Online grocer Farmstead announced today that it has raised a $7.9 million Series A round of funding. The new financing was led by Aidenlair Capital with participation from Y Combinator, Gelt VC, Duro, Maple VC, Heron Rock, 19 York, Red Dog Capital and others. This brings the total amount raised by Farmstead to $14.5 million.
According to the press announcement, the new funding will go towards Farmstead’s national expansion. The San Francisco Bay Area-based company recently added its first service areas outside of California by expanding to Charlotte and Raleigh-Durham, North Carolina.
Farmstead is a pioneer in the so-called dark grocery store space, eschewing a physical store that customers shop in for a delivery-only experience. The company makes use of data and AI to create a just-enough inventory system. The company’s goal is to have the right amount of stock to avoid product outages, but not so much that they are left with unsold inventory.
To help other grocers transition to this type of e-commerce-forward model, Farmstead launched its Grocery OS in September of this year, which, the company says is already being used by a “top 3 U.S. grocer.” As we wrote at the time of that announcement:
Farmstead’s pitch is that Grocery OS can help traditional grocers migrate from physical stores to online, working up through dark stores and into warehouse-only formats. In doing so, Farmstead says Grocery OS will also provide more delivery capacity and get retailers more e-commerce revenue.
Farmstead’s expansion comes on the heels of record online grocery shopping, thanks to the pandemic. Grocery e-commerce is projected to be 21.5 percent of total grocery sales by 2025, hitting $250 billion. Farmstead has seen its own business increase dramatically this year. When we last checked in with the company in September, it had experienced 6x revenue growth over a four month period and grew its team by 3x, moving into a 17,000 sq. ft. warehouse facility.
Of course, Farmstead will need this bolstered warchest as established retail giants make their own moves to grab more grocery dollars. Amazon has opened up its own dark store as well as its own chain of supermarkets that will facilitate delivery, and also added an in-garage grocery delivery option in select cities. Grocery giant Walmart has added Instacart for delivery, launched its own Walmart+ subscription service which includes grocery delivery, and even started experimenting with grocery delivery by drone and autonomous car.
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