Mom and pop grocery stores are dying off in San Diego. Can this tech entrepreneur save them?

Mom and pop grocery stores are a dying breed in today’s market, disappearing from neighborhoods while supermarket titans take their place. But a tech startup in San Diego has a plan to save them from extinction. And the founder might have the chops to pull it off.

Led by a butcher’s son (and backed by a billionaire), tech startup Mercato makes software that helps independent grocers do high-tech things — like offering their customers online ordering and grocery delivery — without having to do the work.

The company was founded in 2015 by Bobby Brannigan, a 40-year-old New Yorker who’s had an impressive run as a startup investor and tech entrepreneur. Brannigan just moved his company — and his whole executive team — from the East Coast to San Diego, setting up a new headquarters in Little Italy in October.

In a matter of months, the startup has grown to employ 26 people, occupying the ground floor of coworking space Downtown Works. Brannigan has caught the eye of other entrepreneurs in the building, as his founder credibility is strong. While he was still in college, Brannigan started an online store selling textbooks in 2001, at the outset of the e-commerce wave in retail. He grew that startup to $100 million in sales, then sold it in 2012 and became a startup investor. He’s invested in Uber, Twilio and several other fast-growing tech companies.

He probably could have retired a while ago. But small grocers are his soft spot.

“People look at startups from a profit perspective, but for me this runs really deep,” Brannigan said.

Mom and pop stores: it’s all in the family

Brannigan grew up in a Brooklyn neighborhood dominated by Italian families and lots of small businesses. His father’s butcher shop, B & A Pork Store, was one of many mom and pop grocery stores on the block. Every day, Brannigan got off the school bus in front of his dad’s store to spend the evenings sweeping the floors and slicing meats. The narrow shop has been a mainstay of the neighborhood the past 45 years, with cured meats dangling from the ceilings and customers chattering in Italian.

“The whole neighborhood was like family to me,” Brannigan said.

By the time he left for college, the concept of shopping at a “big box supermarket” was utterly foreign. In Brannigan’s old neighborhood, the closest Walmart Supercenter was across the Hudson Bay — in New Jersey.

“When you grow up in a certain area, you think everyone else has the same access to local food that you do,” Brannigan said. “But I realized there are towns in this country where all you have is an Applebee’s and a McDonald’s.

In the early days, Brannigan’s father hoped his son would take over the family business. Instead, Brannigan wants to give shop owners like his dad the tools they need to stay competitive, spurring a “resurgence” of independent grocers.

“Building a business is about intimately getting to know your customer,” Brannigan said. “I have this unfair advantage because my dad is a customer — and he doesn’t hold back.

The indie grocer gets squeezed

As an indie grocer, it’s always been hard to compete with the grocery giants monopolizing American cities. Only about 21 percent of grocery dollars go to independent grocers, according to a 2018 Nielsen survey. Before that, a USDA report showed that independent retailers lost 41 percent of the market share across U.S. counties from 2005 to 2015. And it’s getting even harder to stay alive in the days of two-hour grocery delivery thanks to tech companies like Instacart and Amazon.

“With the growing trend of online ordering, not being able to participate is kind of scary,” said Matt Mann, who manages a small natural market in Del Cerro called Windmill Farms.

Mann said he recognized online delivery was quickly becoming an essential service to offer, so he reached out to Amazon and Instacart to see if Windmill Farms could get on their platform. He never heard back.

“It was really frustrating,” Mann said. “I kept reaching out and never getting anything back.” A “thanks, but no thanks” would have been preferable to no response at all, he said.

What the grocer (and shopper) gets out of Mercato

This is the opportunity Mercato wants to address: independent grocers who big tech companies have overlooked. These indie grocers make up about $160 billion of the total $800 billion market. Mercato’s software integrates with an independent grocer’s point-of-sale system, collecting product information and importing the data into their system. This allows small shops to quickly get their inventory online (through Mercato’s marketplace), allowing them to offer customers online grocery shopping.

If the store already has a system for grocery delivery, Mercato allows the shop to handle its delivery. But for those who don’t have the resources or system in place to facilitate deliveries, Mercato does it for them. The software links into the programming interface of existing delivery apps (think Instacart and other on-demand shopping apps), which recruit drivers and shoppers on Mercato’s behalf.

Mann said Mercato also helps his store with marketing and social media, helping to get the word out that Windmill Farms offers online shopping and delivery. The app has helped the small grocery store bring in over 100 new customers since it signed up six months ago, but Mann said he expects that to pick up steam now that all the details are ironed out.

On the shopper side, the Mercato platform lets shoppers get the convenience of Amazon Prime Now or Instacart while supporting local and artisan shops. Buyers can also shop several stores at once, including out-of-town specialty shops that can ship their products to your door. The downside for the shopper is paying multiple delivery fees to separate stores, which range from a few dollars to over $15 depending on the store and its location.

Mercato’s local growth

Here in San Diego, the platform has signed on Windmill Farms and Venissimo Cheese. That’s a small start locally, as the company has over 650 grocery stores and specialty shops on its platform, with large concentrations in New York City, Chicago, Boston, Washington D.C., Philadelphia and Los Angeles.

Brannigan said he expects about 30 additional stores to be added in the San Diego region over the next six months.

More than 50,000 customers nationwide have used the site so far, with a return rate of 50 percent. The average customer purchases food from the platform about 1.7 times per month.

But the grocery delivery aspect is just the beginning for Mercato. In the future, the company plans to build out operations software for grocery shop owners that help them manage their supply of products and other elements of their business. Brannigan said he hopes to help shop owners get the same discounts from wholesalers that big box grocers get, allowing them to stay competitive. In the end, he wants Mercato to be a “grocery store in a box” for new and old grocers.

Mercato raised $4 million in seed capital to get going, including an investment from billionaire tech investor Michael Loeb and La Jolla-based Blackbird Ventures, which is run by Neil Senturia. (Senturia writes a weekly column for the U-T business section.) Brannigan said the startup plans to raise a Series A within the next two months and has several “large VCs” interested.

The company will use the new funds to build out its sales, engineering and operations teams, with “90 percent” of that job growth in San Diego.

“We have huge growth plans, and we believe we have a $100 billion business,” Brannigan said. “We’re going to build that in San Diego.”