, and fulfill orders. On the front end, shoppers form groups of usually five to 50 people with each member having his or her own account. Once the total of a group's order reaches a wholesaler's minimum, the order is sent off and each member is charged individually. Once the order is fulfilled, it goes to a central location where the entire buying club comes to pick up the items.
The big appeal for shoppers is a 30 to 50 percent discount and access to about 15,000 products, many of which are brands you'd find at Whole Foods or other natural markets. Trader Joe's, which offers similarly affordable items, typically stocks only about 4,000 products in its stores.
Making the pitch.
To get customers, the team headed to agriculture conferences: Wholeshare would give farmers a 5 percent commission if they let the company pitch its meat, dairy products, and pantry goods to their existing customer base and distribute these items in the produce boxes. The farmers eagerly accepted.
Convincing vendors was another issue. "At first we made a lot of cold calls," Goldberg says. "We called small businesses, like bed and breakfasts and CSA [community-supported agriculture] farms, and were able to make a pretty good sales pitch. Once we had that, we were able to do things like market through Facebook."
Eventually Wholeshare acquired enough large and small artisanal vendors to ship produce and home and personal care goods throughout the state of New York.
The buying-club model helped convince the distributors it would be worth their while because it allows them to pursue new business in areas they might not otherwise be able to afford. "I think it's fair to credit Wholeshare as the solution that made our sales to buying clubs go through the roof," says Jesse Wysong, a spokesman for Ithaca-based distributor Regional Access, by email.
So far, about 200 buying groups have signed on and Wholeshare has been processing 1,000 orders a week since last quarter. Goldberg says that the company has done well in the outer boroughs of New York City and will continue to pursue "less sexy" markets like Ithaca and Buffalo.
Slow to scale.
This year, Wholeshare aims to expand into New England and other markets. The goal is to eventually go national, which the company is inching toward with a vendor that delivers via UPS, but the product line is geared toward home and personal care items and nonperishable foods, not fresh groceries.
And herein lies the challenge for a delivery startup. "I don't think there is any shortage of demand [for these services]," says Mulpuru, who applauds Wholeshare's model but isn't convinced it can scale, despite an undisclosed round of seed funding from SV Angel and Andreessen Horowitz. There's a lot of value in handpicking high-quality merchandise. "But to be the purveyor of the best strawberry is a limited thing," she says. "You're going to be able to do that only until Whole Foods gets that strawberry or until Wegmans decides they're going to work with that supplier."
For Wholeshare to succeed, it will need to differentiate itself from larger, eco-conscious competitors like Whole Foods and Trader Joe's by focusing on the nonperishable but scalable goods, staying on top on new food trends, and offering really good local produce, perhaps as a loss leader, Mulpuru says. On the positive side, unlike those of delivery services such as Amazon Fresh and Fresh Direct, Wholeshare's model might be more sustainable because it uses an existing wholesale infrastructure, and is not trying to build one from scratch.
For now, Goldberg remains focused on "second-tier cities" and providing a better experience. "We're trying to solve the last-mile problem in grocery distribution," she says.
If Wholeshare can keep the quality and convenience factor high and the costs low, it might have a good shot.