- Farmstead is a grocery delivery service founded in 2016 in the Bay Area.
- The direct-to-consumer startup recently expanded to Florida, North Carolina and Chicago.
- Citing “recent economic trends,” the company told Insider it now only operates in San Francisco.
Farmstead, a grocery delivery startup backed by Circle K and Y Combinator, has closed operations in four major U.S. markets and cut 22% of its operations staff, Insider has learned.
While demand for Farmstead’s service is growing, the company said recent economic trends have required the startup to cease warehouse operations in all cities except its primary market of San Francisco. Farmstead has stopped delivering groceries to Charlotte and Raleigh-Durham in North Carolina, Miami and the greater Chicago area.
“It’s not clear what will happen next with the economy. We are a startup and we are prudent in times of economic uncertainty,” CEO Pradeep Elankumaran told Insider in an email on Friday. “Farmstead had expanded to four more cities in the past year or so. While we were growing well in each market with strong customer reviews, the vast majority of our revenue and profits still came from the established San Francisco market.”
Farmstead was flying high in 2021 when Elankumaran told Insider it was targeting fast-growing populations and planned to expand into 10 new markets. Farmstead’s valuation also reached $139 million after raising $24 million in October, bringing its total funding to $40.1 million. according to PitchBook.
Launched in 2016, Farmstead has spent a few years perfecting its same-day delivery model in the Bay Area. The delivery startup differentiated itself from its competitors through its advanced inventory and technology stack.
Farmstead uses machine learning and predictive modeling to ensure warehouses are stocked with the most popular items. As a result, consumers get the products they want instead of replacements — an advantage over competitors like Instacart and Amazon Fresh, Elankumaran said in previous interviews.
The startup opened its now-shuttered warehouse in Chicago in February. The Chicago facility, which represented its fifth U.S. market overall, ceased operations in July.
Macroeconomic pressures and inflation are hitting food delivery companies
Farmstead sells the most popular 1,500 grocery items shoppers buy and sources goods directly from distributors, bypassing retailers. Farmstead further reduces overhead by delivering multiple grocery orders to consumers in one delivery, a system called batching.
Because its technology ensures consumers get the products they want, Elankumaran said retention is high among Farmstead shoppers.
“We can give them a perfect order every time,” he told Insider during an interview in 2021.
But online grocery sales have slowed in recent months amid soaring inflation and a flattening of pandemic-fueled markets.
Total online grocery sales reached $7.2 billion in June, up from $8.7 billion in March, according to data from the market research firm Brick meets click. Figures from the Ministry of Labor show grocery prices through June they have also increased by 12.2% in the last year.
These macro pressures have hurt many other grocery delivery startups, from Instacart to ultra-fast players like Gopuff, Getir and Gorillas.
In mid-July, Gopuff closed 76 underperforming warehouses and laid off 10% of its workforce. Instacart’s valuation has fallen several times this year as it prepares for an IPO.
Elankumaran said Farmstead will focus on “driving further profitability” in the core San Francisco market and projects that will re-enter exited cities in the future.
“We have maintained our leases in these other cities, anticipating a return to these markets in the coming quarters, in addition to the national partnerships,” he said.
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