The online grocery ordering and delivery industry has heated up over the past few years, with incumbents like Peapod competing against well-funded upstarts like Instacart, as well as e-commerce giants, such as Amazon, that have started offering similar services.
In general, the business model for those grocery delivery services either cuts traditional brick-and-mortar grocery stores out of the equation, or at least puts them in the background of the shopping experience. That’s partly why Jeremy Neren started Madison, WI-based GrocerKey in December: to help grocers take advantage of the increase in online grocery shopping by putting them squarely at the center of those transactions.
GrocerKey, which recently completed Gener8tor’s startup accelerator program in Madison, creates white-label software for grocery stores to sell their wares online at in-store prices. Customers can then either pick up their groceries in the store or have them delivered that day, as long as they order before a certain time, Neren says.
Having an online store should help grocers compete against Peapod and AmazonFresh, Neren says, both of which deliver groceries from warehouses to people’s doorsteps. And although services like Instacart still generate sales at brick-and-mortar grocery stores—since Instacart sends someone to the store to purchase and deliver goods to consumers—each store is just one of many options available through the site. “It’s almost like a food court environment for grocery stores,” Neren says.
The websites GrocerKey creates for stores, on the other hand, “feel like a true extension of their brand” and allow grocers to “control the customer experience,” Neren says. Grocers will also get access to valuable data about consumer purchasing habits.
GrocerKey isn’t the only company selling grocery shopping software; direct competitors include MyWebGrocer, Neren says. But one differentiator, he says, is that his company doesn’t charge fees up front to build the e-commerce platform. GrocerKey generates revenue by charging grocers a fee—usually between 2.5 and 5 percent—on each transaction conducted through the online store. Grocers can recoup those costs by charging consumers extra on the online transactions, Neren says.
GrocerKey’s pitch was enticing enough to Woodman’s Markets that the Wisconsin-based grocery chain signed up to be a GrocerKey customer—and its lead investor. The startup this week closed a $690,000 seed round of equity and convertible debt funding, which includes $500,000 from Woodman’s, $50,000 from SymphonyAlpha Ventures, and $140,000 from Gener8tor, Angels on the Water, and the BrightStar Wisconsin Foundation, Neren says. (GrocerKey is the second Madison grocery tech startup to close a funding round this month—Fetch Rewards just raised $4 million.)
“Going through the Gener8tor program and closing our latest investment round has provided me and the rest of the GrocerKey team with a lot of confidence,” Neren says. “We plan to grow quickly, and the path feels much more clear now that we’ve gone through Gener8tor and gained the necessary resources to fuel our growth.”
The Woodman’s partnership was a big win for the small startup, which so far has only pilot tested its technology with one store, Capitol Centre Market in Madison, Neren says. The employee-owned, low-cost Woodman’s grocery chain has 12 outlets in Wisconsin and three in Illinois—including a gargantuan 250,000-square-foot store in Kenosha, WI, that Neren says is the largest grocery store in America. Each Woodman’s store does some 7,000 transactions per day, he adds.
That huge inventory and the popularity of Woodman’s will mean plenty of logistical challenges for GrocerKey to manage, but it’s a “major opportunity if we make it work well there,” Neren says. The agreement to create the Woodman’s online store, shopwoodmans.com, should result in about $6.5 million in annual revenue for GrocerKey, Neren said during his presentation at Gener8tor’s program-closing event earlier this month.
Adding online shopping capabilities could help grocers not only pick up new customers, but also “maximize the value of their existing customers,” Neren says. Now, a shopper who orders from Peapod or AmazonFresh once a month and visits a store in person for other grocery purchases might choose to exclusively shop with the grocer because of the option to either order online or visit the brick-and-mortar outlet.
Plus, consumers tend to spend more when ordering groceries online, partly because of added convenience, Neren says. “It’s easier to add to your cart in the digital environment,” he says.
If shopwoodmans.com—which launches in mid-June—is successful, Woodman’s could be a powerful ambassador for GrocerKey. “Them talking to a grocery store is much more validating than me, given that they’re respected in the industry and they’ll have used the product,” Neren says. “It’ll make the sales process dramatically easier for us going forward.”
Still, Neren is no stranger to the grocery industry. After graduating from the University of Wisconsin-Madison in 2006 with a history degree, he started Munchie Delivery, an on-demand grocery delivery service aimed at college students in Madison.
The three staff members at Munchie Delivery will transition this summer—normally a slow sales period because classes aren’t in session—to work on shopwoodmans.com, Neren says. In the fall, he’ll evaluate options for Munchie Delivery, including perhaps selling that business.
Meanwhile, GrocerKey will not only oversee the software running shopwoodmans.com, but its staff will also physically gather the groceries ordered online and deliver them to customers. That won’t be the case with GrocerKey clients moving forward, Neren says, because it would make it harder to expand the business quickly. But handling online order fulfillment for Woodman’s will give GrocerKey staff the experience needed to help future grocery store customers set up their systems, Neren says. “It makes for a much more scalable model.”
GrocerKey will use the seed investment to continue developing its software and hire more employees. The company will hire around 15 to 20 people in Wisconsin to support the shopwoodmans.com operation, and a couple more people will be added to the company’s five-person software development team based in Israel, Neren says. GrocerKey also has a chief operating officer in New York, Heidi Chapnick, who has e-commerce experience with the likes of Peapod and CVS.
GrocerKey still has a lot to prove, but it’s talking with dozens of grocers around the country and in Canada, including some that reached out to the company because they were interested in its technology, Neren says. “We’re starting to get the name out there a little bit.”
