It is often difficult to find the right balance between Strategy & Entrepreneurship. One side is about tactics and patience, the other side is about momentum and perseverance. In this post, we look at Good Eggs and their strategy to dominate a ‘niche of niche’ in the highly-competitive eGrocery space.
The Grocery Delivery market (or eGrocery market) is red hot with new entrants raising huge VC rounds, multi-X Unicorns scaling their operations (ie. Instacart), and incumbents fighting to preserve their market share on a local and national level.
There is a continuum between incumbent grocers launching their own proprietary delivery services, national grocers working with companies like Instacart and Shipt to deliver groceries for them, and a new breed of eGrocers using the ‘darkstore’ model that functions as a ‘micro-warehouse’ for employees to pick items from shelves for their customers and deliver them D2C (Direct-To-Consumer). Each category of company has a different business model and different strategy, but fundamentally they operate in a highly-competitive industry known for its low margins and high CapEx (Capital Expenditures).
In February 2021, $8.0 Billion was spent in the US for online grocery sales, with $6.1 Billion of that coming from Delivery/Pickup and $1.8 Billion coming from Ship-to-Home. Active users placed an average of 2.7 Orders per month, while AOV (Average Order Value) was $82 per order.
San Francisco-based Good Eggs is one of the high-flying upstarts operating the ‘dark store’ model. The company recently raised $100 Million USD to expand their service into other regions in California.
But Good Eggs is a unique story among the sea of other companies trying to become the next (Insert Famous Grocery Brand) in their respective market. As we will see below, the company has been around since 2011 and seen its fair share of trials and tribulations. Yet today, they sit in a position where they are on the verge of scaling their unique model, an example of how a Niche Strategy helped the company prepare for a marathon rather than a sprint.
One of the first questions asked about almost startup idea is ‘does it scale?’
Usually priority is given to ideas that scale on paper, or those who present high-tech visions with exponential, run-rate growth and strong operating margins. A group comes together, starts stitching together some code, and off they go.
But Grocery – and specifically Grocery Delivery – is not your average industry that is ripe for disruption. The $1.2 Billion Webvan collapse serves as one reminder of this during the Dot-Com Bubble of 2001, along with others like HomeGrocer.com. It is a sexy and headline-grabbing industry to try and ‘disrupt’ but the business model requires many things to go right over time in order to become profitable in the long-run.
Good Eggs has adopted a structure and strategy where they offer a limited number of products relative to mainstream grocers. They started with fresh, locally-sourced organic produce, but now have expanded into meal kits, flowers, alcohol, meats, and other products that are in line with their ‘Farmer’s-Market-on-your-phone’ brand.
Their delivery drivers are well paid – at $19 an hour – and are offered full health benefits, yet Good Eggs is able to pass these costs on to their customers due to the quality of their offering.
Define Your Customer
The company focuses their strategy around a specific type of customer that they call ‘Marissa.’ Once they have defined her, they determine how many potential customers they could potentially reach in the geographic area they deliver to.
This type of approach leads to a more targeted way of looking at the TAM (Total Addressable Market) opportunity. While many companies look at the top down $1 Trillion opportunity, Good Egg’s approach is more ‘bottom-up.’ While neither approach is right or wrong, this type of customer segmenting can help zone in on specific ‘niches’ within a market, which is very important when competition is fierce.
‘Niche of a niche’ Strategy
“Dominate a niche” within a local market is an uncommon strategy in most of the startup world, where we tend to more stories about “world domination” and global ambitions. In this case, Good Eggs has carved out a ‘niche of a niche.’
Sizing markets and competition is always a difficult task. It is important to address a problem that has a significant enough TAM – SAM – SOM (Total Addressable Market, Serviceable Addressable Market, Serviceable Obtainable Market). Yet the bigger and more lucrative the prize, the more likely there are to be very well-funded players in the mix; therefore, it is often counter-productive to broadcast a world-domination strategy into a big, juicy market with huge TAM.
In the case of Good Eggs, they have found their niche and moved down the road to profitability in a very tough sector. In other markets, it is a strategic advantage to start in a niche sector of the market, learn the ropes, build a strong operating model and then scale-up.
In the end, Good Eggs is scaling, and they are one of the players in the Grocery Wars happening down in the US market. Their recent $100M dollar raise comes roughly 6 years after they almost went bankrupt.
The revamping and refocusing of their strategy seems to have paid off, as they now have the opportunity to compete in a rapidly-growing, exciting market.
The new funding allows them to triple their TAM as they expand across Southern California, giving them a current opportunity of ~$25 Billion. How the company’s trajectory evolves from here is anybody’s guess, but the strategy has taken them from nearly being on the list of failed eGrocers, to being one of the players making moves and expanding as the market hits mainstream consumer adoption.
Overall, Good Eggs is a prime example of Strategy & Entrepreneurship. It shows how a restructuring in 2015 paved the way towards a more successful business model in 2020 and beyond, at a time when the eGrocery market is just heating up.