Strategy – Thrive Market + Membership

How cliché to say ‘Thrive is thriving. ‘ But in the sea of dead bodies in the grocery delivery sector, Thrive Market is not only surviving but apparently thriving.

How have they done it and what is their strategy to scale healthy eating sans any bricks-and-mortar presence?

Thrive Market website
Thrive Market website

Thrive is an organic grocery-delivery business with a twist – it is built on a Membership Model á la Costco. Members pay $60 per year to be able to order from the grocer that ships only non-perishable, packaged goods at this point.

The best proxy to describe this model is a non-brick-&-mortar version of Whole Foods with a better price point

Thrive has all the makings of a blockbuster business in grocery despite early setbacks in their fundraising journey.

When Nick Green and Gunnar Lovelace came up with what they thought was a brilliant idea in 2014 to start an online grocery store focused on health and sustainability, they trotted the concept out to rooms full of venture capitalists and private-equity investors. Their efforts netted zero dollars.

Winsight Grocery Business

With more than a million members, the company is scaling-up. Even though they are L.A. based, they have some unique attributes relative to what you may expect:

  • They pitch for affordability (average family income < $100K per year) and leverage membership model to achieve that (similar to Costco, different vertical)
  • Of their 1 Million+ members, member concentration is highest in Midwest markets like Indiana
  • Average Order Value (AOV) clocks in at $90 with 14 items at checkout, which is slightly above the industry average in the U.S. at $87 as of August 2022

Because they were unable to initially raise venture capital as planned, they engaged in some pure Business Model Innovation (BMi) with the membership model and are now generating $100s of Millions in revenue. One look at the current market environment – which is a graveyard of VC-backed, grocery delivery businesses – and we can envision that this early roadblock paved the way towards the sustainable, profitable model of today.

Poor unit economics and massive funding rounds have been a recipe for disaster in the grocery-delivery industry as a whole. By not selling fresh (yet!), developing their own line of private-label products, and benefiting from the positive cashflow effects of a membership model, Thrive Market has created a unique and scalable strategy in the grocery market.

Grocery Delivery Business Model

While the model is not quite ‘instant’ compared to some other grocery delivery businesses, they deliver 60% of orders in 1 day or less, 90% in two days or less, and 98% in three days or less.

eCommerce – Whole Foods –Costco Mashup

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Simply put, a membership model allows a business to front-run major cashflow issues associated with business where:

  • capital is required to buy inventory
  • purchasing power is required to buy in volume

Thrive does not have any physical locations, but it is still a business with a high personal touch. Loyalty reigns and that is of utmost importance in a market like grocery delivery where competition is high and margins are low.

The former point – competition is high – is solved by creating a model with high retention rates, both to decrease CAC rates and to increase LTV. 70% of Thrive Market members renew.

Retention Analytics – Referral

The latter point – margins are low – is resolved by Thrive developing their own in-house line of private label goods. This puts them in the throngs of CPG (Consumer Packaged Goods) competition in the Organics space. This can be a delicate line to walk, but in Thrive’s case they have the distribution and setup to execute at scale.

The founders are sustainability focused, meaning that:

  • they are constantly looking for ways to reduce waste, a benefit on the level of both cost savings and eco-footprint
  • they look to optimize shipping and supply chain related problems in a way that maximizes profit and minimizes footprint

Because their brand is built around “organics”, none of the above can be done in a way that would look cheap. The best proxy to describe this model is a non-brick-&-mortar version of Whole Foods with a better price point.

Strategy to Maintain Affordability – Membership

These are difficult times for many consumers, across the U.S. and worldwide. Food inflation is not only a top-of-mind issue for families and individuals, but so is eating healthy. Finding a model that can address rising costs and eating affordably is the holy grail at this current moment in history.

Their core customer is a middle-income American family. According to one of the founders, it is the membership model that enables them to keep pricing ‘fair’ for organic products. Part of the Value Proposition is to give a free membership (Thrive Gives) to those who can’t afford them for every membership that is purchased.

“It enables low pricing and sustainability and our giving mission … It also is a filter for bringing in high-quality, conscious consumers who want to use the business for a year.”

Winsight Grocery Business

A lot of their current strategic initiatives center around improving fulfillment (ie. the last mile delivery), sustainability innovations in packaging, and geographical/category expansion. They say they are “just getting started.”

This against the backdrop of many grocery delivery businesses who are either filing for bankruptcy or ‘pivoting’ into higher-margin goods. Thrive itself offers products in the Clean Beauty‘ category, and ‘Supplements,’ many of which are its own private label. But grocery is grocery, categorized by low margins and high competition.

Thrive wants to bring healthy eating to the masses, so their strategy is concentrated around three levels during scale-up phase:

  1. Continue educating more consumers on the membership model; the $60 upfront cost is contrasted by a 30% cost savings off of the MSRP (manufacturer suggested retail price) meaning customers save an average of $32 per order (according to Thrive’s numbers)
  2. Maintain trust and quality standards amid scaling efforts. They have 150K+ 5-star reviews across Google Play, Apple App Store, etc.
  3. Exploit regional trends using analytics, data science, etc. to ease expansion efforts on both the back-end (warehouse expansion) and the front-end (customer satisfaction, higher AOVs)

We’re doubling down on our data science team and creating more personalized experiences,” Green said. “What do they buy? What do they browse? When they come to the site, everything is personalized to them.

Winsight Grocery Business

If Thrive can solve the affordability gap around healthy eating and organic foods at scale, that would be a big-league innovation for the market. There are niche players who have explored this model, but few (if any?) have scaled the model to compete with mainstream grocers. For context, the average grocery store has about 15,000 products, while Thrive has several thousand; yes, Thrive needs to scale-up its offerings, on one hand, but on the other hand most mainstream grocery stores are not offering all-organic/natural product selection.

Overall, Thrive Market has developed an innovative model in the grocery-delivery market. At a time when industry peers are getting battered and consumers are tightening their spending, they may – in fact – be correct to say they’re ‘just getting started.’ Their next set of strategic moves come in a difficult market environment; yet amid chaos there is always opportunity.

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