Farmstead, Alex Lee team up to enter new markets

A new partnership between San Francisco Bay Area online grocer Farmstead and food distributor and retailer Alex Lee Inc. promises to extend their geographic reach.

The companies said yesterday that Farmstead plans to open multiple “microhubs” in the Carolinas to fulfill online grocery orders. Alex Lee, which owns grocery wholesaler Merchants Distributors (MDI) and supermarket chain Lowes Foods, will serve as the primary supplier for the e-commerce hubs.

Farmstead’s delivery-centric microhubs can serve online grocery customers within a 50-mile radius. The company said these facilities can be built in less than eight weeks for $100,000, whereas brick-and-mortar supermarkets can cost up to $10 million and take 18 to 24 months to construct while serving a five-mile radius. As a result, Farmstead and Alex Lee can enter new market areas more quickly.

“We built and perfected the microhub model in San Francisco and showed that it’s possible to leverage technology and build strong supplier relationships in order to make online grocery profitable,” Farmstead founder and CEO Pradeep Elankumaran (left) said in a statement. “Now we’re ready to expand it to other geographies.This partnership with Alex Lee is the first of many we’re planning with grocery chains and distributors across the country.”

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Farmstead noted that its efficient online business model also enables it deliver fresh, high-quality groceries free and at better prices than local supermarkets. To that end, the retailer employs artificial intelligence-powered predictive analytics to forecast demand and supply more accurately, which the company said enables it to deliver orders of “fresher-than-the-usual local products” in less than an hour and minimize food waste.

“When we learned about Farmstead’s microhub approach, we recognized it would be a great model for expanding into new geographies where we don’t have physical stores,” according to Kimberly George, vice president of communications and corporate citizenship at Hickory, N.C.-based Alex Lee. “This partnership will help improve the reach of Alex Lee in the Carolinas and boost revenue with little risk. We’re excited to be the first to partner with Farmstead on this innovative approach to grocery.”

The Carolinas represent Farmstead’s first expansion area. The San Francisco-based company launched in the Bay Area in 2016, with a goal of reinventing the supermarket model through analytics and technology enabling the delivery of food “from farm to fridge” in 60 minutes.

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In December, Farmstead announced $2.2 million in new venture funding to help propel its national expansion. The company said at the time that its customer base has been growing 20% to 30% per month, with strong repeat business. Just over a month earlier, Farmstead launched grocery deliveries through self-driving vans under a partnership with Udelv, which followed a successful pilot begun in September.

This week, Farmstead said a big sales driver has been its Refill & Save program, which now accounts for 52% of the company’s revenue. Launched in late January, the service provides sizable discounts to customers for recurring orders on certain staple groceries, such as milk, eggs, fresh fruit, fresh vegetables and bread. Recurring weekly orders, with just a $20 minimum, are queued up automatically. Twenty-eight percent of Farmstead’s inventory is currently eligible for Refill & Save, either via the online grocer’s choice or a brand partnership.