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26 January 2022

How Farmdrop offered hope to the UK’s small food producers – then took it away

The online food delivery service collapsed in December, leaving farmers, fishermen and jam makers in the lurch. How did it all go so wrong?

By Emma Haslett

In 2016, the Plymouth-based fishery, Sole of Discretion, was in trouble. It had just been cast off by a large organic grocery delivery company because, as the fishery’s founder Caroline Bennett was told, there was concern over the ethics of fishing. But then, just before Christmas that year, a lifeline arrived in the form of Farmdrop, a new online grocer which billed itself as an “ethical supermarket”. 

Farmdrop understood the nuances of Bennett’s business, which aims to pay small fishers higher prices to encourage low-impact fishing. Unlike a supermarket, Farmdrop didn’t require that she supplied set amounts of popular species, but sold what came out of the sea.

This approach was also part of the attraction for Farmdrop’s adventurous customers: “They didn’t eat cod or haddock, they ate ling, pouting, dab and ray and all these wonderful species that from our local shores,” said Bennett.

Five years later, in the middle of the Christmas rush, Farmdrop suddenly collapsed into administration. In a note on its website, the company said it had been “working constantly over the last 18 months to secure… support and capital,” but that it had “become apparent that we have exhausted all possible options”. “It is with very heavy hearts that we must let you know that we will no longer be able to serve our cherished customers,” it added.

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It was a shocking end for a company that had shown all the signs of being one of the pandemic’s winners. In February 2020, a month before the UK’s national lockdown, Farmdrop’s chief executive Eleanor Herrin had boasted about the company’s successes. She told trade magazine the Grocer that “this quarter is our biggest ever… Things are going well.” Herrin, an Amazon Fresh alumna, had taken over as chief executive from the company’s founder, Ben Pugh, the previous October.

Herrin said the company had 10,000 customers and had more than doubled the number of products it stocked. It had launched a range of upmarket ready meals and was considering recipe boxes, another fast-growing commercial segment. As consumers embraced online grocery shopping during the pandemic, the number of customers increased further. In September 2021 Damian Hind, Farmdrop’s marketing chief, said that orders had “skyrocketed”. 

At the same time, however, warning signs were already beginning to appear. Filings from Companies House indicate that while revenues had more than doubled from £5.4m in 2019 to £11.8m in 2020, Farmdrop had made a pre-tax loss of £9.9m. Staggeringly, the company had listed “admin” expenses of around £11m.

In 2021, the auditor UHY Hacker Young noted there was “material uncertainty” about the company’s ability to continue without “sufficient funding” to enable its expansion. The company had previously raised $41.8m over eight rounds of funding from investors including Wheatsheaf, an investment company owned by the Duke of Westminster (in June 2020) and Alex Chesterman, the founder of Zoopla.

For suppliers, things started to change around the summer of 2020. The company lengthened its payment terms – one supplier said they had gone from one week in arrears to eight weeks. Another reported that Farmdrop changed from paying them automatically to requiring invoices.

It also became harder to get hold of the company’s buyers. Nicola Simons, the founder of Bristol-based jam brand, The Single Variety Co., said the buyer who was her contact at the company left. “I haven’t really had much of a relationship since the buyers changed,” she said. In November, she realised she hadn’t been paid by Farmdrop since August – and she was owed more than £2,000. She tried to speak to her buyer, who referred her to the accounts department – she sent more than 30 emails but never received any response. “I tried calling, but the only phone number was the customer service line,” she said.

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In frustration, she posted a video to Instagram on 16 December, the same day the company collapsed, imploring it to pay up. “It’s a huge amount of money for our small business, and money that we need to pay our small team and our suppliers,” she said.

The grocery business has always been notoriously tricky. Margins are excruciatingly tight. “It’s picking up pennies in front of a steam roller,” says the independent tech analyst Benedict Evans.

By trying to expand rapidly and take on the larger grocers, Farmdrop put pressure not only on its own team, but on its suppliers. Similar to supermarkets, Farmdrop offered hourly delivery slots, but unlike the supermarkets it was trying to source fresh, ethical food from small suppliers. Sole of Discretion, for example, had to establish its own daily supply chain to transport the fish, which were ordered by midday, from Plymouth to Bath by 5pm, so that the produce could be collected by Farmdrop. 

Rowie Meers, the founder of Purton House Organics, was one of Farmdrop’s earliest suppliers. “I think I saw the signs when they were saying “we’ve got over 100 people working for us now”. How do you possibly sustain that many people working for such a small company? I couldn’t quite understand,” she says.

Rob Ward, the chief executive of the food-tech firm, Forward Food, who built his own online farm shop business in the Noughties, agreed that Farmdrop’s rapid growth may have been its downfall. As the number of products available increased, the buyers overseeing them just weren’t able to manage. “It became very hard for the suppliers to talk to [the company],” he says.

“They tried to be a Goliath in a David world. They needed to be a better David: an innovative, agile business that… changed how it worked with the suppliers. Where they went wrong was that they copied the Goliath model without the Goliath scale.”

Many of the company’s 450 suppliers spent Christmas thinking about what to do next. Simons managed to recover £1,000 of her stock – although it involved a certain amount of bureaucracy. “We had to send lots of proof of deliveries [and] invoices and then they confirmed we could go and collect the stock they had on a specific date,” she said.

Meanwhile, Bennett and Meers teamed up with two other producers in the South West to launch a co-op. Bennett says their sales are “minimal” compared with the business they had done through Farmdrop. “I’ve haven’t needed to make anyone redundant as of yet, and I hope I won’t need to,” she said via email.

“We can now appreciate what it takes to market produce in a highly competitive marketplace, and deliver the last mile… Farmdrop did that all for us, allowing us to focus on producing good food.” While they may yet receive some compensation in the coming months as part of the administration process, it could be far longer before Farmdrop’s suppliers find their feet again.

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