This Delivery Startup Says It's Like Whole Foods Meets Costco

As venture-backed delivery startups fold, lay off workers, and struggle to compete in a crowded market, Thrive Market’s strategy is to sell organic food and lifestyle products at a discount. Is that enough?

It’s been a rough few months for tech-enabled delivery startups. Just ask Instacart, which recently cut pay for contract drivers in several cities and raised its prices. Or DoorDash, which last month raised money at a reportedly lowered valuation. Or SpoonRocket, which shut down its meal delivery service in March. Or any of the many venture-backed startups — Blue Apron, Gobble, Hello Fresh, Munchery, Plated, Good Eggs — that are facing an increasingly crowded market for grocery, precooked-meal, and meal-kit delivery.

Thrive Market, an organic food and beauty product startup in Los Angeles, thinks it’s found a way in by doing key things differently compared with some of its competitors.

First off, it doesn’t touch fresh food. It also doesn’t rely on independent contractors to bring goods to your door within hours, the way Postmates, Instacart, DoorDash, and GrubHub fully or partly do.

Thrive describes itself as a mix of Whole Foods and Costco, a business that taps into the customer demand for organic food and lifestyle products that has also propelled startups like Jessica Alba’s The Honest Company — products that are normally associated with higher prices.

A $60 annual membership (that’s the Costco element) gives you access to Thrive’s online marketplace of 4,000 nonperishable food items, baking ingredients, bath and beauty products, nutritional supplements, and home supplies, which are marketed as gluten-free, paleo-friendly, organic, and so on, just like at Whole Foods. But executives say Thrive’s products cost around 25% to 50% less because the company buys them in bulk at discounted prices, and doesn’t need to foot the bills for brick-and-mortar retail stores.

“Only the top 3% to 5% of consumers can afford that premium,” Thrive Co-CEO Nicholas Green said of Whole Foods. “We’re focused on the 90% to 95% of American families. They’re not thinking about getting fresh food delivered — they’re thinking about shopping on a budget for the healthiest products they can.”

If Thrive’s leaders are to be believed, the company has been doing well since it was founded in 2013 and launched its service in November 2014 — and its self-reported figures stand out against the layoffs and other gloomy developments recently making rounds in the delivery world. Thrive’s revenue last year reached $50 million; monthly sales now exceed $10 million and are reportedly growing at a “double-digit” rate. There are more than 200,000 paying members, 30,000 of whom joined in March and 28,000 in February, the company told BuzzFeed News. There were also 432,000 new registered users in March. (People who register for free can browse the site and get a discount off their first purchase.)

The company says it has raised $58 million from investors that include Demi Moore and John Legend. Thrive isn’t profitable, however, and is at the moment more focused on bringing on as many new customers as possible. It makes shipping free for orders over $50 — the CEOs say the cost is absorbed into the cost of membership — and rolled out iOS and Android apps this spring.

Still, the CEOs say, Thrive works because it has annual subscriptions, which help the company predict how much revenue will be coming in, and with a greater degree of reliability than occasional or one-time purchases. And because Thrive’s inventory — grains, pasta, nuts, cookies, almond butter, soap, vitamins — can be stored for weeks without going bad, the company can waste less and make better predictions about what it will need. Perishability is a complex logistical problem that has challenged organic food supplier Good Eggs, which last year closed its hubs outside San Francisco and laid off nearly 140 employees.

So Thrive doesn’t need to rush to get products out before they spoil — and its products aren’t things that people typically need immediately, either, but rather every few weeks or months. Last fall, it introduced its own private-label organic tomato sauce and coconut oil.

“A lot of people want to buy their avocados and bananas in person and see if the items are ripe or fresh,” Green said. “The nice thing about nonperishable (items) is they’re stable, you don’t need to touch them to make a decision. The only reason they’re sold in a grocery store is it’s a vestige of a time before e-commerce.”

All this stuff is stored in a 40,000-square-foot warehouse in Los Angeles, and a newer 375,000-square-foot, ex–General Electric plant in Batesville, Indiana. A total of about 400 workers — W-2 employees with benefits — receive inventory, fill orders, and ship them off via UPS, which delivers within a few days. Co-CEO Gunnar Lovelace and Green say that for the kind of work their employees do, using independent contractors didn’t make sense.

Before Thrive, Lovelace started and sold two software companies. He grew up with a single mother who “struggled to make healthy choices,” he said, and who remarried a man who ran a food co-op out of an organic farm in Ojai, California. Learning about that system would later drive him to get into the organic-goods business and try to make it affordable: For every paying member who signs up, Thrive gives away a membership to a low-income family, and in January, it started allowing shoppers to donate store credit to other Thrive shoppers in need. (Customers have chipped in $156,000 so far.) Green, who’d sold an education startup he’d started in college, had initially wanted to invest in Thrive, but decided to join Lovelace as a co-founder.

Thrive’s success so far is due to the fact that it’s tapped into a market beyond wealthy coastal cities — “people that Whole Foods just isn’t even close to and won’t be, at least not for the foreseeable future,” as Greycroft Partners co-founder and partner Dana Settle, an investor in Thrive, put it to BuzzFeed News. A spokesperson for Whole Foods did not return a request for comment.

Greycroft also invests in on-demand meal startup Munchery and meal-kit subscription service Plated. But Settle doesn’t necessarily see them as competing with each other.

“The market for food is just enormous,” she said. “There’s opportunity and room for multiple players that do different things and appeal to different consumers, and sometimes the same consumers for different reasons.”

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