How did it all go so wrong for Farmdrop?

Farmdrop ceased trading in December after failing to secure new funding, cancelling customers’ Christmas orders and making hundreds of members of staff redundant. Today, a report from its administrators revealed the online grocer had racked up losses of more than £50m, with suppliers, lenders, staff and shareholders set to lose out on millions of pounds as a result of its dramatic collapse.

So, what went wrong? 

Farmdrop was founded in 2012 by former City broker Ben Pugh, with the aim of providing a ‘farm to table’ service to customers, using sustainable and high-quality products from farmers and fishermen and paying its suppliers top prices. It focused on London and the Home Counties, but had ambitions to scale up to reach customers in major cities north of the capital.

Over time, the business evolved into a full-service online grocer, adding ambient and frozen foods and household goods to its range.

At the time of its failure, Farmdrop had one delivery hub in Enfield, a storage and replenishment facility in Bristol, a production kitchen in Park Royal to make ready meals and recipe kits, and three small sites to service an ultra-fast delivery proposition through Deliveroo.

It employed about 200 staff, primarily in the operational facilities, offered a range of more than 7,000 SKUs and used 35 – mostly fully electric – vans for deliveries to 10,000 customers.

No wonder the costs involved far outweighed revenues; Farmdrop was a small business operating like a giant. Even when revenues boomed thanks to Covid-driven demand for delivered groceries, costs raced even higher and left the company needing to raise yet more money in a vicious circle.

In February 2020, just before the UK went into lockdown for the first time, Farmdrop CEO Eleanor Herrin told The Grocer the company would reach profitability in the next 18 months. “We’ve been growing,” she said. “This quarter is our biggest quarter ever. Things are going well.”

Herrin joined the business in the summer of 2018 as CFO after spending 17 years with Amazon, including at its Fresh and Pantry divisons. She was promoted to CEO in September 2019 as Pugh stepped back from leading the business.

Herrin told The Grocer about the company’s ambition to keep widening its offer, with recipe kits to go with newly launched ready meals.

According to the new report from RMT, management made plans to grow the business further at start of 2021, with new customer wins, further upgrades to its proposition and a move to a larger centralised operational site. But it needed a new massive injection of cash. 

Farmdrop approached existing funders and new investors for another £20m, on top of the £36m it had already raised over previous rounds. There was interest, but ultimately it was unable to pull the funding round off, and in September 2021 had to shift strategy into finding a buyer for the business, hiring RMT to advise on options.

It also agreed further significant funding from two existing investors, but that fell through and jeopardised cashflow and expansion plans. No other parties were prepared to invest, the report added.

However, after discussions with a leading investor and the secured creditor, it obtained £3m to stabilise the business and give it breathing space to sell up or secure further investment.

This was hoped to keep the company going through the busy Christmas trading period and into 2022, when it expected a sale to finalise.

BDO was hired to find a buyer in September, but despite interest from several trade parties and rivals, with one in particular taking a proposed deal to the advanced due diligence stage, it all fell apart by 15 December, sending the company crashing into administration.

The report, compiled by RMT based on advice from Farmdrop’s directors, said instructions had been given to staff to turn back deliveries of supplies on 16 December, which was a major stock inbound day for Christmas.

However, a number of suppliers took to social media in the aftermath of the administration, complaining of thousands of pounds worth of stock locked in Farmdrop’s warehouses.

RMT said it contacted suppliers on 20 December with an invitation to collect any stock between 29 and 31 December, so long as they could prove ownership of the products.

The company added the bulk of returns were successfully dealt with before 31 December.

RMT then handed back the Farmdrop hubs for the five trading premises, as well as the fresh food delivery hub in Enfield and Deliveroo hub, and returned the fleet of vehicles.

It is currently in the process of selling the intellectual property of the business, including customer lists, with an offer from an unspecified buyer accepted. Further details would be included in the next progress report in the coming months, RMT said. 

It’s a sad outcome that a company with such admirable intentions ended up letting down the very suppliers it set out to protect and champion. Staying true to your principles is never an easy task, especially in an industry as competitive as grocery. Unfortunately, Farmdrop’s model - with runaway spending and ever more costs - just couldn’t balance the sustainable and ethical heart of the business with ambitions to compete against the mighty Goliaths of the industry.