GrubMarket buys Butter to boost its food distribution technology

Much of the way people buy food has evolved online: restaurants often replace menus with QR codes that let you order with your smartphone, and grocery shopping has been revolutionized with services delivery like Instacart. But until recently, the other side of the food supply chain – how small restaurants and neighborhood grocery stores sourced food – was largely dependent on physical media, pen and paper.

Now GrubMarket, which provides software and services to connect and manage relationships between food suppliers and their customers, hopes to make the distribution process more digital and efficient with a new acquisition.

California-based GrubMarket recently acquired Butter, a SaaS platform that aims to digitize the traditionally manual food distribution process through AI, the companies told TechCrunch exclusively. Founded in 2020, Butter’s eight-person team will join GrubMarket and its software suite will be integrated into GrubMarket’s own suite of offerings.

Mike Xu, founder and CEO of GrubMarket, declined to disclose the price of the deal, but Winston Chi, co-founder of Butter, told TechCrunch that “most parties, including us and our investors, earn money” thanks to the exit.

Butter’s post-money valuation was $39 million when it raised a $9 million Series A in November 2022, per PitchBook (the company confirmed with TechCrunch that the reported valuation is about right). Backed by investors including Google’s Gradient Ventures, Uncommon Capital, Notation Capital, Collide Capital and AI-focused angel investor Jack Altman, the startup has raised $12.3 million in total.

GrubMarket has gone on a buying spree over the past few years and has acquired more than 100 companies to date. Most of these deals focus on supply chain consolidation as the company operates a B2B e-commerce business. On the one hand, GrubMarket sources products and ingredients directly from producers and supplies buyers such as supermarkets. On the other hand, it sells to distributors the software necessary for the operation of their business. This is reminiscent of Amazon’s positioning as a marketplace and SaaS provider.

Butter, alongside Farmigo and IOT Pay, remains one of the few venture-backed startups in GrubMarket’s portfolio aiming to strengthen its tech stack.

It is unclear whether GrubMarket used capital from its balance sheet for the acquisition. Given its profitability and funding history, it wouldn’t be surprising if money came out of its pocket. Xu told TechCrunch that the company has been profitable on an EBITDA basis for three consecutive years and its annual revenue is on track. exceed $2 billion in 2024.

Xu declined to comment on GrubMarket’s fundraising plans, saying only that the company had raised “hundreds of millions of dollars” to date. GrubMarket’s last publicly announced investment came in 2022, a $120 million round that valued it at more than $2 billion. In late 2021, Bloomberg reported that the company was “interviewing banks” for a possible 2022 IPO.

Collect the butter

GrubMarket is effectively buying a smaller competitor. At the height of the coronavirus pandemic in 2020, Chi and his co-founder, Shangyan Li, launched Butter as an end-to-end vertical SaaS solution to help small and medium-sized food wholesalers manage everything from inventory to customer relations through orders. .

These aren’t necessarily unique features — GrubMarket itself offers plenty of them — but like many SaaS startups, Butter has been quick to jump on the generative AI bandwagon, developing tools to improve its users’ workflow.

The ordering process in the wholesale food sector was particularly ripe for change. Food suppliers often scribbled orders while listening to voice messages from their customers — like a chef calling from a restaurant at the end of the day after counting inventory — or scanned through order text messages. This haphazard process often led to incorrect orders or missing items. Analyzing sales and performance remained a dream.

Using AI, Butter has created capabilities to help retailers turn this type of unstructured data into information that can be easily accessed, tracked and analyzed. It uses a mix of third-party AI models and its proprietary AI to convert voice notes into lists of items ordered by restaurants and supermarkets. Before AI-generated information is fed into Butter’s system, users have the opportunity to verify its accuracy. And because the information is now digital, distributors can analyze sales and optimize their inventory and prices.

“Each sales rep on the distributor side spends literally five hours a day transcribing text messages and voice commands, so that’s a huge productivity gain and reduction in manual processes,” Li said.

Most importantly, Butter doesn’t ask its clients to learn a whole new workflow. “Neither retailers nor restaurants want to change the way they communicate. We don’t change their workflow, but we help them centralize their business knowledge,” Chi said.

“Every step (of food distribution) can be powered by AI. Even if we don’t replace humans, AI can easily increase sales by 10 times. We start by ordering because that’s clearly the biggest problem,” Chi added.

It turned out that Butter’s AI capability was the push GrubMarket needed to buy and merge with its younger rival.

Rapid conclusion of agreements is the order of the day

Four years into building Butter, Chi and Li had a sticky product, but they struggled to grow their customer base without a strong distribution channel.

Looking at the entire industry, they realized that their most formidable competitor, GrubMarket, had the customer base they needed. They also recognized that Butter could play a complementary role to GrubMarket. Chi and Li decided to propose a merger to Xu.

“The gap is not technology but data, and we thought, ‘Wow, GrubMarket has all the data,’” Chi mused about his decision to sell the company.

Xu had already heard about Butter at the time because the startup had won a customer from GrubMarket. “(Butter) works harder with the customer … they even had a team sleeping in the customer’s warehouse to do the work,” Xu said. “But we all know that building an ERP system requires a lot of investment. Winston’s team only raised about $12 million, so it was difficult to continue building a sophisticated ERP system.

GrubMarket intended to automate order management, but its development resources were “fully loaded” and focused on other features, like using AI to derive customer insights from raw data, according to Xu. So when Butter proposed the deal, the technology synergies were immediately obvious. Additionally, the startup had a stronghold in a segment that GrubMarket had coveted: seafood distributors. Butter contacted the company in March, and by the end of April, GrubMarket had already closed the deal to acquire it.

Once the companies are integrated, GrubMarket will leverage Butter’s products, which include AI-augmented chat commerce, to power GrubAssist, its enterprise AI assistant. GrubMarket is also expected to add an AI-based digital prospecting and ordering module to its ERP system, which will enable food wholesalers to automatically generate digital orders regardless of the original medium on which the orders were taken – whether text, paper, voice messages or emails.

“Our style is very direct and fast,” Xu said, commenting on the speed of closing deals. “It’s great to have (Butter) join us so we don’t need to build it from scratch, and it’s a great addition to our software product family.” »