GrubMarket Buys Butter to Give Its Food Distribution Technology an AI Boost | TechCrunch - Latest Global News

GrubMarket Buys Butter to Give Its Food Distribution Technology an AI Boost | TechCrunch

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

Now GrubMarket, which offers software and services that help connect and manage relationships between food suppliers and their customers, hopes to make the sales process more digital and efficient through a new acquisition.

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

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

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

GrubMarket has been on a buying spree in recent years and has acquired over 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 customers such as supermarkets. On the other hand, it sells merchants the software they need to run their businesses. It’s not unlike Amazon’s positioning as both a marketplace and a SaaS provider.

Butter remains one of the few venture capital-backed startups in GrubMarket’s portfolio, alongside Farmigo and IOT Pay, that are aiming to strengthen their 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 the money came out of its own pocket – Xu told TechCrunch that the company has been profitable on an EBITDA basis for three years in a row and its annual return on sales is on track to hit $2 billion in 2024 -Exceed dollar limit.

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

Scoop up the butter

GrubMarket is effectively buying out 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 relationships to Manage order.

These aren’t necessarily unique features – GrubMarket itself offers many of them – but like many SaaS startups, Butter quickly jumped on the generative AI bandwagon and developed tools to improve its users’ workflow.

Butter’s voice-to-text feature automatically converts customer voicemails into orders. Picture Credits: Butter

The ordering process in food wholesalers was particularly ripe for change. Food delivery workers often scribbled down orders while listening to their customers’ voicemails — like a chef calling from a restaurant at the end of the day after counting inventory — or scrolling through text messages with orders. This haphazard process often resulted in incorrect orders or missing items. Analyzing sales and performance remained a dream.

Using AI, Butter has developed features that help merchants transform this type of unstructured data into information that can be easily viewed, tracked, and analyzed. It uses a mix of third-party AI models and its proprietary AI to convert voice notes into lists of items that restaurants and supermarkets order. Before the AI-generated information enters Butter’s system, users have the opportunity to review it for accuracy. And because the information is now digital, retailers can analyze sales and optimize their inventory and prices.

“Every dealer sales representative spends literally five hours a day transcribing text messages and voicemail orders. This means a huge increase in productivity and a reduction in manual processes,” said Li.

More importantly, Butter doesn’t require its customers to learn an entirely new workflow. “Neither retailers nor restaurants want to change their communication. We don’t change their workflow, but we help them centralize sales knowledge,” said Chi.

“Every single step [of food distribution] can be enhanced by AI. Even if we don’t replace humans, AI can easily help increase sales tenfold. We’ll start with ordering because that’s clearly the biggest problem,” Chi added.

As it turns out, Butter’s AI prowess was the push GrubMarket needed to buy and merge with its young competitor.

Fast business transactions are the order of the day

Four years after founding Butter, Chi and Li had a sticky product but were struggling to grow their customer base without a strong distribution channel.

When they looked across the industry, they discovered that their biggest competitor, GrubMarket, had the customer reach they needed. They also recognized that Butter could play a complementary role to GrubMarket. Chi and Li decided to propose a merger to Xu.

Butter’s AI assistant helps generate new orders based on text messages. Picture: butter

“The moat isn’t the technology, it’s the data, and we thought, ‘Wow, GrubMarket has all the data,'” Chi reflected on his decision to sell the company.

Xu had already heard about Butter at the time because the startup had acquired a customer from GrubMarket. “[Butter] works harder with the customer […] They even had a team staying overnight at the customer’s warehouse to complete the work,” Xu said. “But we all know that building an ERP system requires large investments. Winston’s team only raised about $12 million, so it was difficult to continue building a sophisticated ERP system.”

According to Xu, GrubMarket had plans to automate order management, but its development resources were “fully stretched” and focused on other functions, such as using AI to derive customer information from raw data. When Butter proposed the deal, the technological synergies were immediately obvious. Additionally, the startup had a strong position in a segment that GrubMarket coveted: seafood distribution. Butter reported in March and by the end of April, GrubMarket had already completed the acquisition deal.

Once the companies are integrated, GrubMarket will leverage Butter’s products, which include AI-powered chat commerce, to power GrubAssist, its AI assistant for businesses. GrubMarket also plans to add an AI-powered prospecting and digital ordering module to its ERP system, which will enable grocery wholesalers to automatically generate digital sales orders regardless of the original medium through which the orders were accepted – be it text, paper, voicemails etc emails.

“Our style is very direct and fast,” said Xu, commenting on the speed of doing business. “That’s great [Butter] comes to us so we don’t have to build it from scratch, and this is a great addition to our family of software products.”

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