The landscape of food purchasing has significantly shifted online. Restaurants are increasingly replacing traditional menus with QR codes that facilitate ordering via smartphones, while grocery shopping has been transformed by delivery platforms like Instacart. However, until recently, the procurement process for small restaurants and local grocery stores remained heavily reliant on physical methods, such as pen and paper.
GrubMarket is positioning itself to modernize this aspect of the food supply chain through a new acquisition aimed at enhancing digital efficiency. The California-based company has acquired Butter, a SaaS platform designed to digitize the traditionally manual food distribution process using AI. This exclusive information was shared with TechCrunch.
Butter, founded in 2020, will have its eight-person team integrated into GrubMarket, and its software will become part of GrubMarket’s tech offerings. The financial terms of the deal were not disclosed by Mike Xu, GrubMarket’s founder and CEO. However, Butter’s co-founder, Winston Chi, indicated that the exit has been financially beneficial for the majority of involved parties, including investors.
According to PitchBook, Butter had a post-money valuation of $39 million following a $9 million Series A funding round in November 2022, a figure confirmed as approximately accurate by the company. Butter has garnered $12.3 million in total funding from investors such as Google’s AI-focused Gradient Ventures, Uncommon Capital, Notation Capital, Collide Capital, and angel investor Jack Altman.
GrubMarket has aggressively expanded through acquisitions, having bought over 100 companies, primarily to consolidate the supply chain. Operating a B2B e-commerce business, GrubMarket sources produce and ingredients from growers to supply supermarkets and other buyers, and also provides distributors with necessary software, similar to Amazon’s dual role as both marketplace and SaaS provider.
Butter joins Farmigo and IOT Pay as one of the few venture-backed startups in GrubMarket’s portfolio aimed at enhancing its technological capabilities. It remains undetermined whether GrubMarket financed this acquisition using its own capital. Given its profitability and funding track record, self-financing is plausible. Xu shared that the company has been EBITDA-profitable for three consecutive years and is on track to exceed a $2 billion annual revenue run rate by 2024.
While Xu refrained from discussing future fundraising initiatives, he did state that GrubMarket has secured “hundreds of millions of dollars” to date. The company’s last publicly announced funding was a $120 million round in 2022, which valued it at over $2 billion. Additionally, Bloomberg reported in late 2021 that the company was considering an IPO for 2022.
Scooping up Butter
GrubMarket is set to acquire a smaller rival. During the peak of the COVID-19 pandemic in 2020, founders Chi and Shangyan Li introduced Butter, an end-to-end vertical SaaS platform designed to help small and medium-sized food wholesalers manage various aspects of their operations, including inventory, customer relationships, and ordering processes.
While these functionalities are not particularly exclusive—GrubMarket itself offers many similar features—Butter distinguished itself by rapidly incorporating generative AI tools to enhance user workflows, in line with many other SaaS startups.
The wholesale food industry’s ordering process has long been in need of innovation. Traditionally, food suppliers have had to jot down orders while listening to voicemails from clients—such as a chef calling at the end of the day after taking stock—or while sifting through text messages. This disorganized method often resulted in incorrect orders or missing items, making it a challenge to analyze sales and performance data effectively.
Butter has leveraged artificial intelligence to revolutionize this process, developing features that enable distributors to transform unstructured data into easily viewable, trackable, and analyzable information. By combining third-party AI models with proprietary technology, Butter converts voice notes into itemized order lists for restaurants and supermarkets. Before integrating the AI-generated data into Butter’s system, users have the opportunity to review it for accuracy, thereby ensuring high data integrity. The digitization of this information empowers distributors to perform sales analysis and optimize inventory management and pricing strategies.
Li highlighted the significant productivity gains, noting, “Every sales representative on the distributor side spends approximately five hours a day transcribing text messages and voicemail orders. This AI solution greatly enhances productivity and reduces manual labor.”
Crucially, Butter does not require its customers to overhaul their existing workflows. “Both distributors and restaurants prefer to maintain their current communication methods. We are not altering their procedures but rather centralizing sales knowledge,” explained Chi.
Chi further remarked, “AI can enhance every aspect of the food distribution process. While we may not replace human roles, AI has the potential to exponentially increase sales. We chose to start with the ordering process because it represents the most significant pain point.”
Butter’s AI capabilities ultimately provided the catalyst for GrubMarket to pursue an acquisition and merger with its emerging competitor.**
Fast dealmaking is the order of the day
After four years of developing Butter, Chi and Li had created a solid product but faced challenges in expanding their customer base due to the lack of a robust distribution channel.
Analyzing the industry landscape, they observed that their most significant competitor, GrubMarket, possessed the extensive customer reach they were striving for. Recognizing that Butter could complement GrubMarket’s offerings, Chi and Li made the strategic decision to propose a merger to Xu.
During a retrospective conversation on the decision to sell his company, Chi observed, “The competitive edge isn’t in the technology itself but in the data. GrubMarket possessed an abundance of valuable data.”
Xu was already familiar with Butter, a startup that had successfully converted one of GrubMarket’s customers. He commented, “[Butter] goes the extra mile for their customers. They were so dedicated that they even had a team staying overnight in the customer’s warehouse to ensure the project was completed.” However, Xu noted the financial constraints Butter faced in developing an ERP system, having raised only about $12 million, which posed challenges in creating a high-end solution.
GrubMarket had ambitions to automate order management, yet its development team was “maxed out” with other priorities, such as leveraging AI to derive customer insights from raw data. When Butter proposed an acquisition, the technological alignment was immediately clear. Additionally, Butter had secured a niche market in seafood distribution, which was highly attractive to GrubMarket. Initiated in March, the deal was finalized by the end of April.
Post-acquisition, GrubMarket plans to integrate Butter’s offerings, including AI-enhanced chat commerce, to bolster GrubAssist, its enterprise AI assistant. GrubMarket also intends to incorporate an AI-enabled prospecting and digital ordering module into its ERP system. This module will enable food wholesalers to automatically create digital sales orders from any format—whether text, paper, voicemails, or emails.
“Our approach is straightforward and quick,” Xu remarked on the expedited process of the deal. “The addition of [Butter] is advantageous because it saves us from having to build the technology from the ground up, making it a valuable addition to our suite of software products.”
