• Hungryroot increased its revenue run rate to $175 million this month.
• CEO Ben McKean said he expects demand for customized grocery service to stay strong post-pandemic.
• The company is making changes to its algorithm to predict which groceries specific customers want.
• See more stories on Insider’s business page.

Five years ago, Ben McKean and Hungryroot were celebrating as their chickpea cookie dough and carrot noodles landed on shelves at Whole Foods Market stores — a major milestone for a startup that was trying to offer healthier versions of traditionally indulgent foods.

Today, Hungryroot looks far different: The center of the business is now its grocery delivery service, which offers a variety of better-for-you options and ships directly to customers’ homes. 

The shift seems to be paying off. In March, Hungryroot’s annualized revenue run rate hit $175 million, or projected yearly revenue, CEO Ben McKean told Insider in an interview. For perspective, Hungryroot’s sales last year were about $67 million the company said, although this includes a year when the pandemic was forcing an initial round of stay-at-home orders in the US and many consumers were perusing online grocery options for the first time.

Read more: 15-minute grocery deliveries are this startup’s specialty. Its founders outline how its ‘ultra-fast’ delivery model works and how they’re using their latest $15 million raise to expand.

“Every single month has been better than the previous month since last January,” McKean said. “It’s not just like we’re having a good month. We’re expecting that to continue to grow.”

Hungryroot is one of several online grocers and marketplaces that has gotten a boost as consumers looked to buy more food online during the pandemic. In addition to higher sales, many have also taken the chance to close new funding rounds: Asian- and Hispanic-food focused Weee! raised $315 million last week, while Imperfect Foods, which got its start selling produce that didn’t meet supermarket standards, increased its valuation to $700 million with a $95 million Series D funding round in January.

But as vaccines become more widely available and shopping at physical retailers becomes less risky, online grocers will have to prove that their services have value beyond the pandemic.

Customers ‘outsource their grocery shopping to us’

For Hungryroot, that value comes in the company’s algorithm. When they sign up, customers take a survey about their eating habits, and Hungryroot’s algorithm suggests a pre-selected basket of groceries each time that they order, along with corresponding recipes. McKean said that 72% of groceries purchased through Hungryroot are recommended by the algorithm. “As that figure goes up, our customer retention goes up,” he said.

Hungryroot is expanding the list of questions it asks customers to improve that retention, McKean added. The new information it gathers will aim to understand consumers’ preferences in greater detail, such as whether they prefer chicken, fish, tofu, or another kind of protein. “One thing we’ve found is that preferences around protein is one of the largest determinants of whether someone’s going to like a recipe,” McKean said. “It’s so much more important than the sauce that’s used or the vegetable or the grain.”

Other tweaks to the algorithm focus on inferring customers’ preferences based on the choices they make while shopping. Hungryroot plans to use collaborative filtering, for instance, a method that can suggest food items based on what similar customers have ordered in the past. Its system also now strikes products from its suggestions if a customer removes them multiple times from their pre-selected basket.

“The reason they’re shopping with us is because they outsource their grocery shopping to us,” McKean said. That sort of curation isn’t something physical supermarkets have done as they have beefed up their online and delivery operations, he added. “The vast majority of them have essentially just taken the offline shopping experience and brought it online.”

Still, Hungryroot is making plans for the post-pandemic world. McKean said the company has plans to do more in new advertising channels such as television. It even has plans to tear a page from its original playbook and get some of its current own-branded items, such as cookie dough and sauces, on the shelves of physical grocers again, although McKean said it hasn’t decided which retailer it will work with yet.