Bay Area delivery startup Zero Grocery shutters, leaving vendors with unpaid bills

“I was pretty worked up about it but it’s a very unhealthy place to be, to feel that much stress and anger about something,” Wood said. “I’ve tried to just chalk it up as a tough life lesson, because there is very little that can actually come out of this. I’ll be surprised if I get $100.”

The discrepancy between the company’s sudden demise and its outward success, with millions of dollars in fundraising and splashy features in TechCrunch and Vogue, has given many of the owners pause about the shiny promise of food delivery startups, a rapidly growing industry, particularly in the Bay Area.

A wave of pandemic-born companies like Pastel and Locale deliver artisan foods all over the Bay Area, while a new app called Popcorn promises delivery “faster than 911.” The long-term viability of their business models, however, remains to be seen, and Zero Grocery offers a cautionary tale. Similarly, when the once-buzzy food delivery startup Munchery abruptly shuttered in 2019, it left numerous local businesses with large debts.

Zero Grocery founder Zuleyka Strasner tweeted along with the closure announcement in March that while bringing in “millions in revenue,” Zero Grocery “suffered from being chronically undercapitalized.” In an interview with The Chronicle, Strasner said the business was doing well but believed its focus on sustainability meant it couldn’t survive in a highly competitive market.

“The landscape for founders like me, for diverse founders and in the sustainability space is very, very challenging,” she said. “We were not able to make it.” Capital is often less accessible to people of color; the owner of Oakland’s mission-driven Community Foods Market attributed its recent closure in part to the difficulty faced by minority-owned small businesses trying to raise funds.

Many popular Bay Area food businesses were eager to work with Zero Grocery because of its mission: groceries free of plastic packaging delivered in less than two hours. The company brought everything from cereal to mushrooms in glass jars and compostable containers to homes throughout the Bay Area, and then picked up the containers for reuse.

Strasner, a former operations manager at a Menlo Park venture capital firm, started Zero Grocery in 2019 after honeymooning on a remote Caribbean island “littered in plastic trash,” she wrote in a 2019 Medium post. She said she became interested in sustainability and started living zero-waste. Zero Grocery, which she called the country’s first plastic-free online grocery store, raised an early $4.7 million and quickly garnered media attention.

Elliot Sharifi of Obour Foods, which sells hummus in reusable glass jars at the Ferry Building in San Francisco and Bay Area farmers’ markets, was immediately attracted.

“Their mission, on the face of it, was fantastic,” he said. At Strasner’s request, he said he spoke to potential investors about the economics of selling food in glass jars. Over two years, Obour Foods saw about $35,000 in sales through Zero Grocery. The company became a saving grace for Starter Bakery, which found the delivery service the week shelter-in-place orders hit the Bay Area in 2020.

But owners said they soon noticed issues that now seem like red flags: disorganized delivery warehouses, mismanaged inventory and high turnover. Several owners said Zero Grocery ordered the exact same amount of product from them each week, compared to other delivery services that monitor supplies closely and adjust based on demand.

The company was also behind on payments to some businesses. In January, As Kneaded Bakery owner Iliana Berkowitz and her bookkeeper pressed Zero Grocery to pay nearly $6,000 overdue for bread orders, according to emails provided to The Chronicle. Meanwhile, the positive press attention and funding announcements continued.

“They looked like they were on the brink of falling to pieces constantly, and more and more money seemed to flow into the business,” Berkowitz said.

She said the experience has made her wary about working with food delivery companies in the future. She and other affected business owners are connecting with each other and exploring legal action.

“We can sell to a grocery store that’s open seven days a week that you can visit in person and know your grocer,” Berkowitz said. “There’s nothing new about getting food to people. I don’t know why it’s glorified or needs (millions of dollars) of funding structure to make it happen.”

Others, though, had no complaints. Cole Mazariegos-Anastassiou of Pescadero’s Brisa Ranch, which sold produce through Zero Grocery and is owed about $500, said he appreciated a company that gave a platform to local farms. Emily Winston of Boichik Bagels sold about 200 bagels weekly through Zero Grocery and said it was a positive experience. She says she is owed $1,600, which for a business of Boichik’s size isn’t a major loss, she said. She also sells bagels through Locale and Pastel, and doesn’t plan to stop working with them. They bring in significant business for Boichik, and the companies are growing.

“I wouldn’t consider any of these companies to be particularly more perilous to work with,” she said. “People want to pay for good food and they’ll also pay for convenience. It seems like it’s here to stay.”

Wood has been through this before. He was left with unpaid bills from two Oakland businesses Starter Bakery supplied, Hog’s Apothecary and Remedy Cafe, after they closed several years ago. He said he was never paid back.

Strasner acknowledged the stress the businesses are feeling about the money they’re owed, but defended the company’s practices.

“This is part and practice of doing business. There is no company like mine that is dealing in commodities and sold goods that doesn’t have (accounts payable),” she said. “We were always very up to date in our payments as much as possible.”

She said Zero Grocery’s recent announcement of $12 million in funding wasn’t an immediate injection of cash but a cumulative amount from the previous two years, and they weren’t able to bring in more capital. Fundraising in “drips and drabs” put a “huge strain on the business,” she said.

Of Zero’s outstanding debts, Strasner said: “Those are being resolved as we speak.”

Lisa Van Eyssen, a CMBG restructuring officer, wrote in an email that “we have just started the process of winding down the operations of Zero” and declined to answer questions about the affected businesses.

Wood was recently reading through the more than 200 comments from customers and supporters lamenting the loss of the business on Zero Grocery’s final Instagram post.

“What would their customers think if they really knew that all of the food that they ate, the producers were never paid for that?” Wood said.

Staff writer Janelle Bitker contributed reporting to this story.