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  • Farmstead is a same-day grocery delivery service founded in the Bay Area in 2016.
  • The direct-to-consumer startup has recently expanded to Florida, North Carolina and Chicago.
  • Citing “recent economic trends,” the company told Insider that it now only operates in San Francisco.

Same-day grocery delivery startup Farmstead, backed by Circle K and Y Combinator, has shuttered operations in four major U.S. markets and cut 22% of its workforce, according to insiders.

While demand for Farmstead’s services is growing, the company said recent economic trends have required the startup to suspend its warehouse operations in all cities outside of San Francisco’s main market. Farmstead has stopped delivering groceries in the Charlotte and Raleigh-Durham areas in North Carolina, Miami and the greater Chicago area.

“It’s not clear what’s going to happen next in the economy. We’re a start-up and we’re being cautious in a time of economic uncertainty,” Chief Executive Officer Pradeep Elankumaran told Insider in an email on Friday. “In the past year or so, Farmstead has expanded to four additional cities. While we are well-developed in each of our markets and rated highly by our customers, the majority of our revenue and profits still come from our mature San Francisco market. “

Farmstead is booming in 2021, when Elankumaran told Insider he was targeting a fast-growing population and planned to expand into 10 new markets. Farmstead is also valued at $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 several years perfecting the same-day delivery model in the Bay Area. The delivery startup differentiates 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 what they want, not substitutes — an advantage over competitors like Instacart and Amazon Fresh, Elankumaran said in a previous interview.

The startup opened its now-closed Chicago warehouse in February. The Chicago plant, which represents its fifth U.S. market, suspended operations in July.

Macroeconomic pressures and inflation hurt grocery delivery companies

Farmstead sells 1,500 of the most popular grocery items shoppers buy and sources directly from distributors, bypassing retailers. Farmstead further reduces overhead costs by delivering multiple grocery orders to consumers all at once (a system called batching).

Because its technology virtually ensures consumers get what they want, Elankumaran says Farmstead shoppers have high retention rates.

“We can give them the perfect order every time,” he told Insider in a 2021 interview.

But online grocery sales have slowed over the past few months as inflation soars and pandemic-fueled purchases plateau.

Total online grocery sales hit $7.2 billion in June, down from $8.7 billion in March, according to data from the market research firm. Brick meets click. Labor Department data show Grocery prices through June Also up 12.2% from last year.

These macroeconomic pressures have hurt many other startups in the grocery delivery industry, from Instacart to ultrafast 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 plummeted several times this year as it prepares for an IPO.

Elankumaran said Farmstead will focus on “driving further profitability” in its core San Francisco market, as well as future projects to re-enter exit cities.

“In addition to national partnerships, we have retained leases in other cities and expect to return to these markets in the coming quarters,” he said.

Are you an industry insider with insights into the grocery delivery industry? Is there a tip? Contact this reporter by email at nluna@insider.com or at Signal encrypted number 714-875-6218.



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