Q&A: How Thrive Market became the country's hottest online natural and organic market
Gunnar Lovelace, founder and co-CEO of the online grocer that's been called "Whole Foods meets Costco," talks about the company's rise and success
The Amazon-Whole Foods partnership may have grabbed headlines this summer, but there’s another natural and organic player that’s generating considerable buzz for its online development. Thrive Market, which launched in 2014, has signed on hundreds of thousands of members who pay an annual fee of $60 in exchange for prices on natural and organic groceries that match or even beat those of conventional alternatives. In addition to well-known brands like Plum Organics and Annie’s Homegrown, Thrive offers a growing selection of private label goods — a selection that founder and co-CEO Gunnar Lovelace envisions growing from a current 15% to half of total sales in the coming years.
The company’s online direct-to-consumer format and curated selection of just 5,000 products hits a sweet spot of quality and value for many consumers. But the company is also on a mission to expand access to all-natural products. It’s why Thrive donates a membership to a low-income family for every membership purchased. And it’s why Lovelace recently lobbied Congress and the U.S. Department of Agriculture to expand Supplemental Nutrition Assistance Program benefits to online retailers — and won.
Lovelace talked with Food Dive about Thrive Market’s growth, why he isn’t concerned about Amazon, and how retailers can balance both values and the bottom line.
Food Dive: A few years in, is the company what you imagined it would be?
Lovelace: It’s much larger and more successful than I thought it would be. I knew it was going to be big, but I didn’t know we’d grow as quickly as we have. We’re less than three years old, and we’re already the largest retailer in the country that sells exclusively non-GMO groceries. Four years ago there was one employee in my house. We’re over 500 employees today. I’ve been looking for an organizing principle that brings people together for common good at scale my whole life. I really feel like expanding access to healthy food is one of those issues.
Food Dive: How big has Thrive Market become? How many members do you have now?
Lovelace: We don’t publish that data, unfortunately. Our investors have blocked us from sharing information about membership and revenue. (Editor’s note: As of last June, according to The New York Times, Thrive Market had 300,000 members and shipped more than $200,000 worth of products each day). We have other types of metrics. We’re about a year into launching our own branded collection, which is already at 15% of sales. With our third-party brands, we offer the highest quality organic and non-GMO brands and products that you would find at any health foods channel, and in less than three years we’re a top ten sales channel for 90% of the brands we carry.
Food Dive: Thrive was initially turned down by 50 different VC investors. What was their hesitation?
Lovelace: We encountered varying degrees of skepticism. [People asked] Why did Nick (co-founder Nicholas Green) and I think that we were the ones who were going to disrupt a very competitive $100 billion-plus industry? Especially considering there were very mature, sophisticated players like Amazon and Whole Foods already in the market — and this was long before the acquisition. Additionally, there was apprehension that Nick and I could execute on the e-commerce operational and logistical elements efficiently and at scale, as we’d never done that before. Plus, investors thought our financial projections of $10 million in our first year and $35 million in our second were unrealistic.
We ended up beating our second year projections during our first year in business, doing $45 million in revenue over the first 12 months.
Food Dive: What have been some keys to the company’s growth?
Lovelace: We think of ourselves as providing much more than just an e-commerce utility. We’re a community — a community of members that are value-aligned. That informs the core investments we’ve made as a business. We have a really stringent set of criteria for how we evaluate our products, and our members really value that. We’ve made significant investments in content, influencers, social advocacy and having a social mission program. We also have really differentiated pricing, which we get from buying directly from brands and cutting out the middle men. We pass those savings on to our consumers, then make our profit center on a $60 paid membership.
Food Dive: It seems like Thrive isn’t just going after coastal natural and organic consumers. Can you talk about who your customers are?
Lovelace: Expanding access has been a core mission for us, and so 50% of our customer base is in the Midwest and the South, and that doesn’t even include big states like Texas. This is a secular trend now. You look at consumer data, and 85% of Americans want to see their food labeled for genetically engineered ingredients, and more than 85% of American families want to buy organic but they can’t do it because they can’t afford it, or they can only do it periodically, or they can’t do it because there aren’t trusted resources. We really feel like we’re bringing the mainstream in.
Food Dive: Thrive puts quite a bit of educational content on its site and through social media channels. What role has education and content production played in attracting and retaining members?
Lovelace: We think it’s a core part of our brand. It’s a way we can differentiate from large institutional players that don’t have trust and credibility in those discussions. And we know it’s been very effective in bringing people into our ecosystem and be a centerpiece of our strategy going forward. Our perspective on media is that people don’t trust traditional media sources anymore. They don’t trust big players on the media side or on the CPG side, and that’s why there’s just so much disruption. Challenger brands like ours have an opportunity to be seen as a trusted, credible resource.
"Eighty-five percent of Americans want to see their food labeled for genetically engineered ingredients, and more than 85% of American families want to buy organic but they can’t do it because they can’t afford it, or they can only do it periodically, or they can’t do it because there aren’t trusted resources. We really feel like we’re bringing the mainstream in."
Co-CEO, Thrive Market
Food Dive: What are some of the most effective ways you’re acquiring members?
Lovelace: We focus on driving an incredibly high-quality experience for our members. We see organic and referral activity that’s unusual to this industry, and that’s because members love what they get from us. They save a lot of time and money, but they also appreciate things like the fact that we use 100% post-consumer recycling on our packaging, and that we’re about to go zero waste on our distribution centers. At the end of the day, it’s all about member obsession, and if we can drive a quality experience to our members while at the same time selling organic groceries at the same price as conventional equivalents, we’ve got a winning proposition that will allow us to compete at scale with institutional players.
Food Dive: Do you see 5,000 products as the sweet spot for your company? Do you see that number growing as the company grows?
Lovelace: We’ve got some catalog expansions and category expansions up our sleeve for 2018. But at the end of the day, whether it’s 5,000 or 6,000 or 8,000 products, we’re going to have a highly curated catalog, and we think that’s a core part of our value proposition.
Food Dive: The typical supermarket has around 50,000 products. Do you think shoppers across channels are looking for a more pared-down grocery shopping experience?
Lovelace: I think we’re all overloaded with information. What’s the difference between a dozen different laundry detergents, and do I have time to figure that out? Thrive continues to be seen as a trusted resource that does all that editorial work. We’re saving people time, which at the end of the day is even more valuable than money.
Food Dive: What sort of interest are you seeing in Thrive’s private label products?
Lovelace: When we launched, it was all third-party brands, which we’re going to continue to be invested in long term. But in every single category where we launch our own products we’re seeing 50% to 80% market penetration in that category. That’s really valuable for us, because it means we’re really a platform. We’re not like a meal kit company or some other niche where that’s all they do and that’s all they’re seen as. In every single category we’ve launched in we’ve shot up to number one in the category, whether it’s cleaning products, diapers, nut butters, bone broth or supplements.
Food Dive: How many private label products do you have currently, and what are your growth plans there?
Lovelace: We’ve launched 150 products in the past year with our Thrive Market branded collection. The way we approach our collection is that we’re delivering a premium brand, a premium experience, and we do it at 5% to 10% below the top performing premium comparable in the market. Our private label strategy is not about a race to the bottom.
Food Dive: What other categories would you like to see Thrive expand into with private label?
Lovelace: We’re making a big push into breakfast. In September, we’re coming out with some cereals. We’ve got coconut flakes and some sprouted granolas along with our own non-dairy milks. Supplements have also been a big push. We do a lot with snacks. We’re pushing very heavily into baby and cleaning products. We’ve got more than 300 products in the pipeline over the next 12 months. We know by the end of the year we’ll have more than 20% of sales through our own brand collections, and we think in the next two to three years we’ll be closer to 50%.
Food Dive: How do your shoppers use your online store? Are they using Thrive in addition to their local grocery store? Is Thrive mainly a stock-up trip for them?
Lovelace: It really depends on the customer. You’ve got the customer who’s an avid farmers market shopper and who gets everything else from us religiously. You’ve got customers that use us to augment a particular category because they see value in snacks or baby products. You’ve got customers who are more casual but still ordering regularly as part of buying from three or four different retailers. So it’s a really broad portfolio and it really depends on who the member is and what they’re looking for.
"We know by the end of the year we’ll have more than 20% of sales through our own brand collections, and we think in the next two to three years we’ll be closer to 50%."
Co-CEO, Thrive Market
Food Dive: Many brick-and-mortar grocers are stepping up their online grocery offerings, and many are delivering products within an hour. Is working on delivery times a priority for Thrive Market?
Lovelace: It takes one to three days. We’re constantly looking at that. At the end of the day, though, these are consumables. People put them on auto-ship. We add differentiated pricing within a differentiated brand experience. So while we’re always concerned with having the highest quality experience on shipping and logistics, we’re never going to be one-hour or same-day delivery. That’s not the market we’re going after.
Food Dive: Why does Thrive donate memberships to families in need? Where did the roots of that idea come from?
Lovelace: I grew up really poor with a single mom and saw how hard she worked to make healthy choices. It always seemed crazy to me that food with lots of chemicals and processing costs less than food without a lot of chemicals and processing. When my mother remarried, my stepfather was running a food co-op out of a hippie commune in Ojai, California, and I got to see firsthand the ways to make food more affordable and build community. As I went on in my own career, I always felt there was a really tremendous opportunity and responsibility to really disrupt access to healthy foods. Thrive Market is very much an aspirational, mainstream 21st century food co-op.
Food Dive: What sort of response do you see from lower-income consumers who aren’t typically the target audience for natural and organic companies?
Lovelace: We hosted a group of young women from an inner city high school here, and I was just stunned at the sophistication and awareness of things like coconut oil and superfoods. This information is clearly out there. One of the core ways we measure success is [asking], can we sell the healthy alternative for less than the price of the conventional equivalent? And the answer is most often yes. We sell a Kind bar for less than a candy bar. We sell non-toxic laundry detergent at a better price than what big box stores offer. Historically, these products have been out of reach. Then again, you look at consumer data and 85% of Americans want to buy organic but they can’t do it because of price or geographic access. Our members donate a portion of their savings at checkout to fund the first purchases of low-income families, largely to kick start that habit formation. We see four to five times normal charity donation rates from our members because they care about that.
"If we’re going to have a federal program that gives money to people to buy food, we need to make sure they can access healthy foods."
Co-CEO, Thrive Market
Food Dive: You pushed for food stamp reform late last year. Can you talk about that?
Lovelace: More than 50% of the families in our giving program are on SNAP, but they couldn’t buy our products online. That just seemed crazy. So we launched a campaign and were very careful about positioning it in a trans-political way. If we’re going to have a federal program that gives money to people to buy food, we need to make sure they can access healthy foods. As a result of that framing and our partners, we were able to generate over 330,000 petition signatures. We also had lots of celebrities create short, funny PSAs about what you can buy online and what you can’t with food stamps. We had op-eds from The Washington Post about the issue. Within 90 days of the campaign, the USDA committed to offer SNAP online later this year. That was just an amazing thing for us that a small startup, in its second year, could have a positive impact on a federal program that touches the lives of 46 million Americans. We’re looking at new campaigns. We’ve got some exciting new stuff we’re going to do starting in the fall around new advocacy work.
Food Dive: Do you see Whole Foods under Amazon as a competitor to Thrive Market? Is that something you’ve been thinking about?
Lovelace: Anyone who underestimates Amazon is out of their mind, so of course we’ve watched them. But it’s just not a binary result. We’ve always known there will be several multi-billion-dollar players that do some version of what we do. Even if Amazon captures 40% to 50% of grocery, we only need to get 1% or 2% of the market and we’re doing $10 billion per year. More importantly, what we see in Amazon’s acquisition of Whole Foods is a really existential threat to traditional retailers and CPG companies. I think there’s going to be a lot of consolidation, a lot of activist shareholders. I think there are going to be retailers that go out of business. It’s going to be a blood bath over the next five years.
Follow Jeff Wells on Twitter