Agrifood is one of the largest industries where workflows remain surprisingly manual, observed Maarten Goossens at Anterra Capital in AgFunderNews’ recent investor survey. As such, the ROI from digitization—which can in turn be turbocharged by AI—is “unusually tangible.”
A case in point: foodservice distribution, which is dominated by a handful of giants in the US (Sysco, US Foods, Performance Food Group), but has an incredibly long tail that up until recently has been conducting surprising amounts of business via email, text, phone calls and voicemails, says New York-based Pepper.
Founded in 2019 by Bowie Cheung, Chetan Narain, and Ivana Tesanovic, Pepper began with a mission to level the playing field for independent foodservice distributors by building e-commerce storefronts enabling restaurants to order from them online.
Over time, it has evolved into a broader platform spanning payment processing, marketing, and analytics, now boosted by AI, which enables distributors to do everything from automatically ingesting orders received via email, voicemail, text, photo, spreadsheet or PDF into distributors’ ERP systems, to developing tailored order guides for new customers.
“Food distribution is one of the largest and most fundamental markets in the world, yet it has long operated on manual systems and fragmented technology.” Bowie Cheung, CEO, Pepper
Building a full-stack platform for distributors
Pepper—which has just raised a $50 million Series C round led by Lead Edge Capital —is not the only player in this space, but is positioning itself as a more comprehensive platform that will both drive efficiency and serve as a growth engine, helping distributors increase visibility and sell more, Cheung tells AgFunderNews.
“I was the founding general manager for Uber Eats and [cofounder] Chetan [Narain] was the founding product manager, and one of the things we observed was that most of the tech innovation in food seemed to be happening in the retail side.
“In late 2018, 2019, Sysco and US Foods were really starting to push customer facing and back-office tech to run their businesses more efficiently, and we thought there was an opportunity to be the technology partner for independent distributors.
“We were talking to $250 million [revenue] distributors that didn’t have any online ordering [capabilities], so in the first instance we helped them bring their customer experience online. Today, we’ve got a hub for distributor sales reps, an [AI-powered] order agent [which saves hours of time previously spent manually inputting orders into ERP systems], and a finance hub, which gets folks off paper checks onto ACH and credit card payments, and helps distributors get paid faster.
“This gives collections team greater visibility over what invoices are due and overdue and can automatically set up actions such as digital invoice reminders with a payment link… the functionality we just expect from websites we use as consumers.”
Agentic assistance
Now, he says, the focus is layering on more agentic assistance. This could be on everything from chasing overdue invoices to providing sales reps with churn signals and upsell suggestions for priority accounts.
A new prospect finder tool developed in partnership with Yelp, for example, deploys AI to analyze menus and other online information from restaurants in a given sales area and automatically generates order guides for prospective customers based on a distributor’s catalog with price quotes that would previously have taken sales reps hours to put together, says Cheung. “Now you’ve got something to leave with them that’s tailored to their business.”
New tools also enable distributors to build coordinated campaigns with key suppliers, enroll in supplier-funded ad campaigns, drive incremental sales, and earn more through keyword searches, sample requests, and pay-per-click banner ads.
A fragmented market still running on legacy tech
While all this might not seem like rocket science to those used to consumer-facing sites such as Amazon, legacy software used by foodservice companies does not offer a very “modern experience,” observes Cheung.
“There are 25,000 food distributors in the US and Canada that collectively represent about $1.4 trillion in wholesale spend. And the top 50 only represent about a third of that, so there’s almost a trillion dollars of wholesale purchasing going through 25,000 independent distributors. We work with over 500 today and we’re far and away the market leader in our category, but there’s still a long way to go in terms of getting the industry to broadly adopt these types of solutions.”
Pepper generates revenue through annual contracts with distributors, with pricing tied to the size and complexity of the business and additional modules available as upsells. Onboarding typically takes one to three months depending on the complexity of distributors’ ERP systems, says Cheung.
“This is the hardest part, and probably one of the biggest reasons you don’t see more participation in this space from the big technology vendors as it’s difficult to reliably integrate with all of these different systems. And that’s something we’ve had to invest heavily in to overcome. I don’t think there’s another tech co out there in the food distribution industry that has done 500+ integrations over the last five years.”
Making the case: efficiency, visibility, growth
Pepper services small distributors with a single warehouse and a couple of trucks all the way through to larger enterprises with billions of dollars of revenue and multiple warehouses, says Cheung, who says the business case is clear.
The ROI is not just from saving time and money by digitizing order processing and payments. Online storefronts immediately lead to higher orders, and sales reps became more productive. “Enabling more efficient growth was definitely a big part of the early Pepper story,” he says. “Then it was about how do we find more opportunities for distributors to sell more products?”
He adds: “Traditionally, the independent segment of this industry has been kind of a black box from a sales and marketing analytics perspective, and so a big part of what Pepper brings is transparency.
“In the AI era, there’s an opportunity to rethink a lot of things, so we see a bright future for independents if they’re armed with the right technology.”
Further reading:
First Bite brings foodservice trade spending ‘out of the dark ages’ with digital rebates platform
Keychain raises $30m Series B, launches AI-powered operating system for CPG
