Tiny Grocer: $200K Revenue Financing for an Austin Grocery Rebuild

Nathan: $13 billion is a big number. That’s what Amazon paid for Whole Foods, and it was for Whole Foods’ secret grocery playbook. That secret playbook is out. A local entrepreneur here in Austin, Texas, named Steph has launched Tiny Grocer after 24 years at Whole Foods. Stephanie: I started in 1995. Nathan: Holy mackerel. I hope you got some equity. Stephanie: I got some nice stock options. Absolutely. Nathan: That playbook is now printing money. Millions of dollars of topline revenue. Stephanie: This is a $3.5 million a year business. Nathan: This is crazy. Stephanie: This is going to be Tiny Grocer. It’s on MLK. Nathan: Talk to me about numbers. How much do you need to open this? Are you raising for this location? Stephanie: I’m raising 2.1 million. Nathan: If I write a check today, how quickly will I get my money back? Nathan: All right. Hey, I’m Nathan. Stephanie: Hey, Nathan. I’m Steph. Nathan: Steph, it’s so good to meet you. Stephanie: Good to meet you. Nathan: Give us some context. What’s this place called? Stephanie: This is Tiny Grocer Hyde Park. There’s an original Tiny Grocer on South Congress. This store just turned 2 years old, and South Congress is about to turn five. I’ve been in the grocery business most of my adult life. I spent 24 years at Whole Foods. I started in 1995. Stephanie: I just kind of saw that company evolve from 70 stores to 500 by the time I left. 70 sounds like so many to me now, but it really always felt like a startup. Nathan: How old were you when you started at Whole Foods? Stephanie: I was 24. My first job was making sandwiches in the deli. I was a barista. We had a true juice bar that was like a bar menu. So I was pressing wheatgrass and making smoothies. I moved to grocery, and that’s really where I found my love of what I was doing. Stephanie: The concept is to be everything you get in a large-format grocery store, just in a very small space and hand-selected by me. This side is grocery, around the corner is a coffee bar, and behind that a deli. There’s beautiful banquette seating inside and a gorgeous patio outside. Nathan: How many SKUs are in here today? Stephanie: Probably about 4,500. Nathan: You personally pick every one of them. Stephanie: Every one of them. Stephanie: One of the things that’s really important to me is how much local product is in the stores. So it really starts with local, local, local. The wine selection is great. We’ve made a concerted effort lately to bring in lower-priced wines. This Eco Barbera is just delicious. It’s a one liter, $23.99. Nathan: That’s so cool. Have the scales flipped here at Tiny Grocer? Do you make more revenue on non-alcoholics or wine and beer? Stephanie: We still make more on the wine and liquor and beer in retail and restaurant. Our non-alcoholic category does very well in both. Nathan: You make about a 50% markup on wine and beer? Stephanie: Less than that. Wine is probably like a 35 margin. Beer’s probably 33. They’re lower because you’re competitive with a lot of people in town. Nathan: Your store performs at about 40%? Stephanie: Yeah. Actually I think we’re at like 41–42 with the blending. Stephanie: We tend to highlight specific categories. Our tin fish section does incredibly well. The turnover is dramatic. We can be clearing a shelf weekly. You cannot underestimate how many drinks we sell. Some have proven track records. Bowi is a very local agua fresca company that I am in love with. Nathan: What does it sell for? Stephanie: $3.99. Nathan: What were total sales? Stephanie: We opened in October 2023. So 2024, with allin — coffee, deli, restaurant, grocery — this is a $3.5 million a year business. Nathan: Crazy. And South Congress without the restaurant? Stephanie: Some coffee, some deli, grocery — that’s about a $1.5 million business. Nathan: Why does this one do almost three times as many sales? Stephanie: I feel like the split between grocery and made food is really the right way to go. That’s my future. Nathan: In this one spot in Hyde Park, what will total revenue be in 2025? Stephanie: It’s looking like it’ll end up about 3.2. Nathan: What percent will be restaurant? Stephanie: The retail does 62% of the business — grocery, coffee shop, deli. About $1.8 million. Nathan: Where’s the rest? Stephanie: At the restaurant. Nathan: That’s why this location does better than South Congress. The restaurant makes so much more. Stephanie: I would say the daytime operations of this business just keep growing. So really investing in the daytime hangout food options. Nathan: Average ticket? Stephanie: I’d say between a $22 to a $27 ticket average, which is pretty high for grocery. Nathan: As a percent of total revenue, how much is the deli? Stephanie: About 20%. The restaurant is called Bureau de Poste, which simply means post office in French. This used to be a post office. The patio is where the trucks would back up and drop pallets. I wanted to do French food. It’s brunch on the weekends and dinner every night of the week — French onion soup, escargot, French omelets, croque madame. Stephanie: The rebrand: I think the best leaders, the best owners can say I made a mistake and pivot. I’m madly in love with the name Bureau de Poste, but they come and don’t realize it’s associated with Tiny Grocer. We’re going to actually rename this Tiny Grocer Cafe and it will be counter service. Nathan: What year did you open the first location? Stephanie: March 8th, 2021. Nathan: How much of your own money did you put in? Stephanie: Probably about $100,000. Nathan: And was that all you needed? Stephanie: I raised — friends, family, and strangely lawyers, which is what my wife is. Nathan: How much total did you raise in 2021? Stephanie: 875,000. Nathan: At what valuation? Stephanie: It’s dollar-for-dollar. It’s a share for a dollar. So $25,000 investment would be 25,000 shares. Stephanie: We purchased a small grocery that existed before for about $200,000. They were doing $900,000 a year before. Nathan: How do you buy a $900K business for $200K? Stephanie: I knew the person and they were ready to be done. I really wanted to do it. With the investment into the deli and coffee, it could do a lot better. That first year we did 1.8 million. Stephanie: There’s been a couple years we’ve made a little bit of money. It’s mostly break-even and the rent has just gone up and up. The other big thing happening is we’re actually physically moving that location. The rent on South Congress all-in this year will cost $18,000 a month — just for rent. Nathan: Did you raise any money to open Hyde Park? Stephanie: I did. 2.4 million. Same 1:1 valuation. Nathan: You also put in another 100,000 yourself. Stephanie: Always. Nathan: Tell me about the expansion plans. Stephanie: This is going to be Tiny Grocer East on MLK. It was called Longhorn Meats. This will be the first store with a butcher department. The food component will be barbecue — pork sandwiches, breakfast tacos with the barbecue. Nathan: How much do you need to open this? Stephanie: 2.1 million new plus about 700–800K old coming in. Total value will be about 3 million. Nathan: When would you open? Stephanie: Fall 2026. Nathan: How much will we spend on inventory to open the new store? Stephanie: All-in about 200,000. Nathan: Equipment, machinery, fixed expenses? Stephanie: It’s going to be expensive — probably $350,000 for equipment, deli, heaters, everything. Nathan: So 200K of inventory plus 350K of equipment is $550K. Nathan: Would you be open to inventory financing and equipment financing for that 550K tranche? Stephanie: Absolutely. I like that. Nathan: I like that because I don’t know how to predict what the exit value is or how long it’s going to take. You struck me as someone tough. You’re going to do this for a long time. Stephanie: I’m going to build it to what I can build it to until I’m too old to want to do it anymore. Nathan: I’m also going to give you an offer that splits this. You said you’re also going through the loan process for the Hyde Park rebrand and Tiny Grocer Cafe expansion. Stephanie: I’m looking at loans right now for about 200,000 to do this. Nathan: I love the idea of getting to know you immediately through a deal here and then supporting you as you open the second location. Stephanie: Me too. Nathan: What if I offered something like a $200,000 loan? You’d pay me back $275,000 over time. Stephanie: How many years? Nathan: Five to ten? Stephanie: Ten would be a lot. Nathan: Five. Stephanie: Five is more doable. Nathan: What if we structured it as you’re paying back as a percent of monthly revenue? So if you do 100 grand in a month, you pay me 5%, that’s 5K. If you crush it and do 300 grand, 10% would be 30K back. Stephanie: Wouldn’t the time matter? Nathan: Tell me what you’re thinking. Use your calculator. Stephanie: I love this show. I love negotiations. It’s so much fun. Nathan: It’s so fun. Maybe it does fluctuate with sales and we determine the percentage off of — Stephanie: Exactly. I bet you some months you do really good and others you don’t do as good. So what if we reserved 3% of your monthly sales for you to service my debt? Stephanie: 3% sounds right. Nathan: I’d offer $200,000. You pay back $275,000 over time. So I make $75,000. If you’re doing 3.5 million a year, you’re doing $250,000 a month on average. 3% of $250K is about $7,200 a month — that’s almost paid back in 3 years. Stephanie: I’d almost rather have it go 5 years and have that 7,200 be a lower number. Nathan: My return will have to be higher because my money’s out for longer. Are you open to that? Stephanie: Yeah, it depends. Let’s do the math. Nathan: My principal is just at risk for longer. So instead of a 3% take rate, what if we did a 2.5% take rate? Stephanie: 7,000 feels like a lot to me to come out of cash flow every month. Nathan: You’re saying you don’t feel like you have enough cash flow to support 7,000. Stephanie: I’d be more comfortable between 3,500 and 5,000 — like 5K on good months, 3,500 on slower months. I’d feel more comfortable if it was over 5 years instead of three. Nathan: Would I be willing to do $200,000 today, you pay back $300,000 over time, that time being five years? So you have time to grow. The monthly take rate of your total monthly sales would be about 2%, or about 4 to 5,000 a month of debt payments until I make the $300K back. Does that work for you? Stephanie: That feels ideal. Absolutely. It feels like we’re going to make this happen. Nathan: Listen, I love this. I think this is the future of how people want to live. In-person experiences, down to the hotness of the toasted sandwiches and the outdoor experience in Austin in the summer. I’m excited to do a deal with you. Stephanie: I love it. 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