Dive Brief:

• Online grocer Farmstead launched a new service today called "Refill & Save" that brings prices down on its most popular products if customers opt-in for recurring orders, according to a release sent exclusively to Grocery Dive. Some of these products include milk, fresh fruits and vegetables, bread and yogurt. 
• The company automatically queues up recurring weekly orders, and customers can then add or delete items, or delete the order altogether, up to an hour before the delivery window. Pradeep Elankumaran, founder and CEO of Farmstead, told Grocery Dive in an interview that customers that use Farmstead's new service will receive free weekly delivery in three-hour windows for order $30 or more or free, same-day delivery for order over $35. If orders are less than $30, they’ll pay $3.99, they said. The grocer says 70% of its customers receive free delivery. There is no additional charge to create a Refill & Save subscription. 
• Elankumaran noted in the release that the new service would help the company predict demand, which would decrease costs on their end while increasing efficiency.  

Dive Insight:

One of the biggest hurdles grocers face with the online grocery adoption rate — which is currently 8%, according to Elankumaran — is the cost of products and delivery. Farmstead's newest service could help the retailer fight those high costs and compete with the growing number of delivery services provided by supermarkets. 

When Farmstead first launched, the company was at price parity with traditional grocery stores, but with the ability to predict future orders through Refill & Save, the retailer says it can reduce the costs of certain products below the average of supermarkets in the San Francisco Bay area.

Elankumaran told Grocery Dive that the online retailer can afford to lower prices by the sheer number of customers buying groceries on Farmstead. For every new customer, the cost of inventory and delivery gets cheaper. "We are able to go to our vendors and say these customers are committing to automatic refill and will buy from us consistently," he said. "So you're going to see your invoices continue to climb and climb. Can you give us a better price?"

The same concept applies to delivery. As the number of customers increases, so does the probability that they are located near an existing delivery route, which decreases last-mile costs for the online retailer. Those savings can then be passed down to shoppers.

By lowering prices and offering the convenience of automatic refills, Farmstead can increase customer retention, but Elankumaran says the service will also help the adoption of new products that people may not normally buy on Farmstead because they're walking into a supermarket and looking for the best price.

In addition to lower prices, its new program will help Farmstead offer more local products and brands, something not many major supermarkets offer but are increasingly becoming important to consumers. "We can actually help guide better predictions for these local brands and promote them to our weekly customers so these local brands actually have a shot," said Elankumaran. "It's really important to them to have the right estimates."

If local brands are able to reduce costs from food waste because of Farmstead, the brands may prefer to service the online retailer over independent grocers or Whole Foods. In fact, Whole Foods has cut back on its local food offerings by becoming more centralized, and Farmstead may be looking to fill this gap. 

But Farmstead has some tough competition ahead as Instacart just reduced its delivery fee and Whole Foods has been working on reducing its prices as well in partnership with Amazon. To combat the issues with high delivery fees, grocers are opting to develop their click and collect services instead or ditch delivery altogether like Trader Joe's. 

According to a new report by CommonSense Robotics, same-day grocery delivery offerings from major retailers grew by 500% in 2018. A poll by the company and other research firms show that consumers prefer same-day delivery over in-store pickup by a 4:1 margin, but most retailers have focused their resources on click and collect. 

Farmstead's newest initiative could solve a lot of woes that online retailers and supermarkets struggle with, but only if consumers actually choose to opt in. A lot of this will depend on the retailer's promotional techniques. Elankumaran says all customers will be automatically opted in after its rollout, get notifications and see it on the app. To attract new customers, Farmstead will be promoting on its digital channels.

If successful, the retailer plans to grow its Refill & Save footprint from just 25% coverage to 100%, with more local brand offerings and cheaper prices.