Online grocery’s Achilles heel

Most observers of the online grocery business think Benzi Ronen is savvier than many of his peers. When the Farmigo founder was in that business, before abruptly abandoning it a couple of months ago, he moved cautiously, at least compared to some others. The former technology executive understands well that food delivery is much more friction-filled than the software business is.

And yet, even for Ronen, the logistics were simply too much. “We think we’re great at building software to solve problems, but we don’t think we’re great at building logistics to solve problems,” he told Food+Tech Connect in July. Ronen did not respond to requests for comment on this story.

“It’s easy to underestimate what it takes to make this business happen on the ground,” says Amy McCann, CEO and co-founder of Local Food Marketplace, a Eugene, Oregon-based provider of back-end technologies for local food vendors, mostly wholesalers. She has no interest in entering the business herself. “We don’t move food,” she says. “It’s just very difficult.”

There have been all kinds of rumors surrounding Farmigo’s sudden pullout from its markets in the Bay Area, Seattle, New York, and New Jersey. It surprised a lot of people, especially because Farmigo had landed a financing round of $16 million just 10 months earlier. There was some speculation that a major investor had pulled out, which Ronen has vehemently denied.

But if we take Ronen at his word, it could be that the problem wasn’t just managing the daunting logistics of getting local food to local people, but the challenge of doing so in several markets around the country, while trying to build up business in all of them at the same time. Compare it to the early Walmart model. It’s as if Farmigo had opened several stores in Bentonville, Arkansas (like Walmart did) and then quickly decided to hopscotch around the country, opening sets of stores in Chicago, Portland, and Miami, with each location relying on totally different supply chains, and totally different labor pools. Except Walmart existed for 18 years, and had 24 stores in Arkansas, before it started expanding into other states in 1968. And when it did expand, the states were, at first, contiguous, so the company could often use the same warehouses, suppliers, and transportation lines.