After a surge during the pandemic, the business of grocery delivery has gone a little bit rotten in the past two years, from rapid delivery shutdowns to meal-kit company layoffs, but AI-powered grocery delivery company Hungryroot has managed to remain fresh—and even profitable.
Last year was a “pivotal” one for the company, founder, chair, and CEO Ben McKean told Retail Brew. The company secured $333 million in revenue for the full year, up 40% YoY, and made over $9 million in profit—a somewhat rare feat in the grocery and meal delivery business.
Hungryroot began in 2015 as an e-commerce CPG company offering its own food products. In 2019, it made what McKean called a “key pivot” to an AI-driven model to become a grocery and recipe service, adding third-party brands. Hungryroot customers fill out an onboarding quiz regarding factors like health objectives and dietary restrictions, and the company fills out a shopping cart for them each week tailored to different recipes, with both name-brand and private-label items that they can then edit.
The company has found success by doing things a little bit differently than others in the category, and McKean broke down a few strategies that have led to its success.
AI on the prize: AI has become one of the buzziest concepts in retail in recent months, dominating conversations at trade shows like Groceryshop and CES. A lot of that buzz has been around generative AI, which for Hungryroot is mostly used to communicate to consumers why its algorithm picked what it did. McKean said the company derives more value from AI by utilizing machine learning to “pick up on patterns that humans are just not going to find in the data” around consumer preferences. It can determine, for example, that if you’ve had salmon in your Hungryroot box several times in a row, maybe instead of salmon again, you should receive chicken this time.
“[Generative AI is] not, from our perspective, what creates a lot of value,” McKean said. “What creates a lot of value is this integration of multiple different approaches. So we leverage operations research, we leverage machine learning, we leverage generative AI, and that’s what delivers sort of a unique, compelling customer experience.”
A tall order: Last year, Hungryroot expanded to more breakfast and lunch offerings, along with products like vitamins and supplements, bringing its total selection to more than 800 different grocery items. Becoming more of a convenient one-stop shop for consumers means shoppers have a higher order value (its AOV is $125, McKean said), which makes deliveries more economical.
Lower order values have been a major struggle for many food delivery companies, particularly those focused on rapid delivery, McKean noted.
Unlike meal kits that offer small, pre-portioned amounts of ingredients—which are complex and expensive to produce—Hungryroot only sells full-sized ingredients, like a bag of rice, and provides customers with multiple recipes in which to use it. McKean estimates that 60% of the items on the platform are recipe ingredients, versus things like snacks and juices. The company currently offers more than 7,000 recipes each week.
“We cut out this enormous component of costs that have really hampered a lot of these meal kit [and] meal delivery companies…We’ve just taken a different approach,” he said.
The price is right: As the company has expanded its assortment, it’s keeping a close eye on pricing. Its prices are 20%–30% cheaper for customer who spend $150 compared to those who spend $150, and those additional items like vitamins and supplements—products consumers need but aren’t necessarily the main reason they come to Hungryroot—can help shoppers boost their order value to that threshold, McKean noted.
For products like this, the company last month introduced a Best Price Program for over 20 brands on its site including Annie’s and Harvest Snaps, which credits consumers the difference if they’re able to find the products for a lower price elsewhere.
“The value that we’re providing is less about helping you discover this brand new food that you’re gonna love, and it’s a little bit more [that] it’s more convenient to add it to your delivery that you’re already getting, so let’s price those really well,” McKean said.