Gradient backs Butter’s operating system for food distribution businesses

Many small to mid-sized food distributors still run on pen and paper. This makes it difficult to pinpoint things like how certain products are performing and customer churn. It also makes it hard for businesses to comply with the FDA’s new food traceability regulations. Butter’s solution is an all-in-one management system that helps distributors run their businesses while serving as a system of record to help them comply with food safety rules.

Butter announced today that it has a $9 million Series A led by Google’s AI-focused Gradient Ventures. Other participants included Uncommon Capital, Notation Capital and angel investor Jack Altman. The new funding will go toward hiring for Butter’s sales and engineering teams.

Butter was founded by Winston Chi and Shangyan Li in 2020, during the height of the pandemic. COVID’s impact on the food industry highlighted how outdated the supply side is, Chi told TechCrunch. While companies like Toast, DoorDash and Square addressed different parts of sales and management, there was still little innovation on the supply side, and many businesses relied on paper systems and phone calls.

Chi is familiar with the challenges faced by food businesses because his parents ran a battery-cage chicken farm in China for more than 20 years.

“They’d wake up between 3-4 AM every day waiting for deliveries and collecting payments. I witnessed firsthand the cumbersome process of logging orders and tracking receivables. My dad rarely would have a night that didn’t involve calling customers or tracking down misplaced orders or payments,” Chi told TechCrunch. “If my parents were still doing wholesale, we would’ve had to shut down our business due to COVID. With my tech background, I feel a need to help this industry.”

Butter was created to digitize the process for food distributors who sell to restaurants and supermarkets, while also giving food businesses analytics to help them run their businesses more efficiently. Butter manages many parts of operations, from sales and inventory to payment and e-commerce storefronts. This way, the platform can tell users when they need to restock products, in what quantity and on what date.

Analytics available through the platform for distributors include how much money they make per day. Chi said many only have a rough idea.

“For example, the second day after we onboarded a seafood distributor, the distributor asked ‘is it true that I only make 20% on salmon?’ We were able to quickly point to our data and show this to him,” Chi said. “He told he spent over half of his time on salmon everyday and after this, he was able to make necessary adjustments to scale his business.”

Butter tells distributors which customers are active, who is ordering less and who is churning, so they know before customers stop making purchases. It also analyzes which products sell best in revenue and profit, including which products are being returned the most often, which causes distributors to lose money.

The platform also makes it easier for them to comply with the new FDA traceability rule, because it acts as a system of record for distributors’ inventory. Chi explained that before the new regulations, only a few products, like oysters, had strict traceability rules. But the new traceability regulations cover more than 30 categories.

“Recently, a Butter customer told me it used to take him 8-10 hours if there was a recall,” Chi said. “He’d have to sift through piles of paperwork to pinpoint certain orders, buyers and transaction dates,” Chi said. “Now with Butter, we can do that in a few clicks.”

Butter is currently used by 6,000 restaurants across California and in total manages $300 million in cash flow and sales operations. Chi says that customers who have worked with Butter over the last 12 months have seen an average of 47% growth in sales revenue.

Butter onboarded many customers by working with distributors, who send invitations to customers to use Butter for free. Once they log in, their previous transaction history, customized order guide and updated pricing is available in the Butter account.

In a statement about the investment, Gradient Ventures partner Wen-Wen Lam said, “Butter has a huge opportunity to revolutionize the entire food supply chain. We’re impressed with Winston and Shangyan’s attention to detail in building their product. They are deeply in tune with their customer’s pain points and dedicated to solving less obvious problems for distributors, which is why they’ve had great adoption by suppliers including major wholesalers. We’re excited to support their team as they build and scale.”