Foodzie, an online marketplace for high-end artisan food vendors, has raised a seed round of $1 million from noted investor Jeff Clavier of SoftTech VC, First Round Capital, and a number of angel investors. The company, which we were introduced to over the summer as part of the TechStars class of 2008, recently launched to the public with a marketplace of 25 vendors ranging from Vermont and California cheese makers to specialty BBQ sauces from Smokin’ Joe Jones.
Foodzie helps provide a centralized hub for these small food vendors, giving them more exposure than they’d get from their standalone sites and making it easy for food aficionados (or ‘foodies’) to find the products they’re looking for. Foodzie generates revenue by taking a commission on each transaction (around 20%), but vendors still make as much as double what they’d get if their products were sold in traditional specialty food sites. Foodzie can charge a lower commission because it doesn’t warehouse the items it sells – instead it handles all of the transactions (a boon for less tech-savy vendors) and leaves distribution up to the individual stores.
Given the economic downturn, it seems like high-end food would be among the first “cuts” made by consumers in an effort to cut back on spending. However, Foodzie CEO Rob LaFave says that the recession doesn’t seem to be having a major impact on the marketplace. He explains that many of the products on Foodzie are actually cheaper than those in supermarkets, and that many customers come to Foodzie looking for foods they can’t find elsewhere that fulfill special dietary needs (like vegan or gluten-free products).
mmm food
For all you TechCrunchers still checking out the comments on this post… we’ve got a pretty sweet discount going on through the end of the year. 20% OFF all products on Foodzie. If there is anything you were excited to try, now’s the time to do it!
another webvan in the making
Foodzie-the Etsy of local food producers? The demand to me seems reasonable and this is certainly strikes me as having recession-proof potential.
Congrats to a fellow TechStars alum! Your siblings over at SocialThing are very happy for you
Congrats Foodzies! Was great getting to know the team in Boulder this summer. They’re pretty unstoppable and if they’re around, gourmet treats can’t be far away.
Jeremy
Congrats, you guys. Love to see you all grow in this way.
Way to go gang! I can’t wait to find some great yogurt!
Congrats on winning TechStars, uh, I mean, closing the funding. Looking forward to watching you grow and succeed.
Conrats Foodzie crew! You were all quite passionate the few times I met you at Boulder events so I’m glad to see the success.
Congrats. I’m sure you guys will do amazing things to capitalize on this opportunity.
Congrats guys! I got to see you present at the TechStars San Francisco demo day — great idea and really good execution. You now have one hell of a good group behind you too with my man Jeff Clavier and the First Round crew. I see good things ahead.
Congrats to the whole team, very exciting to see you grow!
Congrats foodzie peeps!
Way to go, Foodzie! Proud of you all, and can’t wait to see where you guys go! Keep up the good work.
Are most of the congratulatory comments above from the employees?????
The congratulatory comments are from individuals who’ve been watching our progress as part of the TechStars program.
Congrats to the whole team, fellow TechStars brethren. You guys deserve all the good that you have coming to you!
Thanks everyone!! It’s definitely an exciting day for the whole team. Proud to be apart of the TechStars family.
We hope you take the time to check out some of the producers on our site.
well executed site.. however, i would prefer better distribution channels then wasteful individual package delivery.. if they could bundle the products.. but they can’t even do that… i love specialty food so i’m down with the idea.. just wish there was a better way to distribute products..
also: it is essential to be able to post reviews.. since i would want to know what products to purchase at a premium
Roman, Thanks for the kind words about the site. We’re working diligently to develop alternatives to the individual package delivery that you mentioned in your comment.
Reviews and other ways to interact within the Foodzie Community will be coming soon.
Sign up for the newsletter on our homepage if you’d like us to keep you updated on our progress.
o yea.. any holiday code for free shipping or discount
wink wink
Roman, we wanted to let you know that we’re offering 20% OFF all products on Foodzie. If there is anything you were excited to try, now’s the time to do it!
may i also suggest displaying the full name of the product. before clicking on it?
Congratulations!! ROCK ON, BOULDER TECH!
I actually think this is a decent idea. There are more food vendors than you can count, but the shelf space at grocery stores is limited.
You nailed it. I worked for a brick & mortar specialty food chain called The Fresh Market and got to see first hand how many small food producers there were and how few of them actually made it onto the shelves. Like you said, limited shelf space and lots of hoops to jump through. We hope to be that place where you can discover these incredible food producers.
Congrats Rob, Emily and crew! Hope to hear about your progress when I see you next in Boulder, I’m sure there will be plenty to talk about, you’re on a roll!
Congrats! Very exciting to watch you grow your business. I’m looking forward to becoming a frequent customer.
I think every single Boulder entrepreneur and friend has chimed in on this thread
Congrats to the Foodzie team for coming into TechStars with a vision in mind on day one, executing, getting funding and launching. High fives and sea salt caramels for everyone.
Here’s a question I’m afraid to ask… how much of their equity did they have to sell to get that $1million?
Well, Jeff Clavier is a mentor @ techstars, so he was involved with them from the very beginning. I’m sure he got a fair equity of the company.
Congrats Foodzie crew!
You worked hard for this and the website looks great. Plus, I’ve not seen more positive comments on a TechCrunch writeup ever before, which leads me to believe that the world ‘hungers’ for your service!
isn’t clavier the genius that funded cubrilovic
Congrats on the funding. Please take some of the money and either re-brand, or at least make some defensive domain name acquisitions. Is it Foodsie, or Foodzie, or Foodzy, or Foodsy?
Excellent point.
current has a pretty good segment on last years techstars class, which features the folks from foodzie: http://current....p_boot_camp.htm
***
The recession WILL have an impact on their business. I am tired of companies that are in denial that we are in a terrible economy and are bullshitting everyone; look at the rapid decline of Whole Foods sales. What will Clavier think about next, a Hermes competitor?
Arnon, thanks for your comment. I agree, nobody is trying to make the assertion that the recession won’t have an impact on our business. I was quoted above, saying that the recession doesn’t seem to be having a major impact on our marketplace up to this point.
I think the recession has the potential for both positive and negative impacts…
Lower consumer spending will affect our business over time, albeit not as much as it will impact Whole Foods (given the overhead inherent with their business model).
On the flip side we have already begun to see increased growth and interest from small artisan food makers who are struggling to find ways to sell their products directly to consumers.
Actually, small “luxury” items do quite well during a recession. While you might not be able to afford the $2K vacation in the islands, you can splurge on $50 worth of gourmet food. The problem is that sales will be well below what they’d be if things were going great, but at least they don’t disappear completely. It’s big ticket items that get hit the hardest.
The real problem for startups in this economy is that once you’ve scored a funding round you can get addicted to the money, and it most likely was the last funding you’ll see.
Nice work Foodzie, congrats to the crew, perhaps it is time for me to place another order…
nice work team (from another boulder-ite). huge congrats
Ok, Let me summarize the first 40 comments:
Foodzie, congratulations, the entire city of Boulder is happy for you!
Now, a couple of comments:
(1) This strikes me more as a lifestyle business than a VC backed one, so $1M seems a lot for it. I’d be interested to hear people’s opinions (non-Boulders, please)
(2) I didn’t really followed the math: producers make twice as much + 20% commission = cheaper than at the stores?
(3) “He explains that many of the products on Foodzie are actually cheaper than those in supermarkets, and that many customers come to Foodzie looking for foods they can’t find elsewhere.” If you can’t find it at the store, how is it cheaper than something that isn’t there?!?
wow… talk about scalping the small vendor… you get a million bucks, your website isn’t fully up and running after 6 months… and you still charge 20%?!?
poor vendor has to mark up that and then take in consideration shipping.
one vendor lists cookies for 18.95, plus $5 for shipping. How’s this 12 cookies for over 24 dollars… plus tax… plus waiting for the food. ingredients are listed… vendor spent $2 in costs…
please share who you fleeced for a MILLION dollars… must be the elevation!?!
It’s not “scalping the small vendor” if they’re getting the same wholesale price they get from standard distribution channels, not to mention that this acts as a kind of web site. I know a lot of these types of vendors and as a rule they have crappy web sites and can’t do e-commerce.
Remember that companies do their own press releases and are always going to be self promoting. True there will be inconsistancies, but give the guys the a break, their college students.
Interesting concept – and, oddly enough, I heard of a group here in Seattle that was trying to do what you guys are doing. (Pyreus.com).
Congratulations!
I can see the potential for this to become the Etsy of artisan foods.
The question I have (and I wonder the same about Etsy) is how does Foodzie hold onto repeat customers?
Since the vendors ship their products to the customers, what’s to prevent a vendor from contacting/asking the customer to order directly from them next time? They could even offer a discount or some other incentive for doing so.
I can’t answer from Foodzie, but I suspect most of these small vendors don’t have e-commerce capabilities. They’re focus is on food, not web sites.
Congrats.
So here’s a better business plan, do exactly what you are doing now, but don’t charge the hard working small business owner for 20% and make your money on advertising or pay per month.
I hope no one takes your idea and makes it sweeter for the merchant, because they will.
Being the owner of a small retail boutique, we will go with the best offer and 20% is a lot of give up.
You are right, our market is still growing during this hard time, but you guys need to really come up with some never before ideas that locks the merchant in, because your model is nice, but guess what’s nicer for me? A model that only takes 10%.
The problem with your revenue model, and I know lots of artisan food owners and winery mangers is that 20% will create an un-loyal business partner. Unless, you are of course Amazon.com and can bring them in $500k a year.
Spend some of that money on talking with some younger boutique type business owners and see what there needs are, your answer lies there. Retail is a whole other world and business than what these nerds are used to here on TC.
Great idea guys and congratz on your funding. Your biggest hurdle is retail business stickiness. How do you get the artisan cheese business to stay with you when http://www.foodys.com is offering the market place for free, except for the $50 a month they pay for the e-commerce?
Bandon, I think their target producers are whole sale ones… So the producers are trying to sell their stuff to Whole Foods, The Fresh Market, etc. and those guys mark the prices up more than 20%, so what they’re doing is helping the producers to sell directly to the consumers only marking the price up 20%… I think.
For example: Producer A sells a box of chocolate to Whole Foods for $6, then Whole Foods sells it for $12 (100% markup)… (I totally made that up – I have no idea how much their markup is)
So, Foodzie would still sell it for $12 and take 20% ($2.4) for them and let the producer keep the rest ($9.6)… so they’re actually making more than they were before… So it’s a win-win situation…
I don’t know… Am I right? Or did I miss it too?
What I said before that didn’t add up to me was the whole thing about making double while taking 20% and still selling it for less than at the stores…
@The only not from Boulder:
Just to be clear, I live in Boulder and saw these guys present at the tech meetup. I don’t think they have a chance in hell of making this work “as is”, but perhaps they can iterate to make this a viable idea.
Maybe Foodzie could also act as a “farm team” of sorts for the large chains helping Foodzie’s most successful producers garner distribution deals as an extra value add (with finder’s fee, of course). Wholefoods, for one, does have local buyers and Foodzie could forge the correct relationships to broker these deals and expedite the process of getting compliant and on the store shelves
Anyway, good luck and congrats to them :p
Hey,
Awesome news guy!
This is a great start.
Can I get those cookies shipped to India
Woo hoo! You guys rock and I’m so excited for you! I can’t wait to buy more tasty popcorn and other treats on the site. May use it for xmas shopping. You guys are on the rise…..enjoy the ride!!!
Nice work Foodzie. You guys dance well too…
Congrats on securing this funding. I wish Foodzie the best. I wonder how is the site appealing to first-time customers? A lot of consumer advertising? I agree with above comments wondering about repeat customers as well. So many specialty retailers have knock-out web sites and do a wonderful job promoting these artisan foods in their brick-and-mortar stores and online as well (Zingerman’s, Murray’s Cheese, igourmet…) A few years back, Edgewood Creek and WholesalePortal.com tried something similar. Both failed. I hope that won’t be the case here.
-Anna Wolfe, editor of Gourmet News
The long tail of food. Mmmm…
Anne-Marie Kovacs (The Succulent Wife) tried hard to bump me Foodzie’s way about mid September. It is now December.
Check out http://www.TEAandSPICE.com and maybe we should strike up a little something…
Chris
Well. I think the idea has merit. The foodie niche might be well served here, if executed well. However, food stuffs might be alot harder to pull off than kitschy crafts goods at Etsy.
Does anyone else get the impression that all these flowery sugary comments these days on Techcrunch are not authentic?? Is there some company you can hire in India to (not so) cleverly spam Techcrunch to give the TC new story that positive afterglow from saccharin loaded comments?
It’s interesting that this business got $1M in VC funding. It really looks more like the “two guys and a coffee pot” type business instead of a VC funded startup. It’s tough to see them pulling the kind of revenue that will justify the initial investment, much less any further rounds.
Not only are small artisan food producers not very good at ecommerce, they’re not very good at product fulfillment in small quantities. Their model is to deliver 50 cases to a distribution warehouse. They know how to make bread or sauce. They run a kitchen. They just aren’t set up to ship out small quantities to lots of people and aren’t very good at it. I can’t tell you how many times I’ve seen a small vendor put an entire case of glass bottles in a box without packing material and just ship what becomes half a case of broken bottles from UPS. Throw in the fact that many of their products have a limited shelf life and require refrigeration and this is going to be a nightmare.
Foodzie is basically just a drop shipper, which means they’re in the middle between the customer and the supplier when fulfillment doesn’t go right. Their worry won’t be, as others have suggested, that the vendors will steal their repeat customers. Their problem will be making their customers happy in the first place. Getting a reliable supply from most of these vendors when you’re purchasing in 50 case quantities is tough enough. Being in the middle of 1 and 2 unit transactions is really going to be hard. 20% is not nearly enough to cover the transaction costs.
Another aspect of the specialty foods market is that the vendors enter and exit very quickly. There’s not much cost to entry — you just need a product and a facility to produce it. Every small market and restaurant thinks they can get into the business. They do it for a couple of years then fold up. Given the economy, there will be a lot of exits if only because the vendors can’t get a credit line to finance operations. Foodzie runs the risk of spending the money to market products that disappear out from under them.
A 20% margin is a good deal to the vendor because they usually have to give up about 80% to push the product through the distribution chain. (10% to the broker, 30% to the distributor, 40% to the store). It’s rare to sell directly to a store — the quantities at a single store aren’t enough to justify the delivery cost for the vendor. They generally sell to distributors, who then sell to grocery chains. But the amount of total sales that the vendor will get from online sales will always be a small part of their business. For every person that purchases a specialty food item online, about 10,000 do it at Whole Foods or their local grocery store. So when supply problems hit, guess which channel is going to get their attention?
Another problem is that their shipping is distributed. Each vendor does a small amount of shipping, so they’ve got high shipping costs. Specialty foods aggregation type businesses work because they drive the cost of shipping down with volume discounts.
Of course, there’s already a pretty well known company that has been in this specific business for the last year — Amazon has a specialty food section. They’re masters of that model, so it’s going to be tough to compete with them. If Foodzie manages to evangelize the market, Amazon can just overwhelm them. If one of their producers starts to make it big time, does anyone really think they’ll turn down Amazon when they come calling?
Plus, there are only about 1,000 specialty foods sites doing the same thing already without the funky drop ship arrangement. As a site with just under 7K visitors/month according to Compete (most of which have been driven from the buzz around techstars and not from their target market), Foodzie has a very tough road ahead of them.
But the real problem is that they’re selling unknown specialty food products, which is very tough to do over the internet. Since, according to their site, they want to concentrate on items that customers can’t just find in their local stores, they have the problem that people don’t know anything about the brand they’re being asked to purchase. For instance, “Rocky Mountain Red Jerky” sounds good (at $11 for a 3.5oz bag it better be!), but not many people are likely to purchase it without having tried it before. As people in the specialty foods business will tell you, brand awareness is king. You’ve got to get out into the public and get them to sample your product. That’s why you can sell something like Dave’s Insanity Sauce over the internet — it already has a built in cult following. But put the same product in a different bottle and call it Joe’s Hot Sauce and you won’t sell very much of it. So Foodzie’s market is people that have been previously exposed to their set of relatively unknown products and would rather purchase over the internet than in person. Ouch.
This business is all about repeat customers. You don’t make much on their first order because the marketing makes it a break even proposition, but as the list builds your margins increase. Foodzie is doing the inverse: they’ll have a tough time getting repeat customers and they’ll spend a lot more money evangelizing unknown products. When the marketing money runs out the sales will stop because they won’t have the snowball effect of repeat business.
If I was going to invest $1M in the online specialty foods business, I’d do a rollup of several boutique vendors and leverage the customer lists. In this economy, it’d be cheaper to buy than build.
Hi Don,
Thanks for writing such a thoughtful comment about our business. We’ve spent a significant amount of time thinking through this model, so I thought I’d share our perspective on some of your concerns.
I noticed three general concerns throughout your message.
1) You see small producers as unreliable and disloyal and thus we’ll have a hard time keeping them within our marketplace. Specifically you think these producers will go out of business or if they become successful enough, we will lose them to Amazon.
-In regard to producers going out of business:
We’ve designed our platform to allow lots of food producers to sell through Foodzie. More specifically, a significant number of producers in each category so that when one producer stops selling for a season, or goes out of business all together, there is another chocolate or olive oil option for customers that come to our site. Also, we know that it’s tough for small producers to market themselves. That’s one of the primary reasons we started this business… to help these small producers market to new customers and increase their sales so they can stay in business.
-In regard to losing producers to Amazon:
We’re in the business of helping these small producers succeed. If a producer becomes large enough and sees Amazon as the right opportunity for their business, that’s absolutely fine with us. We know there are enough independent producers across the country that need a platform like Foodzie to sell their product. At the end of the day they have to make choices about where they sell their products and what it says about their own brand. The experience shopping on Foodzie is much like shopping at your local specialty food market, while Amazon more closely resembles shopping at Walmart. It makes sense for electronics, books and shoes to mingle within one marketplace, but there’s something different about food. There’s something about going to a place just to shop for food that’s simply more appetizing and we believe our producers and customers get that.
2) You see shipping as a big issue with our model, both the cost of shipping and the reliability of our producers to ship a package that will arrive in good condition.
-In regard to shipping costs:
We agree aggregation is a great strategy. That’s why with Foodzie we’re aggregating lots of small producers within one marketplace. One of the benefits to our model is that producers within our marketplace can ship under one account, thus aggregating all of their shipping volumes and getting better shipping rates for the whole group.
-In regard to condition of shipments:
The producers we work with welcome the direct to consumer business because it allows them to control their growth and thus control their quality. So, many of our producers make a business around shipping direct to the consumer and have perfected the shipping of their product. Any producer that’s figured out how to ship 50 cases, had to figure out how to ship just one box first. I worked for a specialty food retailer where we had specialty food producers large and small shipping samples to us every single day. It was a rare occasion that boxes would ever arrive with damaged product. If you know this business (and by the thoughtfulness of your response it seems that you do), you would know that any small food producer starting out has to master shipping samples to potential buyers to start getting business. These sample packages are roughly the same size packages our producers will be sending out to their customers on Foodzie, and I think they are more than well equipped in experience and the resources to do it well.
3) You think it will be difficult to sell products that don’t have any brand recognition.
You are absolutely right. It is tough to sell products without any brand awareness. This is a big reason why so many of the specialty food sites haven’t been all that successful. We believe that if you aren’t familiar with a brand you need feedback from other customers to help with your purchasing decision. We are working on features for Foodzie that allow the community to give feedback on products. We believe building a community around these products and producers that allows users to share their experiences, helps each customer to feel more confident purchasing a product they’ve never tried before.