Dive Brief:

• Grocery startup Farmstead has partnered with grocery company Alex Lee to expand its operations to the Carolinas, according to a company press release. Farmstead will lean on Alex Lee's supply chain and knowledge of the local market as it deploys its technology in the region.
• Farmstead will open multiple micro-hubs in the Carolinas with Alex Lee, which is the parent company of Lowes Foods and Merchants Distributors and is headquartered in North Carolina. The hubs will be stocked with national and local brands from Alex Lee distribution centers. 
• Through the partnership, both companies will be able to expand their presence into new markets without opening any physical stores. This will be Farmstead's first expansion outside of the San Francisco Bay Area.

Dive Insight:

During an interview with Grocery Dive at Groceryshop in Las Vegas, Farmstead CEO Pradeep Elankumaran said the company chose the Carolinas for expansion because it is looking to open in a smaller metro area and learn more about what the economics look like there. According to Elankumaran, the Carolinas offer a mid-market opportunity with shoppers who want to take advantage of online grocery but also want a cost-effective solution.

With its operations in San Francisco, Elankumaran said it’s become clear that Farmstead is good at the mid-market niche. "Customers are showing up, they're aggressively growing, they’re retaining," he said. 

In partnering with Alex Lee, Farmstead will be able to utilize an existing supply chain and in turn, both companies will be able to make money in areas where they didn’t before, Elankumaran said. Through Farmstead's micro-hubs, Alex Lee can provide grocery delivery to shoppers in areas where it doesn't operate physical stores. 

"It's more about what are the nuances of the market, how can we get our partners to help us understand more about the things we should be thinking about as we're expanding location," Elankumaran said.

A single Farmstead micro-hub can serve a 50-mile delivery radius and be built in less than eight weeks for $100,000, according to the press release. The speed and low-cost model will allow the company to grow more aggressively as it looks to other markets. This is the first of several partnerships Farmstead is planning with grocery companies and distributors throughout the U.S.

Correction: A previous version of this article misstated the source of products for Farmstead's micro-hubs. The hubs will be stocked with national and local brands from Alex Lee distribution centers.