Ever since the days of Webvan and HomeGrocer, the tech industry has been sheepish around online grocers. Webvan was an online grocery delivery service that spent over $500 million in the 12 months before bottomed out in 2001, likewise HomeGrocer spent equity to build out a distribution service before it had the scale to support it. Now, offering razor blades, ties, subscription gifts… anything is fine, yet groceries have remained an investment red light. But the time for online grocers seems ripe, says Michael Joseph, the co-founder of Mile High Organics, an organic grocer and flower delivery service that just raised $1.2 million on AngelList from individual investors lead by Alex Khein as well as 500 Startups and TA Ventures in Kiev.
“We’re not Webvan.” says Joseph, “We’re working on scaling something up from the beginning. And we’re developing the parts that consumers are either asking for, or we have the insights to see what they really want. We’re building it from the ground up, but with a vision to be equally as large as what was going on twelve years ago when this industry had its last real bout of attention.”
Mile High Organics offers bundled deliveries of organic groceries, produce, and flowers from farms or suppliers in the region, depending on the season. They’re based in Boulder, Colorado and actively servicing the area around Denver, Boulder, Fort Collins, and Colorado Springs as their test bed.
Joseph started the Mile High Organics by writing himself a check from his credit card, and financed a delivery vehicle. The company started with 15 SKUs offering organic produce by delivery, with all the ordering done online. But over the last two years, says Joseph, “[We] went from 15 SKUs to 700 SKUs with thousands of people shopping online. [Mile High Organics] is still operating on the first version of their website, so haven’t really gotten into all the beautiful things we could do on the deck side.”
Joseph garnered his desire to work in organics when he was 12 years old, and his father wrote the federally enforced food labelling legislation for the US. After one attempt at a similar business model that Michael Joseph backed out of, he’s partnered with his long-lost cousin, Steve Markowitz, who Joseph was only reintroduced to when his father moved to California. Markowitz is the co-founder and CEO behind MyPoints.com, one of the first loyalty marketing companies on the Web.
Joseph believes that it was the right time 12 years ago when things went bust, but there were some overly aggressive investors and bad decisions were made. HomeGrocer’s founder and CEO is on Mile High’s advisory board and “very active” in their planning, says Joseph. In 2000, HomeGrocer managed to build an online store that was doing $400 million a year in business. They had eight distribution centers, half of which were profitable, and the other half were getting there. Unfortunately, the investors on both the HomeGrocer and Webvan sides both saw it as an “all or nothing, zero-sum game,” says Joseph. HomeGrocer kept building distribution centers, all with equity financing and the promise that there would be equity coming thereafter. But their funds dried up, and HomeGrocer was sold to Webvan, which packaged up the industry and drove it off a cliff.
Webvan’s failure was considered one of the worst failures of the late ‘90s boom – worse than even Pets.com. Michael believes that it seriously inhibited what became possible, with investors still wary of what happened 12 years ago even though groceries are one of the largest consumer markets in the US.
The USDA measures that the average family spends $12,000 per year on premium groceries, like organics. “So there’s a huge, huge market. But what hasn’t happened since 12 years ago, is that groceries haven’t really been disrupted,” says Joseph.
“People go to the grocery store 88 times per person per year in the US, and there’s no sense of personalization when you want that experience,” says Joseph, “We’re building the company to be able to scale across the country, but we’re not going to do it in a haphazard way that you have to bet the whole company to make that move.”
“There’s still a lot of scar tissue from the Webvan days,” says Joseph. But Mile High Organics, the country’s first online grocer to be certified as organic by the USDA, is taking slow and steady steps to build a solid company. They have no plans to expand without the proper structure. With this round of seed funding, they’re aiming to get their tech platform down and build out a smooth delivery operation that will be easily expandable to other geographic areas.