Farmstead, a company that combines an online grocery service with software solutions for other grocers, has announced the completion of a $7.9 million Series A funding round.

Despite the increased demand for grocery delivery services this year, major companies such as Instacart primarily facilitate purchases from established supermarkets. Pradeep Elankumaran, co-founder and CEO of Farmstead, explained that this approach limits the potential number of deliveries, potentially causing difficulties in securing a delivery time.

Success stories are less common for businesses like Farmstead, which operate by selling groceries directly from their own warehouses, including employing their own warehouse personnel and delivery drivers.

Elankumaran noted that when the company was founded in 2016, the warehouse model was generally considered undesirable due to the complexities and costs associated with its operation.

To overcome these challenges, Farmstead has developed software designed to optimize warehouse operations and enhance efficiency. The company reports a reduction in food waste by a factor of 3 to 4, alongside the ability to fulfill thousands of orders daily within a 50-mile radius, all without delivery charges, from each warehouse facility. Farmstead claims to be nearing profitability in its initial market, San Francisco.

He stated that the company was not prepared for expansion two years ago, but is now fully equipped to proceed.

Furthermore, Farmstead has begun offering its Grocery OS software to other grocery businesses seeking to establish an online presence. In some instances, grocers may choose to purchase the software independently, while in others, Farmstead may collaborate with them to manage the warehouse operations. Elankumaran emphasized the importance of “splitting the demand,” directing in-store shoppers to one location and fulfilling online orders from a separate facility.

“Increasing capacity is essential for bringing this industry online,” he said.

Elankumaran also pointed out that establishing a new supermarket can cost around $10 million, whereas Farmstead can launch a warehouse hub in four to six weeks for approximately $100,000.

Regarding potential concerns from grocery stores about purchasing software from a competitor, Elankumaran indicated that the opposite is true—they view Farmstead as more trustworthy due to its direct experience in grocery store operations, unlike a software company without such background.

Farmstead’s total funding now amounts to $14.7 million. The Series A round was led by Aidenlair Capital, with contributions from Y Combinator, Gelt VC, Duro, Maple VC, Heron Rock, 19 York, Red Dog Capital, and other investors.