Mercato Raises $26M Series A to Empower Local Grocers

The Shift in Grocery Shopping and the Rise of Mercato

The recent pandemic dramatically altered consumer shopping habits, particularly concerning essential goods like groceries. Projections indicate that online grocery sales in the United States will constitute 21.5% of total grocery sales by 2025. This represents a significant increase from the 3.4% recorded before the pandemic and the 10.2% observed in 2020.

Mercato's Growth and Series A Funding

Mercato, an online grocery platform designed to facilitate a swift online presence for smaller grocers and specialty food retailers, is capitalizing on this trend. Following a remarkable 1,300% growth in merchant sales during 2020, Mercato has successfully secured $26 million in Series A funding, as reported to TechCrunch.

Investment Details and Key Participants

Velvet Sea Ventures spearheaded the funding round, with participation from Team Europe, the investment division of Delivery Hero co-founder Lukasz Gadowski. Existing seed investors, Greycroft and Loeb.nyc, also contributed to this new round of funding. Furthermore, Mike Lazerow from Velvet Sea Ventures has joined Mercato’s board of directors.

The Founding Story of Mercato

Mercato was established in 2015 by Bobby Brannigan, who drew upon his upbringing assisting in his family’s Brooklyn grocery store. Despite his father’s hopes for him to take over the family business, Brannigan pursued higher education and subsequently launched a college textbook marketplace, Valore Books, achieving $100 million in sales.

After selling Valore Books, Brannigan refocused on his family’s store, discovering that operational methods remained largely unchanged for decades.

Identifying a Need and Building a Solution

“The store operated with a rudimentary website, lacking e-commerce capabilities, a social media presence, and even a modern point-of-sale system,” explains Brannigan. “I decided to develop the necessary tools,” he adds, recognizing an opportunity to assist his father with his expertise.

Brannigan collaborated with engineers from his previous venture to create the software systems needed to modernize his father’s store. This collaboration led to the formation of Mercato’s core team, including Dave Bateman, Michael Mason, and Matthew Alarie. They soon realized their solution could benefit the approximately 40,000 independent grocery stores facing similar challenges in competing with larger companies like Amazon.

Mercato as a Platform-as-a-Service

The outcome was Mercato, a platform-as-a-service that simplifies the process for smaller grocers and specialty food shops to establish an online presence. This allows them to offer their inventory for pickup or delivery without relying on third-party delivery services such as Instacart, Amazon Fresh, or Shipt.

Features and Future Development

The current solution encompasses an e-commerce website and a data analytics platform. This platform provides stores with valuable insights into customer preferences, location data, optimal pricing strategies, and other data-driven insights to enhance their operations. Mercato is also developing a supply platform to streamline inventory procurement for these stores, as noted by Brannigan.

“Our core objective is to equip them with the technology, systems, and platform required for success in today’s market,” Brannigan emphasizes.

A "Shopify for Groceries"

Brannigan draws a parallel between Mercato and “Shopify for groceries,” providing stores with a dedicated page on the Mercato platform to reach a wider customer base. Customers accessing Mercato through its website or app can enter their ZIP code to identify local stores offering online shopping. Some stores integrate their existing websites with their Mercato page, maintaining control over basic information like address and hours while gaining access to Mercato’s extensive customer base of over 1 million users.

Merchants also have the option of a white-label solution, seamlessly integrating with their own websites and branding.

Customization and Flexibility

Stores can tailor the customer experience regarding pickup and delivery options, setting timeframes that align with their operational capacity. For instance, they can begin with next-day delivery and transition to same-day service as they scale. They can also regulate the number of time slots offered per hour based on staffing levels.

Maintaining Customer Relationships

Unlike services like Instacart, which utilize independent shoppers, Mercato enables merchants to directly manage orders and maintain customer relationships. Orders are received via email, text message, or automated phone calls.

“This direct interaction is crucial,” says Brannigan. “Store employees often recognize customers and understand their preferences, offering personalized recommendations. They function as a highly effective recommendation engine.”

He further explains, “A store worker understands the importance of providing ingredients for a family meal, while an Instacart shopper prioritizes order fulfillment speed for maximizing earnings.”

Delivery Logistics and Pandemic Impact

Mercato partners with both national and regional courier services to handle the delivery process once orders are prepared.

The platform’s capabilities were particularly valuable during the pandemic, when demand for online grocery services surged.

Mercato’s ability to rapidly onboard merchants proved to be a significant advantage. The company claims it can bring stores online within 24 hours, leveraging a centralized product catalog containing over a million items. This catalog is populated by connecting with the store’s point-of-sale system, automatically matching and uploading products. Approximately 95% of a store’s products are mapped within minutes, with the remaining items added manually, further enriching Mercato’s catalog. Currently, Mercato integrates with over 30 different point-of-sale (POS) systems used in the grocery industry.

Utilizing Machine Learning for Inventory Management

As customers browse, Mercato’s system employs machine learning to assess product availability based on sales data.

“A common challenge in the grocery sector is the lack of real-time inventory visibility,” explains Brannigan. “Upon onboarding a store and integrating with its POS system, we can track product movement both in-store and online. This data allows us to estimate current stock levels.”

This system continuously improves its accuracy over time.

Looking Ahead

“We are significantly ahead of the curve, and the changes brought about by COVID-19 to the online grocery landscape are permanent,” states Brannigan. “The market is now saturated with e-commerce options. However, when a small percentage of stores are online, it doesn’t necessarily compel others to follow suit. But with 15% of stores online, others must adapt to remain competitive.”

Revenue Model and Market Reach

Mercato generates revenue through consumer membership programs, ranging from $96 to $228 per year depending on distance, and from merchants, who pay a single-digit percentage transaction fee – a rate lower than those charged by restaurant delivery companies.

The company currently serves over 1,000 merchants across 45 U.S. states, including major metropolitan areas like New York, Chicago, Los Angeles, Washington D.C., Boston, and Philadelphia.

Future Plans and Expansion

The new funding will be used to expand Mercato’s remotely distributed team of 80 employees, enhance its data analytics platform to provide merchants with more actionable insights, and refresh the consumer subscription program with additional benefits and perks.

Mercato has not disclosed its valuation or revenue figures, but reported reaching a billion in sales and a $700 million run rate at the beginning of the pandemic.