The following is an early version of an investment memo for our vision for GreenChain.
Read our retrospective on sunsetting GreenChain.
The U.S. food supply chain has limited discoverability, hindered pricing communication, poor product traceability (which impacts food safety). All the markers of economic inefficiency for the most critical leg of the American economy.
- Orders are placed and fulfilled via email or SMS with sellers connected via word-of-mouth, with no uniform pricing, delayed payments, and no central place for discovery aside from Google Search.
- For the 500,000+ small-medium (non-chain) restaurants in the U.S. working with the 16,500+ small-medium distributors (source), which are the primary distributors of fresh food (the most challenging, time and temperature bound logistics), the restaurants lack the financing and pricing power of their large competitors.
- $268BN in annual revenue. Based on 2016 revenue data, the top 8 foodservice distributors account for 41% of the market. Small distributors (staff of 10 or less) represented 66.5% of the total number of active firms in this sector or 5.9% of sectors revenue.(source)
- Distributors and wholesalers rely on their existing customer network for sales with limited channels to expand their reach.
GreenChain is an online B2B marketplace that connects foodservice institutions to fresh food vendors and brands. For restaurants, we digitize their ingredient ordering, enable discovering and purchasing from new vendors, and provide net 21 terms on all shipments. For vendors, we provide new customers, immediate payments on sales, and take a small transaction fee on new accounts.
- "Faire for fresh food"
At scale, we will use our distribution and aggregated data to reduce food waste, which is one of the largest opportunities to mitigate climate change (40% of food produced in the US is wasted).
There are two target customers (each side of the marketplace):
- Buyers: Small-medium restaurants and foodservice institutions (e.g., ≤ 10 locations) ordering their ingredients on our marketplace.
- Why "small-medium":
- Not restaurant chains who likely have consolidated sourcing operations compared to location-based ordering where a chef, for example, sources her ingredients.
- 70% of U.S. restaurants are single-unit operations (National Restaurant Association)
- Why "small-medium": Not large vendors (like most IFDA members) who have existing sales channels, sales teams, and even digital (e-commerce) ordering solutions. Such companies.
Buyer (Restaurant) Value Propositions
- Discover products, vendors, and better deals - Currently, restaurants scarcely research alternative vendors because of the inaccessibility. Our marketplace aggregates products across vendors to enable restaurants to compare prices, delivery days, and attributes such as local and organic. Restaurants find substitute products when there are stock outs. They can also input their product list and search for optimized baskets across vendors to satisfy minimums.
- Lower prices via buying group - As a buying group (i.e., Group Purchasing Organization (GPO)), we have the purchasing power to provide lower prices via our volume discounts with vendors.
- Our category management team owns these negotiations and sets target prices base on research of item-category, supplier, and region.
Seller (Vendor/Distributor) Value Propositions
- More customers - Currently, vendors rely on discovery (inbound) via word-of-mouth and Google. Our marketplace advertises sellers to a broad audience of customers.
- Inventory prediction
- Immediate payments - Currently, distributors wait weeks until restaurants pay for orders. Our service pays sellers upon shipment arrival, transfers funds to their bank account automatically, and automates billing and invoicing.
- Better customer ordering experience (e-commerce store-front) - Currently, distributors use email or SMS to order and communicate pricing and product availability. Our service enables customers to browse product catalogs, reference historical orders, and reduce communication overhead.
- Trucking aggregation
- Robust tools to run your business
- Easy order fulfillment and invoicing
- Customer management for wholesale relationships
- Messaging system
- Track inventory and accounting
- Analytics on sales
- Underwritten sales - Currently, distributors lose money when the buyers reject shipments (e.g., poor quality); typically 1-2% of shipments. Our service underwrites every transaction to remove this financial risk from the distributors.
- Digital ordering with off-platform vendors - Restaurants can use the platform to order via any supplier by enabling the customer to input the order guide and prices themselves. We map the orders to the email or SMS the vendors expect (likely using Twilio).
- These vendors usually do not have an expected format because humans process them. Nevertheless, it will be simple for GreenChain to implement any vendor-specific mapping.
- We can condition underwriting on seller reliability (akin to credit score).
- Owen Wang said was "very important" for Odeko to offer free samples to its cafes.
- Frictionless feedback will provide helpful signal for product prioritization.
How we Reduce Food Waste
- Reducing the time in transit, which eats at the perishable food shelf-life, reduces food waste. This can be addressed through the localization of supply chains. Restaurants struggle to source local food products. Through our marketplace, restaurants can discover and source ingredients locally. (BCG)
- By connecting buyers and sellers through the marketplace, distributors can more easily find buyers and avoid reselling through re-distributors.
- Focus on meat and dairy to optimize for climate change impact - meat has the highest energy expenditure per calorie.
- Inventory prediction for vendors/distributors to warn them when they'll have food waste, which can save them money (because otherwise they would cut the price aggressively).
- Future approaches:
- Use big data to provide ML-powered recommendations for restaurants ordering from suppliers and vendors ordering from producers.
- Similar approaches in the public sector (through a data clearinghouse) have shown great results in certain markets, with overproduction in some cases cut to zero and no stockouts (BCG)
- Aggregated trucking - fewer trucks, shorter routes.
Strategy and Marketing
- Begin in San Francisco, where we can conveniently meet, shadow, and iterate pilot and beta designs in-person.
- Geographic-based rollout: Expand availability of our service region-by-region (i.e., major U.S. city).
- Buyers can only buy from sellers who service their region.
- The marketplace is most valuable by having as much product available. More value for discoverability and servicing all of the buyer's product needs.
- Visit restaurants in suburbs because they have fewer salespeople visit them (idea via Toby at DoorDash).
- Organic growth - flywheel:
- Restaurant owners learn of software that their local competitors use.
- If several customers for a particular distributor use GreenChain, we can make a stronger pitch for them to join the platform. The restaurants will also want them to join to consolidate their operations and payments.
- If a restaurant has several distributors (for their region) on GreenChain, they are more likely to join.
- The small-medium distributors are most often provide fresh food, whereas broadline distributors (e.g., Sysco, U.S. Foods) are more popular for dry-goods, frozen, and supplies.
- Fresh-food has more variability in quality than dry-goods, which yields variability in pricing; hence, apt for a marketplace to compare vendor prices and communicate dynamic pricing to buyers.
- Fresh-food has a near-term expiration date, which means it must be sold fast and can leverage a marketplace as a channel for additional customers.
- Sales Tactics - Restaurants
- Sales pipeline stages: Plan to connect → demo scheduled → wants to join beta → signed up for beta
- Door-to-door cold intros
- Timing: Visit late morning and afternoon, not during lunch
- At the end of each chat:
- Get chef's or owner's personal phone number.
- Schedule a demo ASAP (e.g., the same week) because momentum of interest is critical and fragile. Recommend a day and time instead of asking "when are you available?"
- Leave a business card at each restaurant we visit and sign the card (e.g., "Thank you, Daniel").
- Get warm intros to restaurants and find restaurant champions who will introduce us to their restaurant friends
- Target new restaurants that don't yet have vendors.
- Comb Eater.com for restaurant openings.
- E.g., "We have 15 slots for the beta and 5 remaining openings. Are you interested?"
- Get warm intros to vendors and ask them to introduce us to more (likely non-competitive) vendors and their restaurants
- Bring customers and revenue to vendors without
- expense of a salesperson - commission fee = transaction fee
- hassle of managing numerous small restaurant accounts
- Automate cumbersome aspects of their operations
- manual ordering
- Bottom line: emphasize that we will help them grow their business and increase their margin
- We considered prioritizing onboarding suppliers for a single category to prioritize a sufficient number of suppliers for a single item for discoverability and price comparison. E.g., if a user wants "Ahi tuna", they can compare many suppliers instead of a few.
- However, it is more valuable to be a location where buyers can fulfill all of their needs.
- By contrast, grocery retail has separate departments and workers ordering by category, whereas restaurants have one person managing all orders.
- Exclusivity and scarcity - Present ourselves to market participants as "exclusive" for "the best restaurants" and "best suppliers". This builds desire to join, like Clubhouse.
- e.g. we have 15 slots for the beta and 5 remaining openings, are you interested in joining?
- Referral credits - Offer restaurants and distributors large referral credits/bonuses for getting others restaurants or distributors to sign up.
- Activation bonus- Give restaurants $100 in credit for first order
- Build brand value around food waste
- Partner with food waste associations (e.g., )
- To build brand value, connect food vendors on platform to organization(s) collecting food donations. This will avoid food waste and enable the food vendors to write-off the donation to avoid the expense of otherwise spoiled supply.
Business Model (Pricing)
The following is the pricing model for the GreenChain marketplace. Our long-term vision involves building advanced solutions throughout the food supply-chain, which will introduce additional revenue sources.
- Free for restaurants.
- There’s never any cost for sellers to use GreenChain with your their customers. Sellers will only pay commission on new accounts who find their products through our marketplace: 10% on opening orders, 5% on reorders.
- Inspired by Faire's 25% / 15% rates.
- We will likely negotiate special terms on a case-by-case basis to win over distributors.
- Food distributors are reluctant to (1) publicizing their prices and (2) setting uniform pricing across customers.
- We must incentivize distributors to compromise on these industry norms with our seller benefits.
- Note ChefHero's strategy: When a supplier brings an existing buyer/account onto ChefHero (for processing their orders and payments), that buyer does not see any other suppliers for the same food category. E.g., If a meat vendor migrates their buyers to ChefHero, their buyers will see the marketplace for dairy, but not meat.
- Revenue at all food distributors (2016): $268B (source).
- Subtract 41% for top 10 largest distributors (by revenue) who are unlikely to participate in our marketplace because they have existing channels: $164.5B
- Note: Considering we only charge commission on new accounts discovered through the marketplace, even if $x of sales flow through a platform, we'll only be able to add our fee on a fraction of those sales.
The following companies are developing similar or adjacent solutions, though all have limited adoption or are young.
- Rekki - Model resembles GreenChain, though we are starting in the U.S. (vs. London), putting greater emphasis on sales, creating a buying group to enable restaurants to instantly sign up with any supplier.
- Notch (formerly ChefHero) - Similar to Rekki
; however, the company has recently pivoted their focus to digital tools for restaurants to manage their operations.
- Choco - Digitizes the ordering process for restaurants and distributors. GreenChain is a marketplace that enables restaurants to discover and order any ingredient from any supplier. Of course, our system will seamlessly integrate digital ordering and payments, but our marketplace is the 10x value proposition that solves significantly more important problems for restaurants than digitization alone.
- Cheetah - A tech-forward distributor with trucks and warehouses. GreenChain is a marketplace connecting all of the market's distributors and wholesalers with restaurants, digitizing the commerce of all players at this level of the food supply chain.
- Silo - Platform for food distributors and food producers buying/selling from each other. Though does not compete with our restaurant product, Silo is where these food distributors manage their operations and sales, which competes with GreenChain's inventory management products for distributors.
Not direct competitors, but solving similar problems:
- Cheetah - Like broadline distributors, Cheetah partners with many small-medium producers to provide a wide assortment of products (like our marketplace), but has static, transparent pricing (like our marketplace) and convenient delivery features.
- Faire - B2B marketplace connecting sellers (brands and manufacturers) with SMB retail (e.g., clothes, interior decorating, and even dry-good foods). Has financing options like Net 60 terms and free returns (which go to Faire's warehouse).
- Note: Non-food supply chains do not have "distributors".
- Fairer is unlikely to expand to fresh food given complexity of logistics and sellers, which is much different than its other verticals.
As GreenChain establishes itself as the center of food-supply chain commerce, the following expansion opportunities exist for us:
- Price recommendation for distributors and producers - By analyzing distributors' sales history and knowing their customers' purchase patterns, we can provide price recommendations.
- Replenishment recommendations for distributors and producers - same as price recommendations.
- Fulfillment (like Cheetah) - After identifying the most reliable distributors on our platform (based on delivery success and rejection rate) and consulting the purchase patterns (and forecasts) of our restaurants, we can create large-volume deals with the distributors to supply a warehouse.
- Same-day delivery (using a service like Onfleet) from our warehouse.
- Returns (of rejected shipments), for which we might be able to then quickly resell.
- Connect directly with producers - Can distribute directly to buyers without distributors taking a cut.
- Freight solutions - Connect with Uber Freight or others to provide transportation solutions, informed by our route optimization. (Silo is doing this.)
- Note: Uber Freight does not support refrigerated vehicles (cold-chain).