
SpoonRocket shuts down - tomgallard
http://techcrunch.com/2016/03/15/spoonrocket-shuts-down/
======
tptacek
_The company had actually reached contribution margin positive — it was
selling meals for more than it cost to cook them. But due to other costs and
the frosty fundraising climate, wasn’t able to get the money it needed to
continue operating._

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?

~~~
ruddct
Reminds me of recent Instacart news.

[http://www.bloomberg.com/news/articles/2016-03-11/instacart-...](http://www.bloomberg.com/news/articles/2016-03-11/instacart-
gets-red-bull-and-doritos-to-pay-your-delivery-fees)

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.

~~~
JoeAltmaier
That sounds taken out of context, or misquoted. Its reasonable to talk about
the marginal profitability of an activity. E.g. Given employee base (shopper
workers already hired), current app and backend (no marginal cost for
developers/executives) then the sales price minus cost-of-sale was positive.
Very important number! Means the company would be profitable after scaling
that part of the business enough to cover fixed costs.

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.

~~~
timr
Doesn't look like a misquote to me. And while, yes, unit economics are a
thing, there can be a _huge_ gap between being unit profitable and profitable
as an organization. A bunch of delivery companies flew into the ground during
the first crash under the same circumstances (including a few grocery delivery
companies).

If you're running a company with 500 employees an a big office in San
Francisco (where employees average ~$100k a year, fully loaded), and each of
your deliveries nets 1% of a $50 order, on average ($0.50; not a ridiculously
low net margin for the grocery industry, even in logistically optimal
scenarios -- which delivery is not), you've gotta be doing (500 * $100,000) /
.5 = 100 million sales a year just to break even. AKA, _$5 billion a year_
revenue run rate.

So then you say: _" OK, we'll just cut some of those expensive SF people, and
we'll bring the curves closer together!"_ And that could happen. Or you could
discover that getting those margins was only possible with X million sales a
year, and getting those requires _at least_ 500 employees to run operations
without dropping the ball. And then your investors stop throwing money at you,
because the business economics look scary, and the funding climate has
changed. And then you die.

Again, this is not a made-up story.

When huge investors get involved in land-grab businesses before they're
profitable, they're all betting that their horse will be the next Amazon. But
there's only one Amazon. And even Amazon isn't that profitable. And Amazon
started by competing in a high-margin industry.

~~~
tptacek
$100K fully loaded sounds low for SF.

~~~
timr
Agreed. I was trying to low-ball it, just to head off the criticism that I'm
exaggerating.

------
nlh
Sad to see any startup die, but this was not unexpected.

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.

~~~
free2rhyme214
Excellent points. Honestly it's the founders fault why this happened. They
ignored these obvious signs and shouldn't be surprised. It's easy to order
unhealthy food. It's a pain to make healthy food.

Ironically UberEATS launched officially today.

~~~
gk1
It's also easy to see all the issues in hindsight. Perhaps at the time they
thought there's a market for less-healthy-but-cheaper food, and perhaps they
were right and messed up the execution...

------
Bjorkbat
The on-demand apocalypse?

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.

~~~
jonesb6
As a middle class person I signed up to two subscription services the other
day. This is on top of my netflix, A-Prime and other common subscriptions. I
realize they might not qualify to "on-demand services" 1:1 but seeing as the
customer demographic is pretty much the same I believe on-demand services will
always be viable as long as people demand things. And my god do some people
demand things.

One start-up is an insignificant sample size.

------
Splines
I'm not an on-demand-food customer because the economics don't make sense to
me. I either bring leftovers from dinner to work (I just have extra from
dinner and spend an extra minute packing it the night before) or snag
something from my work's decent cafeteria. And yet, I still see food deliver
signs at my work and see coworkers utilizing them.

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.

~~~
richcollins
It was a lifesaver for those times when it was 6pm and you didn't have dinner
ready for your kids.

~~~
silencio
Also for me when it's 6:30pm, but my partner is too tired to cook and I can't
deal with that day's chronic pain. I'll miss Spoonrocket - they had a much
more interesting menu than Sprig ever did, and many of the meals were quite
delicious and freshly made. In terms of cost, about the same as just plain
delivery, with the bonus of getting food maybe a little bit faster :)

------
mbesto
Well, this sucks, I've been really enjoying my VC-subsidized services.

~~~
imperialdrive
Dude, tell me about it, I was a VIP with them, and ordered almost every single
day due to a busy schedule, they would show up within minutes... the meatloaf
stack, the enchiladas, the pasta, I always enjoyed it except for a couple
times in all. RIP I will miss you Spoonrocket!

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...

~~~
azinman2
Their food was largely gross and very unhealthy. Mac and cheese daily, often
with ranch and/or bacon?! And that Korean dish?

I don't know where all they were located, but it felt more appropriate for
dorm delivery than SF. Where's the kale man?!

~~~
ttam
I don't agree that their food was "largely gross and very unhealthy" \- mac &
cheese was just one of the options, they always had 2-3 other nicer options

I was a user since 2013 and enjoyed their stuff, too bad it's gone

wonder if sprig's gonna survive..

~~~
azinman2
Ya like meatloaf, ribs, burritos, etc. Everything was 700 calories+++

~~~
tekklloneer
Not true at all. I'm a vegetarian and the veggie options were usually in the
4-600 range.

~~~
azinman2
I'm not a vegetarian so I ignored those. I imagine that's often true for
vegetarian dishes in the US that they're less calorically, with the exception
of heavy pasta/cheese/butter dishes.

They also sometimes had salad. But in general the options were on the heavy
side. I say this as a person who orders delivery from these apps regularly,
and 80% of the time checked spoon rocket's options (and 5% of the time
ordered).

~~~
tekklloneer
Why would you ignore them? Some of them were pretty good. Food doesn't need to
have meat to be tasty.

------
vkou
SpoonRocket was an "on-demand pre-made meal delivery service"?

So... Like the pizza place down the street?

~~~
calbear81
It was like the pizza place down the street if the pizza place made all their
pizzas in the morning, put the into a truck and drove it around all day until
they were delivered. Enjoy the pizza!

~~~
vkou
Well... That's a viable business model, if you want to run a family pizza
shop, and have a 50% chance of going out of business in two years.

I don't understand how anyone could think it has the margins to pay engineers,
founders, and VCs.

~~~
calbear81
I can see how these businesses rationalize short term losses with a bet on a
long term play that consists of one of the following outcomes:

1) Monopoly - If they can get enough lock-in on customers, they can outlast
their competitors and then eventually move the prices up without losing
customers (since there would be few viable alternatives).

2) Economies of Scale - In many businesses, the marginal cost does go down
once you scale up significantly. They probably expected to cut the cost of
food production significantly with volume pricing on raw materials and perhaps
more automation of the cooking processes.

I think all of these services understand that this is a low margin business so
you have to make up for it in high volume and short term losses are acceptable
if you will win out eventually and increase the margins.

~~~
shrikant
Are there any examples of (1) actually ever happening in practice?

~~~
calbear81
I believe this is Uber's strategy, no? Basically sell at a loss and force your
competitors to follow suite (and lose money even faster) which in turn drives
them out of business leaving only Uber as the dominant player in a market.

------
S_A_P
Why would a business like this get funding and ultimately be viewed
differently than any other restaurant? It looks like the pizza delivery model
to me, so why is the funding so much higher?(serious question)

~~~
majani
reminds me of the time in the 90s when literally just adding .com to a
company's name and having a website made its valuation jump

------
autotune
SpoonRocket actually had the most decent meals I'd seen out of any of the
healthy food delivery apps and the most options. Just discovered it a week or
two ago and this news is incredibly dissapointing.

~~~
azinman2
They had essentially the same stuff everyday, all of it super heavy and NOT
healthy. What other competitors are you even referencing?

~~~
autotune
Sprig (pricey + limited selection), Bento (very limited selection), HealthyOut
(super generic and not enough relavent results), Thistle (very limited
selection).

~~~
azinman2
Sprig's food is way better than spoonrocket, so at least their cost is
justified. For SF, it's pretty normal pricing. Bento is meh, but munchery
probably is the highest quality (and most expensive) of all.

Hadn't heard of healthyout or thistle until now, but they don't seem to be on-
demand food services?

~~~
pbarnes_1
Munchery has gone down hill.

Calling meals with 70g of fat "healthy" is a bit of a stretch.

They used to be more focused on good quality/fresh/healthy.

The menu is now the same every day and it's basically a restaurant delivery
service where they pre-make the food in large quantities.

Presumably this is more sustainable for them money wise, but I used to order
Munchery for dinner every single day (when open) for years, and now I do it
maybe 1-2 times a week, begrudgingly.

Hopefully just a phase. They tried this same-every-day thing last year and
lost a tonne of users.

~~~
prawn
IMO, these companies would be insane not to pre-make suitable food in large
quantities (curries, etc) in order to achieve profitability at reasonable
pricepoints.

~~~
makomk
Usually anyone who does that would pre-make a different selection of food each
day to give people variety, though.

~~~
prawn
Yes, for sure. But have a set suite of meals that they can make affordably,
and rotate through those.

------
mmanfrin
I think part of their problem is that they hammered downward with the food
quality in an effort to cut costs, rather than raising rates. People who are
using these on-demand food delivery services wouldn't mind a couple extra
dollars if it meant that the food was of good quality. SpoonRocket's food was
abysmal; it satisfied the occasional need for shitty-hangover-food, but that's
not sustainable (for them or for my gut).

~~~
swang
When they started they were cheap meals under $10 out in Berkeley or Oakland
(I forget), and they did raise prices after they started expanding into SF.
The problem was most of their customers were use to the lower price point of
the service.

------
choward
They sound like these guys who I am afraid are going to end up the same way:
[https://foodjets.com/](https://foodjets.com/)

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...](http://www.bizjournals.com/sacramento/news/2015/10/30/what-
separates-foodjets-from-other-delivery.html)

~~~
Naritai
Is the delivery person aware of whether you tipped before the delivery even
occurs? If so, I will never use their app.

------
willchen
As someone who's ordered from spoon rocket dozens of times over the past two
years, I'm definitely sad to see it go.

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?

~~~
Larrikin
>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.

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.

~~~
doktrin
> A dirty room or a car is an inconvenience.

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.

------
jarjoura
Weird that the article didn't mention, Postmates already has reached critical
mass with high quality on-demand delivery. For the 5 minute meals, UberEats is
literally eating these small startups alive.

Maybe Lyft will acquire Swig if they're not already cooking something up. :-D

------
nickporter
Damn, I will miss those breakfast burritos. These guys had some great food and
the service was incredibly fast. Bummer!

------
11thEarlOfMar
Makes me wonder about Gobble. We've used it a couple of times and the food is
awesome. Healthy, attractive. Very much enjoyed it.

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.

~~~
yishanl
Isn't one of Gobble's selling point is that it's super cheap? like $10/person?
I remember seeing that as their main homepage jumbotron, which seemed to
successfully target and reassure their audience of parents who wanted to know
how much it'd cost to feed a family of X.

------
jstoiko
meanwhile: [http://techcrunch.com/2016/03/15/ubereats-standalone-food-
de...](http://techcrunch.com/2016/03/15/ubereats-standalone-food-delivery-app-
launches-in-its-first-u-s-cities/)

------
tommynicholas
One of the non-breakout members of the on demand food delivery space dies as
capital consolidates towards winners and we're in for an apocalypse? We VERY
well may be in for one but I don't think this is a strong sign of that.

------
chad_strategic
Accounting 101: (No matter if it is 1900, 1950, 1999, or 2015)

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.

~~~
JonFish85
Half-kidding, but where is "growth" in your calculations? A big reason why
companies discount their "fixed costs" (e.g. full-time employees' salaries,
rent, etc) is because if they can get a marginal profit on their goods, then
it's a matter of "making it up in volume". A company can still be losing a
tremendous amount of money but have a bright future (I think this is what
Amazon did for years): if you're making $0.50 per item, but have $1b of
overhead costs, it very well might be possible to get to a profit, it just
means you have to move a LOT of items.

~~~
chad_strategic
Yes, I suspect Amazon has razor thin margins, so does Walmart and
Supermarkets, but they can make it up on volume.

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...)

------
stephenitis
The free "VC funded" meal has ended.

Time to whip out my free Chipotle burrito coupons.

------
smeyer
Was SpoonRocket still having issues with the National Labor Relations Board or
were those resolved?

------
nemo44x
Cheap meals with low quality ingredients sitting in a warm box being driven
around all day in some random persons car didn't appeal to people?

~~~
jamesjyu
Sprig's ingredients are actually quite high quality and delicious.

~~~
timdorr
Which is probably why their volume is 6x Spoonrocket's.

~~~
ttam
can you show us something to back this statement? I'm really curious

~~~
mcintyre1994
From the article: "Sprig had looked into acquiring SpoonRocket, but decided
against it and is now doing 6X the meal volume SpoonRocket did in SF."

~~~
ttam
Right, in SF, which is different from 6x overall volume.

SpoonRocket also served the East Bay, which Sprig doesn't.

Sprig also serves Palo Alto and Chicago, which SpoonRocket doesn't.

------
rco8786
And so it begins

------
searine
Wait, so what made these people think they could beat seamless?

------
free2rhyme214
Ironically UberEATS launched today. The founders have no one to blame but
themselves.

~~~
bdcravens
The standalone app perhaps, but it's been available in many places for a
while.

