The online grocery startup betting big on the pandemic shift in grocery shopping

This is an episode of Startup Year One, a special series of interviews with founders about key lessons they learned immediately after their company's first year of operation.

Grocery shopping has changed radically in 2020 and possibly forever. While consumers across the country were still lining up in their local markets, many shoppers went online to buy their groceries. But it's not just Amazon's powerhouse – Whole Foods that's taking advantage of it. Many smaller niche food startups are making the most of the opportunity.

Hive was founded in the second half of 2020 and is a digital marketplace for sustainable premium goods. The company follows strict criteria before allowing a brand or product on the platform. This process is known internally as the "Hive Five".

The co-founders (all retail alums from Freshpet, Casper, and Jet.com) were frustrated that consumers had to put a lot of weight on actually finding, rating, and deciding whether a brand or product was better than one other was. The co-founders also learned how difficult it was to discover smaller, more independent brands with great products and values, which made the barrier to market entry huge, both online and in-store.

Fortune recently spoke to Katie Tyson, Co-Founder and Chief Commercial Officer of Hive to learn more about the business, the lessons learned, the hurdles overcome, and Hive's plans for the New Year.

For the sake of clarity, the following interview has been condensed and edited slightly.

Katie Tyson, co-founder and chief commercial officer of Hive. Courtesy of Hive

Fortune: could you tell us something about your background? What did you do for a living before you started Hive?

Tyson: I graduated from the University of Virginia in 2008, where I studied business administration with a focus on marketing and management. My first five years of work were all in the advertising world. I got the chance to start my career at some of the bigger agencies, first at McCann Erickson and Saatchi & Saatchi. Over the years I've seen the world go digital. Many of the larger agencies were struggling to do this effectively at the time, so I went to VaynerMedia, Gary Vaynerchuk's digital agency. Here I learned a lot about social and digital marketing and also got my first impression of the startup world.

From there I was lucky enough to switch to Freshpet, where I established myself as a CPG (Consumer Packaged Goods) marketer. I learned about Freshpet while working in advertising and was drawn to their mission and commitment. I stayed at Freshpet for four and a half years, building digital marketing from the ground up. Working there gave me the opportunity to learn more about traditional brand management and marketing. We went public when I was there, which was an amazing experience. I've also had some great professional achievements in creating really compelling content and viral hits.

After Freshpet went public, I wanted to learn more about e-commerce and direct-to-consumer. So I switched to Casper, who was the darling of direct-to-consumer marketing (DTC) at the time. During my two years at the company, I worked on expanding the marketing and consumer insights function.

I've always had an entrepreneurial flaw, but I needed some confidence to pursue it. When I started at Casper, I looked after start-ups in the early stages and built up a life coaching business that I founded on the side. I continued to train within startups and pursued this full-time occupation when Scott Morris, co-founder, president, and chief operating officer of Freshpet approached me about Hive. I fell in love with the concept of creating an online marketplace that is based on sustainability and where consumers can easily shop for their values. Hive was the perfect convergence of all of my passions, both personally and professionally. I saw Hive as a great opportunity and the rest is history.

Hive is an online marketplace for sustainable premium products such as snacks, condiments, detergents, baby products and more. Courtesy of Hive

What inspired the launch of Hive? What makes the cut for the types of products you sell and who is your target audience?

Scott came to me with the idea of ​​Hive. We believe that people are increasingly forced to shop in a sustainable way. People are tired of relying on the government to make the big changes we need to make and they want to be included. They want companies to be more involved too. We chose to focus on the world of groceries as these items are the most widely consumed and therefore have a great chance of making a difference over time. We spent several months trying to validate the concept to see if people really wanted to shop that way.

First we did a quantitative study. We wanted to understand if people were motivated to shop more sustainably and the results were very surprising to us in the positive sense of the word. The data in support of Hive was in place and continued to grow, especially when we started creating focus groups and speaking to friendship groups with that attitude.

During this process we kept hearing people say that they were very motivated to buy in their values ​​and that it was really important to them in principle, but it was also really challenging. They often spent a lot of time figuring out what it was all about, which products were good, and then had to cobble together an ideal shopping basket across multiple locations and stores. They received many individual items, which was not ideal from a carbon footprint perspective either. It was then that it became clear that there was a great need for something like Hive.

Our target consumer is more of a mindset than anything else. The hive shopper is a person who cares about what they are consuming. They care about whether something is natural, organic and tastes good, but they also care about the impact of their purchases on sustainability and social mission. They care about brands that support causes in a meaningful way.

We realized that we needed to compile our own criteria to determine which products would be available on the Hive platform. We have a great team that reviews all of the brands we work with against a set of criteria we call the Hive Five. We try and try products for all members of the team to make sure everyone is on board. In terms of social impact, we want to partner with companies that are committed to a strong social cause. In the area of ​​sustainability, we are looking for brands that use environmentally friendly ingredients and trade fairly or directly. A small carbon footprint is also very important and we are looking for companies that offsets carbon or invest in renewable energy. Recyclable packaging wants a brand whenever possible. And in some categories this is very achievable. For others like chip bags or bar packaging, we look for brands that are best in class, then fill the void with our TerraCycle program, which allows consumers to return packaging that is not roadside recyclable to Hive.

Grocery shopping has gotten complicated during the pandemic to say the least. Many retailers measure customers with lines around the block to reduce the crowd and maintain social distancing, but not all customers have the time (or patience) to take this into account. How do you see online grocery orders and deliveries evolving and delivering over the next few months and over the long term?

I believe online grocery is here to stay. As more people experience the benefits and convenience of online grocery shopping, it becomes a larger part of our everyday lives. I think that's a big driver in terms of how the pandemic is shaping the food space as a whole.

Regardless, online groceries are currently facing major challenges. For example, it is very difficult to meet all the categories including fresh and frozen. In my view, the fresh and frozen side of the equation will be a bigger focus of the industry, but new fulfillment mechanisms need to be put in place to make it more firmly established among all actors. At Hive, we think a lot about how to expand our range and get into the "harder to use" categories.

I firmly believe that food will continue to be a bigger topic of conversation. People think more about where we get our food from, who grows it, and what ingredients go into a particular product. In a way, this is contrary to how large online grocery stores work. Ultimately, I think online grocers who support smaller, localized brands will generate more buzz.

The company uses strict criteria, internally known as the "Hive Five", to rate brands and products before they are allowed on the platform. Courtesy of Hive

Economic downturns often prove to be a fertile time for startups that can fill a void. What was it like to found a food startup during this pandemic and economic crisis? But what was it like securing funding for Hive? Is it privately funded or backed by venture capital?

On the business side, we've been very lucky. We would never want this pandemic in the world. During that time it was interesting for us to see how the pandemic has affected the way people have accepted food online. People also take the time to pause and really rethink their personal priorities, which has led to a growing awareness of our behavior and our impact on the environment. The reception of Hive as a company was really great, but the pandemic created the right environment for it too.

The economic downturn is a real challenge, and as a company it is our duty to make sure we are as accessible as possible to people. We have put a lot of thought into the brands we offer our community and offer bulk prices for all product categories. We took a good, better, and best approach. For example, we have some incredible premium nut butters on Hive that are top notch in every way, but we also have some nut butters on the platform that tick a lot of the boxes and make them available at a lower price. The pandemic has made us think more about consumption in general and how we can help play a bigger role in fighting the US food crisis. We are also working with organizations to address this ongoing problem.

Hive is focused on how people think right now, and we have data to show that shopping awareness is resonating. At the same time, many doors have opened for us as we have an experienced team and Scott's great track record at Freshpet, a company that has done exceptionally well that I believe would not otherwise be possible. From a fundraising perspective, the people who believe in Hive are very mission oriented. We are privately funded and do not receive funding from people who simply want to round off their environmental, social and corporate governance (ESG) portfolio or who invest in potentially harmful companies that contradict our values. We understand that anyone we receive money from must be philosophically aligned with Hive's larger mission.

Where do you hope Hive will fit into its industry after the pandemic and five years later?

What Whole Foods has done for natural and organic food, Hive wants to do for sustainability and social impact in shopping. In five years time, we hope we've grown tremendously and that Hive is taking into account a person's considerations regarding where to buy groceries each month.

In an ideal world, we want to have a meaningful influence on the living space. We want to push independent grocery stores to create areas that focus on products that are based on sustainability and social impact. That would be a big win. If Hive can ultimately help shape and influence the industry as a whole for the better, that will be amazing.

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