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The idea of healthy eating has never been more popular, and a Los Angeles-based startup is taking full advantage.
Thrive Market, a startup focused on selling specialty food and beauty products with an organic bent, is just 17 months old but already pulling in big business. The online grocer is on track to register sales of $10 million this month, a 500 percent increase from last March, co-founder and co-CEO Nick Green told Re/code in an interview last week.
Despite the mainstreamification of organic goods, no one could have predicted this growth, this quickly — not even one of Thrive’s board members, who was one of the dozens of investors who turned down Green and his three co-founders the first time around.
“Like any other investor, I said, ‘Oh, you’re going to do Whole Foods-meets-Costco? Good luck,’ and we passed,” said Dana Settle, a well-regarded venture capitalist with Greycroft Partners. “And they came back nine months later and had blown away everything they said they were going to do.”
Thrive had pulled off a successful launch, hired some senior execs with long careers at Whole Foods and Kroger, and were growing faster than any e-commerce startup Settle had ever come across. Greycroft ended up leading a $30 million investment in Thrive Market and Settle joined the startup’s board of directors. Before that investment, Thrive was able to raise $8.5 million in a convertible note from a long list of influential authors, doctors and others associated with the healthy-living movement. It raised another $20 million in another note after the Greycroft round.
The grocery business is notoriously difficult, with low margins requiring large scale to succeed. So Thrive Market is trying a different business model: To shop on Thrive, customers need to pay $60 a year for a membership. The trade-off Thrive promises is that customers will get wholesale prices — cheaper than what they’d find at Whole Foods or Amazon — and end up saving big if they shop at Thrive regularly. While the Costco discount model centers on selling bulk, Thrive is going for organic. But it’s not exactly an even trade: Thrive doesn’t sell any perishables — no fruits, vegetables, meat or fish.
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Still, the model is resonating. Green said the startup has more than 200,000 paid members, though he declined to disclose the exact number. The vision is that the lower product prices will bring the organic revolution to Americans who don’t have the income to regularly shop that way today, or don’t live near organic grocers. Thrive publishes a bunch of educational content to sell newcomers on its vision. It also lets shoppers sort the product category by labels such as organic and gluten-free.
“The reason it can be such a huge business is we’re not just targeting the 3 percent of people who can afford to shop at Whole Foods,” Green said.
Green said the average household income of Thrive customers is less than $75,000, and they are more likely to shop at retailers like Old Navy and Target than Whole Foods. Thrive is also attempting to convert families with even lower income levels into Thrive shoppers. The company donates a free membership for every paid membership it sells, but still faces the challenge of convincing families that are struggling to get by that organic food, even at a discount, is worth spending their hard-earned wages. Thrive customers with paid memberships can donate money upon checkout toward the grocery bills of families with free memberships.
Thrive Market is unprofitable, but Green said the startup is now break-even on product sales.
“That is fully loaded,” Green wrote in an email, “including all variable costs associated with the product sale — product costs, transaction costs, all fulfillment costs (labor, facilities, supplies, etc.), packaging, shipping, etc.”
The long-term vision is that the membership fee will be the core profit maker, though Green insists there is a path to profits on product sales, too.
One way it hopes to accomplish that: The company has started selling five products under its own brand name, including a best-selling organic coconut oil, which carry higher profit margins because they’re purchased directly from a supplier. Green said Thrive Market will sell 100 products carrying the Thrive Market brand by the end of this year.
“The overall mission is to make the highest-quality organic products accessible to everyone,” he said.
This article originally appeared on Recode.net.
