Farmstead has suddenly found itself on the front lines of the COVID-19 epidemic. The online grocer is based and delivers only in the Bay Area, where a shelter in place order was recently put into effect. As a result a lot of people are ordering food online and Farmstead, which has been around for a couple of years, now finds itself struggling to keep up with demand.
I spoke with Pradeep Elankumaran, Farmstead Co-Founder and CEO this morning, and he told me that back in normal non-coronavirus times, his company had at best 10 to 12 percent week over week growth. Three weeks ago, when the severity of the situation started settling in, that number jumped to 40 percent week over week growth. The following week was 50 percent wee/week growth over that. In the third week of the, should we call it a “panic?”, Farmstead’s week/week growth was 70 percent.
That is a lot of growth in a very short amount of time. Farmstead is currently doubling its headcount of pick-and-pack workers and delivery drivers to keep up, going from 70 workers to 140.
Farmstead’s hook has always been its AI-powered inventory management. The company builds microhub distribution centers in neighborhoods and uses its algorithms to make sure each one has just enough stock: not too much so that some goes to waste, and not so little that orders can’t be fulfilled.
Elankumaran said that even with the spike in demand, his software has been mostly effective at adapting and managing the situation. He attributes that success to a couple of key parameters that go into its algorithm. First, when you order from Farmstead, you don’t know if an item is out of stock until after you click on it (other online grocers will grey out an item when it’s gone so you can’t even click). While this is a wasted click for the consumer, it gives Farmstead more data on what consumers actually want, which allows the company to continue to feed its system.
Second, Elankumaran said that the sell by date for every item in the store is listed. That way they know how long each item they have will last and can prioritize distribution accordingly.
Farmstead’s system can’t totally prevent items being out of stock. During the first week of the outbreak, it sold out of pasta, for example. But because Farmstead knew everything people were trying to buy (even if they couldn’t) and how long that item lasts, they were able to adjust accordingly for the subsequent weeks.
Another side effect of the COVID-19 shopping, Elankumaran said, was that people are buying more fresh produce online through Farmstead. Buying fruits and vegetables online was something people typically didn’t do as they like to be in the store to look at and touch items before buying them. But when you are on lockdown, any safe port in a storm and all that. Plus, people may be waking up to the fact that between store workers and other shoppers, each piece of fruit could be touched by a lot of people while sitting at the store.
The fact that Farmstead doesn’t have an actual store that’s open to the public could also benefit the company. It’s a warehouse so the only people touching your food are the workers there, which is something Farmstead can exert greater control over.
As we’ve talked about before, COVID-19 is forcing new behaviors across the meal journey. While sudden demand is putting a strain on Farmstead and other grocery delivery services, these companies will adapt, and presumably work out the wrinkles in order to stay alive, and perhaps create a new normal in the way people shop for food.