Foodies Will Welcome Foodzie

The founders of Foodzie aren't your garden-variety tech entrepreneurs.

Yes, the online specialty grocer has an office in San Francisco's startup-laden South of Market district. Chief Executive Rob LaFave, Chief Marketing Officer Emily Olson, and Chief Technology Officer Nik Bauman are getting into the flow too, hanging out with locals like Digg founder Kevin Rose, who recently attended a tasting at Foodzie's office.

But the founders of the fledgling site are hardly steeped in Silicon Valley culture. It wasn't until January that Olson and LaFave moved from Boulder, Colo., to San Francisco, closer to the Bay Area food scene. What's more, LaFave, Olson, and Bauman, chosen as three of the most promising young entrepreneurs in tech this year, are building a retail site as many startups eye sexier social media.

Making Users Hungry

The contrarian instincts could serve Foodzie well as it takes on big online specialty food stores like (AMZN) and iGourmet. Foodzie's site, which sells products from small producers in 25 states, relies on attractive photos and an uncluttered design to appeal to customers' palates. "What was lacking in online (food stores) was an experience that makes you hungry," Bauman says.

Foodzie, backed by $1 million from First Round Capital, SoftTech VC, and TechStars, is jumping into the online food sales business at a time when consumers' appetite for buying goods and researching recipes on the Web is growing. Online food and beverage sales in the U.S. were $4.8 billion in 2008, and grew 11% in the first quarter compared with roughly flat e-commerce sales overall, according to market researcher ComScore (SCOR).

"It's one of the biggest consumer categories now, and even a small sliver of that can be attractive," says Sucharita Mulpuru, an analyst at Forrester Research (FORR). But online food sales can be challenging, as perishable goods and shipping costs erode profit margins, Mulpuru adds. Foodzie also needs to prove there's room for one more player in the market for the often high-priced foods favored by educated, urban consumers when many Americans are pinching pennies.

Brainchild of College Chums

The company is trying to give artisan food producers a bridge from local farmers' markets to crowded virtual grocery-store shelves, where it's hard for newcomers to elbow in. Foodzie handles credit-card processing and tax calculations for producers, and supplies prepaid shipping labels to the makers of such items as grass-fed beef, sea salt caramels, and Sumatra coffee. In return, Foodzie takes 20% of sales.

Items on Foodzie don't come cheap. There's a box of 12 marshmallow cookies for $24, far higher than supermarket prices. A jar of pasta sauce made with extra virgin olive oil fetches $8. Olson and LaFave say the site also offers more affordable items like "heirloom" popcorn, at $5 for 1.5 lb. The team considers Foodzie products "small luxuries" in which consumers can indulge despite the recession. "People are looking to change the way they eat," says Olson.

LaFave, Olson, and Bauman met during their freshman year at Virginia Tech in 2002. Olson wanted to be a food writer, and the three found a common interest in food, hanging out at farmers' markets and cooking together. "Nik and I tagged along for the food," LaFave says.

Looking for Additional Funding

After college, Olson worked as a brand manager at specialty food retailer The Fresh Market. But after realizing how tough it is for small food companies to get shelf space, she came up with the idea for Foodzie. The founders moved to Boulder to attend a "startup camp" in summer 2008, and landed venture funding in December.

The founders say giving small producers a national audience is a key aspect of their business. They take many of the site's colorful photos themselves, offering a uniform feel for shoppers throughout the site, while providing producers with some customized branding. In the works are software to let food bloggers and everyday shoppers share links to Foodzie's site on Facebook, and plans to arrange food pickup and delivery services for sellers.

Olson says she and her college friends stay in close touch with the growers whose products Foodzie showcases. "We're at the farmers' markets shopping and talking to producers," she says. At the same time, the team appears to be settling nicely into the Silicon Valley way of doing business: They're hard at work to secure $250,000 in additional funding.

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