The online ethical grocer Farmdrop has raised £10m from investors, including the founder of Skype, to take its home delivery service to the north of England.

The London-based company, launched by an ex-city broker, Ben Pugh, in 2014, wants to open a warehouse in Manchester after expanding to Bristol and Bath late last year.

Farmdrop began by delivering produce from local farmers to libraries, community centres and pubs, but now uses a fleet of electric vans to deliver directly to homes.

Pugh says the company gives its 300-plus producers a bigger share of profits than the supermarkets by keeping costs low and using high-tech apps to make ordering, processing and delivering goods as efficient as possible.

Farmers, most of whom come from within 150 miles of shoppers’ homes, keep 70% of the retail price, compared with just over half at a traditional retailer, partly as many of them only harvest and ship to order, reducing waste.

Pugh says giving them “the lion’s share of the value” enables farmers to look after the environment and their animals more effectively. “It’s a more symbiotic food system with everyone looking after everyone rather than a horrible zero sum game with a few bully winners,” he says.

He says the major supermarkets “are having to annihilate producers on price year in, year out – a situation created by a dysfunctional system in which producers are not being paid enough to farm properly.”

Farmdrop sells more than 2,000 products, from meat, dairy and organic fruit and veg to eco washing-up liquid, a similar size of range to a discount retailer rather than the 30,000-plus products stocked by a traditional supermarket.

Stock is mostly delivered daily, so there is no need for a large warehouses, and sorted into delivery crates by packers guided by an app on a tablet computer, rather than any expensive robot-led system.

Critics suggest that, despite the group’s laudable aims, it will struggle to make a profit and find a wide enough audience. Pugh admits that Farmdrop is still a “significantly loss-making startup” that has got to grow into profit.

Pugh left his job at Morgan Stanley in 2012 to work on the idea. He ploughed in all his savings and raised £750,000 through the crowdfunding site CrowdCube from 190 backers including Asos co-founder Quentin Griffiths. Including the latest round of fundraising, the group has raised more than £17m to support its efforts.

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“Are we well-meaning hippies splashing around venture capitalists’ money, or are we redrawing the food system? I promise you it’s the second one,” Pugh said.

He says sales have doubled in the last nine months to about £6m a year, and he expects them to double again in the next nine months.

The Skype founder Niklass Zennström is sufficiently convinced to be pumping more cash into the business on top of a previous investment.

Zennström said: “What we find so compelling about Farmdrop is the way they’re using technology for good. By creating a direct route to market for farmers, Farmdrop is helping to create a healthier and more efficient supply chain. We’re proud to invest in such a fantastic team.”

New investors contributing to the £10m investment round also include Impact Ventures, which invests in businesses that make a positive contribution to society, such as the social enterprise letting agency Homes for Good in Scotland, as well as the renewable energy specialist Belltown Ventures, which has backed a string of solar, wind and hydro projects in the UK.



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