Understanding the Meal Delivery Startup Casualties
Food delivery startups gained popularity among Venture Capital investors around 2010, leaving Blue Apron and other large players to pioneer the industry with high valuations and encouraging more new competition to enter the market. While there has been a remarkable diversity of proposed solutions, from prepared meal apps, to meal kits and online grocery delivery services like Instacart, the challenge remains finding a financially viable business model.
When demand for quality food, convenience and value is high, but the complexity of owning meal production through delivery at scale presents a challenge, so does the ability to stay afloat. Many of these meal-service startups have relied on venture funds to deeply subsidize their prices to customers. Good for consumers, not so good for sustainability.
Food delivery service, Sprig, joins the growing list of shuttered startup companies. It joins other entrants such Radish, SpoonRocket, Kitchit and Maple to name a few. In a climate where many food delivery startups have been acquired or died, the market has changed quite a bit over the last few years:
- Successful entry: Startups like Blue Apron received large valuations ($2B), DoorDash ($659M), and Postmates ($609M) that led to a host of other entrants eager to join in.
- Slowdown in the market: Instacart and Blue Apron received significant funding in 2012 and 2013 as they attracted investor attention. Lately, only a few smaller players have joined the pack with 7 new entrants in 2016-2017; 8 in 2014; and 12 in 2013.
- Unsustainability leads to exit: Many M&A’s happened as well as deaths among the food delivery companies due to customer acquisition, production, sustainability, and scale efforts.
The shutdown of these delivery services comes down to the question of sustainability and scale. Meal preparation and services is a labor and logistics intensive program, and these startups are struggling for efficiency, and solving the question “How do you keep variety high without costs creeping up?” And with customer acquisition costs high but deeply subsidized, churn is a huge concern.
We’ve tried many of these programs and are still working to understand what the real difference is between the ones that have failed and the ones still around. The basic premise behind companies like Sprig and Radish is creating consumer promise, but at a very costly enterprise of delivery and cash burning fast. Blue Apron and companies alike are trying to scale, reaching a larger geography and subscription based consumers fulfilling their nightly need for meals. Does the difference lie in consistency and membership?
In light of this, many companies are now modifying their portal for deliveries from local restaurants, rather than owning their own kitchens and having to invest in infrastructure. Grub Hub Uber Eats, DoorDash, and Seamless have shown better performance with an asset light model that relies on existing chains.
There will undoubtedly be several companies that solve the meal delivery puzzle but there will also be a large number of failures left in the wake.