Thrive Market banking on consumers with conscience
Rejection is something Nick Green knows all too well.
The first time the self-described social entrepreneur and his partner Gunner Lovelace pitched their idea of a subscription-based, socially conscientious e-commerce platform that carried natural and organic products to a slew of potential financiers, the response was unequivocally brutal.
“We were rejected by 50 venture capital firms,” Green said. “Nobody thought there was going to be a demand for (our service) from the middle-class, middle-America market.”
These days, Green and Lovelace appear to be having the last — and healthy — laugh. Since launching in November 2014, their company, Thrive Market, has reached more than 300,000 paying members and now fulfills more than 180,000 orders per month. In terms of pure dollar numbers, the company ships more than $200,000 worth of products each day.
On Aug. 17, the company also announced the opening of a new 325,000-square-foot distribution center at the Tahoe Reno Industrial Center as the e-commerce operation eyes further expansion of its services westward. Thrive Market plans to hire 400 employees for the new distribution center within five years — more than half of them in the first two years of operation — according to documentation submitted by the company to the state of Nevada. Combined with its Batesville, Indiana facility, the new center just east of Reno-Sparks allows the company to reach 90 percent of its customers nationwide within two days or less, Green said.
It’s a customer base that continues to grow, according to Thrive Market. The most recent membership numbers provided by the company represent a significant jump from earlier this year, when the online retailer claimed having more than 200,000 paying members. Total registered users for the online site is also at 5 million, according to the company. It’s a solid start for an operation that charges a $60 annual fee just for the privilege of shopping its virtual aisles. Asked about what’s driving the continued increase in its membership numbers, Green says one should never discount people’s propensity to care about a worthy cause.
“Consumers vote with their dollars to support businesses that align with who they are and what they believe in,” Green said. “I think people really care about the values of our company.”
Battling ‘whole paycheck’ perception
For Green, Thrive Market’s values can be summarized with a few words: Making healthy living affordable for everyone. Part of that includes using a touch that has a community feel, despite being a massive online operation.
“Think of our business as a 21st century co-op,” Green said.
Mantras, however, are not enough to bring customers in. To distinguish itself from a natural food giant such as Whole Foods, the company has to bring value. In a nod to public perception about the cost of natural and organic products — as well as a subtle dig at one of its more established competitors — Green admitted that part of Thrive Market’s challenge is letting people know that you don’t have to spend a “whole paycheck” in order to buy natural, healthy food and items.
For Thrive Market, the magic number is 25 percent to 50 percent. The company claims that’s how much customers will save when buying a product from their store compared to buying the same item from typical retailers. Green says there’s a significance to that number.
“The average markup on organic groceries is between 25 to 50 percent, which puts it out of reach of 97 percent of Americans,” Green said.
Asked how Thrive Market is able to discount its products by that much, Green points to several factors. One is its annual membership fee, which allows it to lower margins in the the same way that the Costco model works. Another is by foregoing brick-and-mortar stores and their associated costs by exclusively selling its products online.
Going online also comes with one more added benefit: access. When aiming to make natural and organic products available to more consumers, cost is just one part of the equation, Green said.
A majority of Americans — as many as 70 percent — don’t live near a healthy retailer, according to Green.
Access, or lack thereof, is a big reason why 50 percent of Thrive Market’s membership base live in the Midwest and Southwest region, Green said.
“Those are traditional health food desert geographics,” Green said. “In addition to breaking down the economic barriers, you also need to break down the geographic barriers by being shipping so someone in a food desert in the middle of the country can have access.”
It's an issue that resonates with the top executive of the state that Thrive Market just expanded into for its distribution operations in the West. From rural areas such as Elko County to even parts of Nevada's major metro areas such as Reno and Las Vegas, access to good, quality food is not always automatic, said Gov. Brian Sandoval. Sandoval described Thrive Market as an opportunity to help address the problem.
"In downtown Reno, in the rural areas, in north Las Vegas, (sometimes) there is not a grocery store within walking distance or even driving distance," Sandoval said. "So instead, they may go to the convenience store to do their shopping and are not able to get that quality food for themselves as well as their family."
Access plays an especially big role in the creation of the new Northern Nevada facility, which was selected after also looking into California, the Pacific Northwest and Salt Lake City. Green pointed to location in addition to a strong logistics environment and talent base as key factors for the company's decision to relocate its western distribution operations from Commerce, Calif., to the Reno area. The speed of permitting and building was also key, allowing the new center to launch two to three weeks ahead of schedule and start delivery operations sooner.
“We have been able to ramp up faster than any other facility we’ve had before,” Green said.
Building in the Reno-Sparks area entails some cost savings as well. In addition to lower cost of living compared to California, where the company continues to be headquartered, Thrive Market received incentives from Nevada that comprised abatements for sales, personal property and modified business taxes. The incentives add up to more than $258,000 over 10 years, according to documents obtained from the Governor’s Office of Economic Development.
For states such as Nevada, which has prioritized economic diversity with a keen eye on disruptive market forces since getting caught flat-footed by the last recession's impact on gaming and tourism, attracting companies such as Thrive Market is crucial, Sandoval said.
"Like it or not, this is the wave of the future — e-commerce is something that millennials will use on their devices and phones, that’s how they shop and it’s brought right to their door," Sandoval said. "It’s going to be a multi-billion if not trillion-dollar market in the future and it’s important that our state be on the ground floor of that growth."
For its part, Thrive Market says it will invest $3.5 million in capital expenditure for the Northern Nevada distribution center and also projected a 10-year economic impact of $870.5 million for the region — $227.2 million of which will come from employee payroll at an average wage of $17.45. Expanding the facility is not out of the question if business continues to pick up.
“We’ll see what the next couple of years will bring but we’re definitely interested in making this facility our western hub,” Green said. “We see ourselves growing in Nevada and adding when the time is right.”
A philosophical bet
For the company to continue to grow, however, Thrive Market needs to successfully navigate waters dominated by some big players. In addition to brick-and-mortar giants such as Costco and Whole Foods, there’s also competition from online-only operations such as Amazon and even fast-growing upstart Jet.com, which started distribution operations in Northern Nevada as well and was recently acquired by Walmart.
Green says Thrive Market sets itself apart through its laser focus on natural and organic products.
Carrying only three to four brands of almond butter instead of 40, for example, gives it more purchasing power and allows it to lower pricing. It also aggressively categorizes and tags its products to cater to the needs of a wide range of people from health-conscious consumers who subscribe to a Paleo or vegan diet to socially conscious folks who only buy “cruelty-free” items that do not use animal testing.
Asked about companies such as Jet.com opting to drop membership fees after initially launching with them, Green points to successful examples such as Costco, Amazon Prime and Netflix for the viability of the membership model.
“The key factor is you have to be creating multiples of the value for the price of membership,” Green said. “Our average member will make up the value of the membership from just two purchases on the site.”
Taking a cue from Amazon, Thrive Market also offers free shipping for orders worth $49 or more to provide added value.
One big change for the company is the difference in how investors see it. After being rejected by a slew of venture capital firms in the beginning, Thrive Market ended up relying on health and wellness bloggers and influencers in order to get off the starting blocks. These days, however, the company has a large number of investors and announced $111 million in new financing in June. The concept of an online-only, healthy food and product store with a Costco approach apparently does not seem as far-fetched as it used to be.
“Costco’s done a great job of carrying more natural and organic products but every product in our online market is natural, every food is non-GMO, and it’s all curated and cataloged so you don’t have to sift through everything,” Green said. “We’re also targeting a younger (customer) set from Costco and you have a lot of millennials today who are doing everything online.”
Instead of simply being a virtual point of sale like many online retailer sites, Thrive Market tries to distinguish itself by adding a more lifestyle-oriented approach as well. While trying out a test membership with the site, for example, Economic Development Authority of Western Nevada president and CEO Mike Kazmierski ran into an article Thrive Market about cinnamon as a natural secret weapon against ants.
"There's more on that website than just buying things," said Kazmierski, who was involved in negotiations with the company as it considered moving its western distribution to the Reno area.
Ultimately, however, Green believes it’s Thrive Market’s philosophy and values that will distinguish itself and carry the company through. This is especially true for younger generations such as millennials, whose online sav
viness and affinity for social causes line up perfectly with Thrive Market’s mission-driven, e-commerce approach, Green said. The company, for example, provides matching memberships to low-income families for every regular membership it has. In June this year, Thrive Market spearheaded a petition to the USDA with the goal of allowing use of food stamps online by people enrolled in the Supplemental Nutrition Assistance Program — further building on its affordability and access mantra. Green also pointed to the company’s approach to things like health and insurance coverage.
“We offer the same benefits to our workers that I myself and our co-founders get,” Green said. “We really work to create a culture that lives and breathes health and wellness, both internally and externally.