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How it all went wrong for Farmdrop

·5-min read
A Farmdrop crate full of food
A Farmdrop crate full of food

A month before the pandemic hit, Farmdrop’s chief executive was confident the upmarket online grocer was on the path to profitability after years of racking up losses.

“Things are going well,” Eleanor Herrin, the former Amazon executive, said in an interview.

The start-up was uniquely positioned to take advantage of the panic-buying amid Covid – and the significant demand for home delivery.

Set up by former Morgan Stanley stockbroker Ben Pugh in 2012, Farmdrop sourced groceries directly from hundreds of small suppliers and farmers across Britain – essentially, a virtual farmer’s market.

It attracted the backing of Zoopla founder Alex Chesterman and Atomico, a venture capital fund set up by Skype co-founder Niklas Zennström, as well as former Saracens owner Nigel Wray.

One of the start-up’s cornerstone investors, meanwhile, was Wheatsheaf Group – a division of the Duke of Westminster’s Grosvenor Group – which took a chunk of between 25pc and 50pc, according to Companies House filings.

The company raised about $41m (£30m) in capital over almost 10 years, according to Crunchbase, and had a total of 441 shareholders including staff members, according to a Moneypenny website. That was all before its demise just days before Christmas.

On December 15, the delivery website told customers it had “exhausted all possible options” after “working constantly over the last 18 months to secure the support and capital we need to continue [trading]”.

“It is with very heavy hearts that we must let you know that we will no longer be able to serve our cherished customers.”

Farmdrop chief executive Eleanor Herrin - Paul Grover for The Telegraph
Farmdrop chief executive Eleanor Herrin - Paul Grover for The Telegraph

Since 2016, when it started publishing accounts in full, Farmdrop made total cumulative sales of £23.3m and operating losses of £33.9m.

Its collapse left small suppliers and customers out of pocket and empty handed, just before Christmas. But it could be argued that despite the business’s healthy hopes, signs over the risk of its collapse came early.

In 2018, Farmdrop warned that despite raiding fresh money in the year, it was growing fast and further injections would be required.

“A failure to raise the required funds would have serious consequences for the going concern of the business,” directors said at the time.

And five years ago, Farmdrop took out a £2m loan with Silicon Valley Bank at an interest rate of 9.75pc a year. It said it would use the borrowings alongside cash from future equity fundraising to grow the business in London, Bristol and Bath.

While the money was paid back in 2020, this was only after Farmdrop agreed another loan a day earlier with Bootstrap Europe, which specialises in debt growth transactions, according to Companies House filings.

That debt, alongside some £3m invested by the Duke of Westminster’s Wheatsheaf in August 2021, was still outstanding as insolvency specialists were called in last month.

Grosvenor’s rationale behind backing Farmdrop, according to one of its then executives, was to gain insight into people’s shopping habits “as consumers ask more and more questions around the provenance of food” – and as it diversified beyond land and real estate.

A spokesman for Grosvenor said: “We do not comment on our minority investment holdings.”

The recent developments are a world away from Farmdrop’s early days, and the boom to demand and sales expected from Covid.

A Farmdrop van outside the Houses of Parliament in London
A Farmdrop van outside the Houses of Parliament in London

Pugh, who stepped down as chief before the pandemic, seemed sure the company would emerge from Covid as a winner.

On a podcast last February, he said: “There is so much hairy stuff going on out there, and there is so much suffering, you can’t start cheering about all of this just because you happen to be in one of the places where you’re having a big demand bounce.

“But the reality is, pre-Covid, less than 10pc of the UK had shopped online and with lockdowns and everything else, it has massively accelerated demand for that grocery channel.”

Soon, however, the website faced fierce competition from Britain’s established grocers, which in some cases doubled their online delivery slots overnight.

Private equity observers suggest the start-up’s premium offering never truly took off beyond the affluent areas of London, making it difficult to scale profitably.

“The [supply chain] intentions were noble, but the prices were too prohibitive for most,” says an industry executive.

While early adopters lamented its demise, customers left with outstanding Christmas orders and disgruntled suppliers due money took to social media to berate the firm.

One employee, meanwhile, claimed some staff were told over email that they no longer had jobs. Others threatened legal action, arguing that Farmdrop failed to consult its employees properly during the redundancy process. Law firm Simpson Millar was contacted by many of the workers who were made redundant.

A group of farmers and former suppliers – Sladesdown Meat, Sole of Discretion, Purton House Organics and Perdon Organics – have formed a collective to continue supplying Farmdrop customers and avoid lost sales and food waste after the company went bust.

A spokesperson for administrators at RMT Accountants & Business Advisors said: “Following our appointment, all creditors were written to and notified of our appointment, and the process for submitting claims for amounts that may be owed to them was set out.

“Our work has included actively contacting suppliers to invite them to submit claims to recover stock that had not been paid for, where trading terms were in place allowing them to do so.

“The vast majority of the claims to recover stock have now been adjudicated, and suppliers with valid claims have been invited to collect their stock. The administration process is currently ongoing.”

For now, all suppliers, employees and other creditors, including lenders, can do is wait to see if there is any leftover money for their pockets.

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