Am I reading this correctly, and the business metric this company managed to achieve is simply "selling food above cost", like every deli and diner in the country does? Or is the article instead suggesting that they were profitable after all logistics costs?
http://www.bloomberg.com/news/articles/2016-03-11/instacart-...
Here's the money quote: "[Instacart] said 40% of the company's volume is profitable - meaning most orders still lose money. It also said that it will be profitable globally by summer. However, its calculation for profitability doesn't include the cost of office space, the cost of acquiring shopper workers, or the salaries of its executives, engineers, designers or other employees..."
In other words, a $2b company figured out how to "not lose money" 40% of the time when their lowest paid workers deliver things. Ignoring those pesky cost centers that are developers, designers, hiring managers and executives. When every corner deli within 10 miles of me delivers (often for free) and presumably does so profitably (disclaimer: I live in a major metro area).
Technology has a peculiar ability to light gigantic piles of money on fire. These are strange times we live in.
Often some items are actually loss-leaders, enticing you to come in more often, or to pair it with a more profitable item that makes up for its cost.
Sometimes it is, even more, obvious that something is a 'loss leader'; such as at fancy dinners where they'll simply give you bread for free while you wait for your meal or bars where they give you salty snacks like popcorn to encourage you to buy more beer and not leave to have a real meal somewhere else.
* For 40% of the orders, they achieve a positive gross margin * We anticipate reaching positive gross margin on 100% of orders by the end of year * Even after reaching positive gross margins, non-COGS operating costs are sufficiently high to result in a negative EBITDA
Most startups are actually looking for that magic formula. They spend spend spend until they find it, then scale scale scale to become a profitable business as a whole.
Just wanted to say thanks for the laugh! It's not often than a comment on HN makes me laugh out loud. As in laughing with you, not at you...
This is notable because some of the on-demand companies are engaged in a bidding war out of perceived land-grab economics, either on the supply or demand side (or both), so they price the customer-side service or the supply-side cut in such a way that the company loses money on most or all orders.
Think like: We'll deliver you a $8.50 sandwich for $10.25 and a $1 delivery fee, with a guaranteed payment to the driver of $5.00 per order.
If that's a little gobsmacking, suffice it to say that there are a lot of people with Uber envy, and that this is part of the playbook in expansion phase for them, too. (They are presently engaged in a bidding war against an Uber-for-China which is transferring billions of dollars from investors of both firms to drivers/riders.)
Under sane conditions, I'd presume this is the type of company that could get money, either through debt or equity. The business model works, it just needs scaled. However, that also assumes scaling the business does not also scale those other expenses at a ratio well below 1. If the ratio is closer to 1, it's a bit dubious to not count those towards the unit costs.
Maybe the Uber playbook shouldn't be used for every on-demand service or maybe it would be smart for on-demand services to offer a non-commodity product so their success is a lower bar than shooting the moon.
I, for one, am surprised they shut it down if they in fact had achieved positive contribution margin. Probably just couldn't tell a good enough story for how they'd grow, and demonstrate good upside, for new money in, given all the preferences/dilution/creditors already in their capital stack.
Some companies (e.g. in biotech, autonomous vehicles) may take significant upfront costs, but anything requiring massive scale to be profitable means the margins are going to be razor thin (see: Amazon vs. Jet.com, freight shipping, payment processors).
"But due to other costs" < aka paying for people, the website, the delivery, marketing, etc?
Over the long term, this is necessary but not sufficient to build a business line that makes sense. You also have to control all the other costs... which can be difficult if your business model requires large scale growth.
With early stage companies, many haven't even gotten to that point though. The first step is "Will someone pay for this?" Then the second is "Can we make money on each unit they sell." True profitability is "Can we sell enough units to cover our fixed costs"
What makes this interesting is the norm for a while was to fund #1. (And good ideas are still funded that way) #2 used to be the bar to get further funding, but now it looks like #3.
In fact, it's not even limited to startups. I worked for Red Bull many years ago and when they open a subsidiary in a new country, the only metric that matters for the first few years is how much money they are SPENDING on marketing & promotion - sales just aren't that important until the brand has been established.
"We were exploring different strategic options, but deals fell through last minute."
Of course deals fall trough last minute. It's not like they would fall through a few months in advance.
I know I am but a tiny sample of the overall SF food market, but I'm squarely in the target demographic (work at home, don't like to go out to eat). I used SpoonRocket a few times, but entirely gave up on them after trying a few times. I love Sprig and order from the often. Here's why:
* SpoonRocket's meals simply weren't healthy. A lot of the folks in this space (Sprig, Munchery, etc.) are really focused on healthy food. I can call the Chinese place down the block and have an unhealthy meal delivered, but there traditionally have been very few good healthy options other than cooking yourself. SpoonRocket's food was heavy, carb-y, greasy, and just not that good.
* I know they had to do this for time efficiency/cost reasons, but the requirement that you meet the driver out at the curb was too big of a psychological barrier. I live/work in one of the (relatively rare, to be fair) SF highrises, but knowing that a SpoonRocket meal meant getting up, waiting for the elevator, going downstairs, meeting the driver, then going back upstairs - meant that I just never ordered from them (especially when Sprig will bring the meal right to my door.)
This just goes to show that in an absolute sense -- these relatively small differences might not matter (i.e. of course I'd rather go downstairs to pick up food vs. walk to a restaurant for lunch), but in the highly competitive environment where easier and healthier alternatives exist, their offering was unsustainable.
I found it so funny and off putting I sent a screenshot to my friends: http://imgur.com/He7Hfkj
Ironically UberEATS launched officially today.
Source: I'm a co-founder, if my business fails it's my fucking fault.
"If they cut off one head, two more shall take it's place"
Well, knowing Techcrunch they're probably overreacting, but this is a prediction I can get behind.
Maybe now VCs can invest in companies that don't rely on questionable labor tactics in order to deceive themselves and others into thinking that they're unicorns.
One start-up is an insignificant sample size.
What's the deal? ROI for food delivery seems ridiculously low in comparison to other options. I don't want to sound like a curmudgeon but it seems quite wasteful.
How are you figuring the ROI? If you're not factoring in opportunity cost, then you're not even considering it as an investment.
I make well over $100/hr doing contracting work. I can get a good meal delivered for $15. I highly doubt I could cook a decent meal in 9 minutes, and that's assuming ingredients and training are free (time and cost-wise).
Now that I think about it more, there was something odd about how most times I would order, the app would say 30-60 minutes which was discouraging, but experience told me it would be sooner, and it always was, like much much sooner, 5 minutes usually. I wonder how many customers didn't use it thinking "why would I wait 30-60 minutes?" oh well.... the drivers were very nice too...
I don't know where all they were located, but it felt more appropriate for dorm delivery than SF. Where's the kale man?!
So... Like the pizza place down the street?
I don't understand how anyone could think it has the margins to pay engineers, founders, and VCs.
I'd be curious to know if any of the food delivery apps have incentivised delivery to grouped buyers. e.g., $10 if someone buys, $8 if 5+ people in the same street buy, etc. Encourage delivery efficiency and also delegate marketing to word of mouth.
Now, in the public markets, there's no problem jumping into a category; just buy some stock in X, Y, Z companies. But in the private market, if you didn't get in on X company's Series Y, you can't just buy in tomorrow to gain some exposure. So you invest in the next company with a similar concept (but perhaps in a different vertical).
All the while, nobody stops to think whether the newborn category they're chasing is even fundamentally viable, or if viable, whether it's nicely profitable at scale. Or whether it can bear so many entrants into the space.
Have you tried Sprig?
They only operate in Sacramento. The main things I liked are that it takes usually under 10 minutes and there was no tipping or delivery fee. The price you saw is what you paid. However, they just added tipping to their app which isn't a good sign. On top of that, it asks you to tip before you even get your food and there is no option to tip later that I know of. I haven't ordered from them since I was first prompted to tip.
Older article that discusses them: http://www.bizjournals.com/sacramento/news/2015/10/30/what-s...
A quick timeline (from what I can remember):
- Initially started out in Berkeley / Emeryville area by a couple of Berkeley alumni who had previously launched a food delivery startup focused on midnight munchies (aka, unhealthy food for college-type students). Each meal was initially only $6, tasted quite good, and delivery only took ~15 minutes.
- Expanded to Oakland area (first Downtown, then eventually other areas like Lake Merritt). Meals were still only $6, taste was usually good but sometimes wasn't as good. Delivery was still fairly fast (usually <15 minutes), but could take up to 30 minutes.
- Expanded to SF. Meals became more expensive and had variable pricing (I think it was first $8, $10, then $12, depending on which dish). A delivery fee ($2.50) was created. Food quality dropped (usually was OK, but not as good as it used to be); meals could take up to 1hr to get delivered (usually under <30 min though)
- Started their elite food delivery plans which provided free meal delivery and a bit of extra credit, by agreeing to pay upfront each month (e.g. $20).
Thoughts:
- From a business perspective, I think SpoonRocket (SR) made a lot of the right moves. While a lot of people say "disruptive innovation" loosely right now, I think SR actually did it by: 1) focusing on a low-end market that wasn't well addressed (e.g. college students), 2) used a technology to rapidly improve the experience for this low-end market (e.g. using Google Maps to efficiently route drivers to deliver on-demand meals), and 3) go upstream in the market to gain market share in higher-end consumer segments.
- So why did SR fail? I'm speculating here, but I think it's because scaling all these type of on-delivery startups is really, really hard work. Unlike Google or Facebook which could effortlessly scale up across the world with its technology-heavy solution, scaling up a company like SR requires hiring a linear amount of employees like drivers and support staff. As others have noted, it's difficult to get the economics right for an inherently low-margin business with a high labor component.
- Can other food startups succeed? I'm willing to bet most food startups probably won't survive this fundraising crunch if it extends another year. As far as I could tell, SR was ran as a very lean operation where they tried to batch deliveries, produce a small set of meals in large quantities, and focused on efficiency (e.g. calling you two minutes ahead of time to minimize delivery driver's waiting time). If SR couldn't make the economics work, I'm not sure how others could. Perhaps by going more high-end than SR, and charging a higher price (a la Munchery) or is it perhaps by selling a lot more quantity?
- Lastly, what I'm hoping for is the "Airbnb" of food, where regular people could cook meals and sell them to neighbors on a marketplace with reviews, pictures, etc. Of course the economics would be challenging like any food business, but that's the kind of service that I could see myself regularly using. There's also the regulatory side (after all Airbnb itself has followed the policy of 'asked for forgiveness, rather than permission') Who doesn't like the sound of buying a home cooked meal from a neighbor?
I really don't want to buy food from random strangers that are not regularly being inspected for the cleanliness of their operations. A dirty room or a car is an inconvenience. A meal prepared in an unsanitary way could potentially kill you.
I too have no desire to buy food from strangers, but I also feel like the potential risks of room-sharing or ride-sharing aren't limited to cleanliness. In both cases you're implicitly trusting a stranger with your physical safety.
Speaking for myself, I think I'm more comfortable with the notion of ride & room sharing because I can maintain a greater (and quite possibly illusory) sense of control. Drunk or unreliable driver? I can get out. Sketchy apartment? I can leave, or prop a chair against the door. etc.
I won't claim this is a rational fear, but I'm personally far more apprehensive about buying food from my neighbor than I am about staying in said neighbor's home (airbnb) or getting a ride in their car (uber / lyft / etc.)
This is already happening here: https://josephine.com/
I looked at them once before, and there's nothing super close to where I live (would need to drive to pick it up), but I'd definitely consider using it if there was someone who cooked within walking distance of me.
It'd take a lot for me to consider it, because it creates all kinds of awkwardness if the quality is poor, and I'd have little reason to trust that they'd deliver consistent quality.
It'd need to be far cheaper than any alternative, and I'd need to not afford the alternatives, before I'd consider something like that.
There are some highlights from what we learned trying "Airbnb for food."
1. Our target was not home chefs, but instead professional chefs. We worked in the industry for several months and identified how difficult being a chef. Lack of progression, opportunity, and a chance to showcase your skill.
2. We rented out a commercial kitchen for chefs, let them work their own hours, and cook the things that they wanted. We took on amateur chefs as an experiment, using their passion and food samples as determinant/predictor of success.
3. We wrote stories for every chef and dish. We'd even take photos of the chefs and edit those to make sure that they looked just as respectable as they sounded.
The Findings:
1. Food quality was inconsistent, ranging from inedible to passable. Because most professional chefs (professional doesn't mean much) and home cooks don't have any experience running a business of their own, their ability to scale and cost-control is poor.
2. That resulted in not only inconsistent food, but insanely overpriced meals ($15 for a bowl of chili, $16 for shrimp & pesto pasta).
3. The amateur chefs we worked with did not understand how to cook outside of recipes and/or they'd cut corners in production. Resulting in some shockingly bad food or overpriced mediocre meals.
4. Because there is no one checking over the food during production, you can't catch people cutting corners. If any of our chefs woke up on the wrong side of the bed that day, one of these things would happen (shitty food, tiny portions, unfulfilled orders).
5. No rational user is going to stick around and experiment their way around a Wild West marketplace that has such a wide range of quality and price. And no amount of "humanization" with stories, photos is going to save the fact that the food sucks.
6. Chefs are really good at pumping up their own food. "Best in the Bay Area", "everyone tells me they love it", "people ask me to open my own restaurant all the time", "there's so much love in this", or "I cooked for X person for Y years". (None of this means anything.)
7. Poor retention (and deservedly so from shitty product) and declining sales. With small orders, our chefs earned minimum wage or worse, which either drove them away ("I quit, fuck you!") or encouraged them to cut even more corners (smaller portions, terrible inedible quality).
8. We experienced ridiculous turnover (someone would quit every week, mad rush to find someone else to replace, unconsciously lowering standards in desperation).
9. At the end of the day, if the food sucks, it sucks. Doesn't matter if it's coming from your "neighbors" or "supporting the local chef down the street".
We've now partner with the best Bay Area mobile food businesses and sell their most popular items. Mise is now sustainable, food quality is consistent/high, customers are really happy (feels awesome whenever we have power users). And we've been able to offer more affordable and better-tasting meals week over week.
Ben (my awesome cofounder) and I take a lot of pride in what we do now, because we know it's awesome food going out to awesome people at affordable prices.
Order for the week ahead, get it all delivered to your door on Saturday, and enjoy a meal on your own schedule. :)
www.eatmise.com
Given the current lay of the land, I sadly find that to be a less likely to survive the regulatory requirements.
http://newyork.cbslocal.com/2013/09/11/cbs-2-investigation-u...
Maybe Lyft will acquire Swig if they're not already cooking something up. :-D
But we only tried it because they offered a Groupon that put the price where we thought it should be. I've heard that in fact, they are doing very well, and I hope that is the case.
Revenue -Cost of Goods (food, in this case) = Gross Profit
Gross Profit -Sales & General, Administrative = Net profit
(SG&A = office space, Webdev, logistics, etc...)
I'm sorry, but anything else is just plan BS.
SpoonRocket... I suspect there is limited volume based on their market. (not everybody want's food delivered, people still like to go out every once and a while...)
Time to whip out my free Chipotle burrito coupons.
