Grocery delivery service Hungryroot is preparing for potential price changes as inflation continues to bite on consumers and households.
“In our seven-year history we have never increased prices on our consumers once, which is something we’re very proud of,” chief executive Ben McKean said in an interview. “That being said, inflation is very real. Food inflation is the highest since 1981, so it’s something we’re considering.”
Hungryroot provides an AI-powered grocery shopping platform that manages and automates a recurring grocery delivery for the user based on their preferences.
Unlike on-demand delivery firms seeking to fill the quick-fix market, Hungryroot targets the large weekly grocery run for households. Its average order is $120.
It operates across the US with three fulfilment centers serving the whole country and raised $40 million in its last funding round.
McKean said the company is trying to incentivize shoppers to increase their shopping loads with the start-up despite the rising costs generally.
“[It is] a means of offsetting any price increases. If we are shipping someone $130 of food versus $120 of food, the costs are not that much more,” he said.
“If they purchased that then we can maintain the rough pricing that they’re currently paying, and make the same amount of money for the business.”
These are the kinds of maneuverings that many grocery delivery companies are reckoning with.
Hungryroot exists in a different track to the spate of 15-minute delivery companies that have emerged since 2020, focusing more on recurring baskets with returning customers, typically on a weekly basis.
McKean said the company is coming off a year of 35% year-over-year growth with revenues “north of $100 million”.
Grocery and food delivery boomed during the pandemic lockdowns when options for getting food were limited.
Now as restrictions have lifted, and coupled with rising costs and labor shortages, the industry is in a retrenchment of late, typified by several companies announcing lay-offs and market exits.
Companies targeting the higher value shopping carts are shielded somewhat from the current shocks in the market, McKean said.
“In the online grocery space, the economics are significantly better as order value increases because a lot of the costs of delivering to the consumer are relatively fixed. The freight cost on delivering $70 worth of food is not much less than the freight cost of delivering $120 worth of food,” he said.
“That allows us to both have a very strong profitability profile in the business but also be very competitive from a price perspective for consumers,” he added.
“A lot of these recent ‘we’re going to get you your groceries in 15 minutes’ [companies] are not sustainable from an economic perspective or from an environmental perspective. When you’re delivering a can of soda, it’s very wasteful compared to delivering the entire grocery basket.”
Hungryroot was “profitable in 2020 on a fiscal year basis”, McKean said but it slipped back into the red following a series of long-term investments in the business.
“We’ve invested into the business over the past 12 to 18 months after we raised $40 million last spring and that gave us the capital to invest in the business so we were not profitable in 2021, but we have a very strong profitability profile.”
Hungryroot raised $40 million in 2021 in a Series C round led by private equity firm L Catterton. It does not plan on raising any further funds in the near future.
“Given the capital we raised last year and the profile of the business, the economic growth of the business, we do not anticipate raising funds in the near future.”