1) you can't predict how much food to make. On demand food companies were throwing away 30% of the food they made every night
drivers cost ~$25 an hour, and only do ~6 drop offs.
2) lots of idle driver time
3) routes can't be optimized (or only minor optimizations in real-time)
4) on average they are only dropping off 1.3 meals per delivery, making each meal very expensive to deliver
I helped start http://Thistle.co (only in California) to fix these problems; people order their meals for the week (doesn't work for everyone obviously) and we drop off 3x/week, with optimal routes and many more meals per dropoff. The company has been really capital efficient in doing so, hardly raising any money but doing 10s of millions in revenues.
Hold on now, Domino’s is doing just fine. On a tear actually.
(If that sounds funny, read up on how Domino's has improved customer sat regarding their pizza quality in the past few years. It's a great case study, incl. how to do marketing when your brand is in the dumps.)
So Domino's provides the backend support + marketing + development and for that it gets a hefty fee from whoever attaches Domino's flag to the location.
The model is sufficiently different enough to make it extremely viable, and perfectly scalable for the smartphone era.
Most restaurants typically have a mostly fixed menu. Munchery varied the menu daily.
I can't say what Munchery was paying its drivers, in a traditional restaurant or through the bullshit gig companies, driver typically make at or below minimum wage.
Most traditional restaurants farm out their site (e.g. bullshit gig companies will handle the photography and pay the photographers a pittance) or have a minimal online presence. Munchery had the overhead of maintaining much more of their online presence.
That said Munchery wasn't real-time delivery when I used it. There was an ordering window that closed by mid-afternoon. If I had to guess the constantly rotating menu created a ton of waste. Or maybe they were simply that bad at it.
That's your problem right there. The Bay Area is not dense enough to make this viable.
like the meal kit companies, anything you can do from a centralized site the local companies, home grown or franchise, can do as well. both restaurants and grocery chains co-opted the idea of meal kits and then had the built in neighborhood loyalty.
This is the big thing. I can walk into a Stop and Shop or an ACME or a Shopright and buy a meal kit on my way home, and they usually have a decent selection. They aren't gormet, but they are fit for human consumption ;).
I can just throw it all into a skillet, saucepan/pot, or an instant pot and have it done in 30 minutes without chopping/dicing/slicing.
this selection contains the answer to your question: all those cuisines's recipes use few ingredients in a lot of variations and have preparations that can easily sit waiting for a customer.
it's harder to find restaurants or other places with large or daily menus that can sustain a structured delivery chain as primary income source, maybe they can support the more unstructured uber food aproach but usually that's it. exceptions apply, but parent listed a good deal of causes why this is capital inefficient.
these startups are trying to create a "microcatering" market, which is radically different.
1) Pizza is made on demand, quickly, from a small number of relatively non-perishable, cheap ingredients. You won't throw away a significant dollar value of raw materials. Also, pizza is popular, and your delivery drivers can stay busy. Pizza is so suitable for delivery that it's the ur-example.
2) Indian does have long lead times (the sauce cannot be made on demand), but the core food item is rice (which can be made in advance in bulk, and is also very cheap), and sauce, but the way the restaurant works is they make up a small number of sauce bases, cook up some meat, and then combine when the order is made. You don't necessarily know how much butter chicken will be ordered in a night, but you can cook batches during the night to adjust to demand.
3) Thai, around here, is always run out of an existing successful Thai restaurant, so they can piggy-back off the volume of the restaurant. It also tends to be a bit pricier, probably to reflect the higher margins. It also tends to centre around stir-fry, which again is cooked mostly on demand from a small-ish number of prepared ingredients.
4) Sushi...not popular around here (sushi is, but there is ZERO delivery options), but sandwiches, mexican, and turkish kebabs are. Again, you can get a bunch of cheap bread, tortillas, or pitas, a small number of mostly cheap, mostly non-perishable, mostly interchangable ingredients, and churn out chicken quesadillas, beef burritos, etc. Leftover bread is a small cost, and if you're careful you can minimise loss of meat, as you prepare more batches over the night.
5) Fish and chips (very popular around here), made from frozen ingredients and a VERY small selection of fresh ones, deep friend on demand.
See a pattern? A lot of "combine cheap starch with some fresh vegetables and/or meat that can be prepared quickly, ideally from frozen", where in many cases on-demand labour (putting the sandwich together, putting toppings on the pizza) will be a major chunk of your inputs, and ingredients will be minimal. In all cases you're looking at cuisines where it's relatively popular, the ingredients are relatively cheap, and critically you have a lot of interchangeability, a small number of ingredients, and low preparation times, etc. The fish and chip shop doesn't care if they sell 80 scoops of chips or 40, they've got tons spare in the deep freezer, and they're being cooked on demand; no wastage. Their main concern is just selling enough of anything to cover the cost of the oil in the deep fryer.
What will NOT work is something like a steak, roasts, ribs, fancy fish; stuff that has expensive ingredients and (especially) long lead times. You can't just cook up 40 plates of ribs on spec to see if you'll sell any tonight. (Well, not and stay in business for long.)
And if we look at the screenshot of Munchery's menu, item 1 is Corn Husk Roasted Salmon, item 2 is Honey Glazed Pork, item 3 is a side, item 4 is Roasted Chicken. These are the exact sorts of thing that will wreck your economics. No doubt they were popular; people are sick of pizza, indian, thai, mexican, etc as delivery options, especially at $11 a plate! But as the joke goes, if you lose money on every sale, you can't really make it up in volume. :)
Edit: Munchery tried to work around this by closing orders early, I think at 2pm, but 1) that's going to lose you some volume and 2) that's still not enough lead time.
> why are all pizza, Indian, Thai, Sushi etc. places in my city doing this
They're doing something very different.
I don't buy this explanation. I can easily get roasted chicken, honey glazed pork, salmon, bbq ribs and a ton of other 'complex' dishes delivered with no fuss and for similar prices. Pizza, thai etc are popular because, well, people enjoy the food. There is nothing radically different about doing other cuisines, except messing up logistics or not meeting consumer demand...
The winners are going to be giants like Amazon that can absorb zero or negative real margins and can play a very long game until vehicle improvements (automation + electric) cuts into the delivery cost (and or they'll just find a way to bundle in other products/services to produce a broader profit).
Even Amazon gave up on paying me to deliver groceries to my home. They would have a guy in a deli in New Jersey (~200 miles away) slice ham and turkey cold cuts in the middle of the night, and deliver via USPS by 7:30AM. Truly a marvel of modern logistics, except they couldn't figure out how to not put big cans of olive oil on top of eggs or bread.
We probably got an average of $50/week in refunds.
All have been in business for years (at least around 2010) and most longer. I would not be supersized if they are quite profitable.
If you can outsource your driver to somebody like Deliveroo or Uber Eats, even better ...
The problem with cooking anything on demand is that scaling up distributed cooking doesn't work well while preserving quality. If you want cheap, you get fast food, and if you want expensive, you have a quality cafeteria.
1 - ordering closes (closed?) at 2pm.
2 - I generally ordered Sunday night / Monday am for the coming week: 2 meals for 2 people each.
3 - with price increases over the last 18 months, they're pretty price comparable to delivery. I have a hard time believing there's no gains to having an industrial kitchen rather than a storefront, and from closing ordering at 2pm.
Also, Munchery charged $7/delivery, and I tipped $5. So they should have been breaking even at 3.6 deliveries/hour, assuming your $25/hr number...
30% waste on meat will kill your business.
If you look at some published data from a while ago, Blue Apron has 15% user retention after one year, Hello Fresh 11%.
As a consumer, at first might sound a good idea and convenient to order pre-made food you don't have to cook but soon you realise it gets quite expensive compared to just get your groceries delivered and cook.
I don't know in the US, but in Europe for an average family of 3/4 members using meal kit companies is bloody expensive in the long run and you can't even get meals for the entire week.
Also if you get 2/3 meals a week, then you have to shop for the remaining days and you inevitably end up wasting food.
Personally, I don't event think you can compare meal-kit companies with the likes of UberEats or Deliveroo. The latter can reach economies of scale far more easier than the former.
I have tried many of the meal box companies and the real problem is quality. The food quality is usually not high and the recipes are basic. I imagine that even novice, unskilled cooks will realize after a couple of months that they don't need the box.
Maybe that's a good thing and something that these companies should push for? Maybe they already do? Sell it as a service for three months, one up front price, one'ish meal a day that you prepare and cook with the idea that this is a learning activity rather than following strict directions or assembly. As you move further through your cooking education the meals become more complex. I would think you could charge more for this while having better/more ingredients and having a smaller customer base.
The total possible market that meal kit companies can extract value from is very small - it is not only people who have more money than they have time and people who do not know how to leverage money to get others to do the entire process for them.
This is definitely true in the US as well, even in areas with slightly higher prices for groceries in which meal-kit companies still charge their normal prices. You could eat out and get a main dish in one of a variety of restaurants in any city in the US for the price of the meal-kits I found.
Delivery is expensive, so these services are out of reach for your average consumer. However, when you think about it, the people most likely to get a ton of value from prepared foods are people most likely to have a busy job where they make a higher wage than the average consumer.
Additionally, user-retention metrics in weekly subscription services can be misleading. If you're still ordering 52 cycles after signing up, you're likely a whale for the service.
- Limited meal customization. Want to order an item minus the mushrooms? Too bad, since the meals are prepped ahead of time.
- Limited inventory throughout the city. Have you ever not been able to order your favorite dish off Postmates because it was sold out? On demand apps have this problem every night.
Source: Worked for an on demand food delivery company.
I'd say that's just how the food business works. A big part of running a restaurant, a food stall, or even a supermarket is to forecast how much food you're going to sell on the day and thus how much supply you need to buy.
This appears to be a restaurant that tries to make every kind of meal, and deliver it.
"Restauranteur" might well be the second oldest profession. There should be dozens of people in everyone's network who could tell you how the business works. The Everything Delivery is also a business model that most people in the business could critique.
A friend of mine runs a very popular sushi chain in central London. It works, but only because everything is highly controlled. They know exactly how much fish people are going to want, and they know when. They know where to deliver to as well. Having all this knowledge means they are able to cut that fine line between the minimum cost and the revenue.
The meal delivery companies all seemed to expand too fast. There were no economies of scale to be had by geographical expansion. These companies needed to absolutely nail one or two big metros before even thinking about expansion.
I know for restaurants the real money is made by expanding and sharing the suppliers, management, advertising, but for something like a delivery app I'm not sure what the benefit of growing quickly is if you have competition outside of being first to (that local) market.
is there any that tried instead to partner with some existing catering company to leverage their off time instead of building everything from scratch?
seems to me building your whole cooking chain is quite inefficient
The most interesting work in the food delivery space, IMO, are companies that want to bring the Deliveroo model to the US:
- https://www.cloudkitchens.com/ (aka City Storage Systems)
It'll be really interesting to watch this space evolve. I wonder if prices will drop in the long run without sacrificing quality (I'm hopeful, but my rational side says otherwise)
Deliveroo has started expanding to use local kitchens (that have no physical restaurant where diners can go), though you'll also find examples of those on GrubHub/Seamless.
Not nearly to the same scale as GrubHub. Deliveroo's prep kitchens (called RooBox or Deliveroo Editions) are a lot more ubiquitous. Additionally, Deliveroo actually provides & helps prep kitchens, whereas GrubHub is fairly hands-off when it comes to whether a restaurant has a retail location or is delivery-only.
Their ability to provide prep kitchens works twofold: 1) Help drive down cost, and, more importantly, 2) Gets more restaurants on Deliveroo to drive sales. This is also a perfect touchpoint to sell all sorts of things a restaurant would want: packaging, point of sale, marketing materials:
The fundamental difference is that GrubHub & UberEats are (mostly) just delivery. Deliveroo is full vertical integration. I would not be surprised if they start impacting & controlling supply chains soon.
I'd be impressed if they could do something productive with the money. Raising money isnt a goal or milestone in itself, it is more a reflection of networks than intelligence/grit/creativity/deliver-ability.
These types of kitchens have been around for decades, and are very popular with catering-only companies.
Yep exactly, I don't think anyone has done it quite like Deliveroo has though. I also wonder what the economics look like for delivery-only kitchens.
Sounds like something must have gone seriously off the rails over there.
And as a write this, the only other reply to you is basically a confused "but how else would you do it", since apparently the concept of putting in your 8 hours and going home to eat dinner with your family just doesn't compute.
I've worked at 5 Bay Area tech jobs, and in all of them, it has been fairly common that some people choose to stay for dinner. Sometimes it's people who start the day later, sometimes it's people who are working a bit extra. I'm having a hard time remembering a time where I felt pressured to stay for dinner, it's just a schedule that some people have. Two places I've worked (including my current place) have offered free dinner for anyone around at dinnertime.
If back before I was married I'd worked at a place that offered free dinner and snacks I'm convinced I would have happily and voluntarily stayed at the office until late basically every night. So as such I'm really glad I never did.
12 hour days are expected at most firms. New hires can look forward to 14 hour days. Compliance sweatshops will expect 16 hour days, though are usually very generous with salary to compensate.
how would you do it better?
I was lucky enough to have bosses who would come around at 5:30 and say 'Oi, what are you still doing here, go home'
You might think it's a sprint. You're wrong.
I think 30% is low. I’ve seen 100+ lobsters, 100+ steaks, 200+ salmon, and more in a single night. It was very frequent, no one who worked there paid much for food since you could live on the Munchery diet as we called it. Every Wednesday, Thursday and Friday (and Sunday at one point too) were big giveaway days. At least 2000 meals per week were given away.
Best side job ever. But I said this years ago when I started, “how can they keep giving away this much food?”. I was told it was never a profitiable buisness and it was kept alive by investors. They did pad the tip pool, especially around the holidays. But typical pay was between $20-$25 an hour with tip, $15 without tip. It was less but it’s always been minuniun wage for SF.
The one thing the food did do was keep everyone very happy and loyal to the company. Most have been there for 5+ years, a few since near the beginning.
I never understood why they missed the mark so much in predicting the amount of food. The last few weeks, they have been making less food, letting items sell out.
My biggest complaint is I didn’t even get notification ahead of time. In the middle of the shift, they shutdown and told us we’re being laid off. Everyone is scrambling to find new jobs as no one is getting paid anymore and no one knew it was coming this quickly, we all thought at least another 6-8 months. Even a 2 week notice would have been nice. I found it very disrespectful to just close one day with no notice to your employees that this is coming.
Also assume you were paid by the hour? How many deliveries would you typically do since traffic is so terrible around the times they deliver?
They are just food delivery companies who happen to have websites. Like all other food delivery companies and restaurants, they are in a cutthroat low-margin business and a few bad months can kill their company. They have no moat because anyone else can also deliver food.
(Edit: Personally I get annoyed when some stupid web programming framework gets described as "technology". Gas turbines are proper technology, in my opinion!)
Amazon is retail, AWS is IT, Google/Facebook are ad networks, Microsoft/Apple is hardware and software, etc.
Could people have put food in a box and mailed it to your house before the invention of computers? Yes.
Could people have offered computer hardware and software before the invention of computers? Of course not, that's silly.
Of course Microsoft and Google and Apple and Facebook are tech companies. It requires ridiculous reductionist contortions to argue otherwise.
On the other hand, Munchery could have existed at any time the USPS and Visa/Mastercard were operational. Restaurants have been delivering food for far longer than computers have existed.
Technology is scientific knowledge, strategies and processes used to solve problems. It's been around since the dawn of civilization and is used by every company to conduct and improve business.
Let me put this way: your average hospital has 1000x times more technology in use at any given moment then even the most silicon valley "tech" companies, but they are properly classified as healthcare companies.
Reductionism is considering tech to only be something about computers and that only a handful of special companies are the only ones who use it. Perhaps you missed my statement about the hospital?
Since technology is applied science, why does a hospital using complex scientific machines to deliver healthcare not qualify but a company building a webapp to order food does? Where's the line exactly?
Nowadays i'd say a tech company is defined by the "tech" it is implementing to disrupt/control the market. no disruption tech = waste of vc capital. "we do x better" isn't enough to last unless it's so radically better it is a new space(google's call screening feature could be spun off into it's own company for eg)
Doing anything at scale pretty much turns you into a tech company these days.
I think all of us in 2019 have a fairly standard consensus understanding of what technology means in the context of this conversation and it would not be good to hijack that to mean anything you want it to mean.
The actual definition of technology is applied science and knowledge for practical means. Narrowing the scope to fit arbitrary companies seems like the real stretch to me.
Amazon is retail, like Walmart has been. Netflix is media production and distribution, like Fox has been. Both have figured out new business models but that doesn't change the business that they're in.
They leverage some damn impressive technology, but their business is about delivering media for end user consumption, much like any of the TV companies during most of the 20th century, for example.
Oh hush, you. You know how much extra they're paying us because they have low profit expectations? Let the investors keep calling it tech.
But seriously, I think one could make a distinction between companies that focus on using new technology to scale businesses (which are mostly old, but can be scaled in new ways using technology) vs. old businesses that focus on just remaining old businesses. The idea being that if you are a "tech" company, you are rolling the dice on being able to expand much harder/faster than a company could have with older technology, and also have significant downside in that regard. To be a 'tech company' in this regard is to be trying to get big in ways that make it more likely you will get big or go bankrupt, whereas a more traditional company might take a more conservative approach.
I mean, the important distinction here that the market is maybe missing is that if an old company puts enough effort (or rather, has enough success) scaling their business using new technology, they probably should be put in the same risk/reward bucket, and if you do succeed, well, you probably should no longer be thought of as a 'tech' company by this definition. Like I think you could argue that Apple might not be a 'tech' company by that definition (you could argue that they were a tech company when they figured out how to sell pocket computers to normal people - of course, you could also argue that they try to do that all the time, it's just they are at the point in their product development lifecycle where they have a super successful old product and none of their new stuff is really that visible.)
But personally, I think "higher risk" is a better descriptor of 'tech' than "Better executing" - by my definition, a tech company is applying new processes to their business that would not have been possible with older technology. That's a risky thing to do, and it can go badly and go well; It's easy to overestimate how useful a new technology is, or how much difficulty your traditional competitors will have competing with you.
If relying on IT makes you a tech company, then basically everybody is. If what you provide is technology, then maybe you're a tech company, if what you do is provide a banking service, you're a bank. Try running a bank without using modern technology to the limit ...
For their tech-driven-optimization methods; one could argue they are a tech company.
I think people just conflate software as tech. Using software to run a better food business just means you're a better food business.
This business will be won by operators with local infrastructure and no delivery... like selling meal kits at grocery stores, or prepared meals for family dinners at office cafeterias.
I would absolutely love to hear some of these VCs rationales for investing.
I've long thought that in the same way that DDG is a viable alternative to Google on a critical front (privacy), it's viable for an enterprising young VC to carve out a market based on radical transparency of both their wins and their losses.
Doing so however would be the equivalent of airing dirty laundry; there's a lot of people out there who don't want you to know how the sausage is made (FOMO, very little due diligence, etc.), and they likely won't want to get a reputation for calling out founders for their failure, lest their dealflow dry up.
I happen to believe however that the positives of being radically transparent and being notable for that very feature would outweigh that perception. Doesn't appear many VCs agree with me so far.
But they know they can't accurately predict the future so they don't spend much time trying to do that.
No one in the restaurant business makes the salaries that restaurant logistics companies pay.
Curiously, no mention of shutting down on their site that I could see.
So they deliver you the food from their menu? So its just a professional food business with delivery but without the restaurant/dine-in option? So presumably their competition is actual professional restaurants and they're just in the professional food business?
I'm still struggling to understand how this is different from just ordering food delivered from any other food business? The fact that they say...presumably with a straight face...that you reheat their meals suggests to me that they must be pitching to sacrifice quality for convenience, but they seem to want to believe they're upmarket...
Forgive me, it just doesn't compute?
Munchery is pretty good food, with better variety than sf peninsula restaurants, and definitely much healthier, delivered cold to your house. The value is it's waiting when you get home. You reheat it and have a good (sometimes great!) meal in 5 minutes.
As for local restaurants, there's not great delivery options here, particularly if you don't want pizza or sandwiches.
Blue Apron is flailing like crazy - down 80% or so since IPO less than two years ago. And the IPO itself was double digit percentage lower than it was supposed to be in the first place. Can’t imagine how you would jump into the meal kit niche these days.
Interesting, for me it's showing "The Plaid Box", a weekly subscription box.
Edit: yeah, looks like this happened 8 months ago (https://munchery.com/blog/a-letter-to-the-munchery-community...)
Edit 2: oops, that was only NYC and Seattle - looks like I remembered incorrectly!
It was nice to get VC-subsidized dinners while it lasted.
High level -- FOMO lead mediocre VCs to take OPM (LPs reaching for yield) and spray and pray. Bros who went to Stanford gave other Bros who went to Stanford $100M+ because of connections, because what do you have to lose?
Is there even $126m of value in delivering food in an area with a population of 7 million?
Over the last few months my schedule has gotten extremely busy and I haven't had time to do any of my normal cooking. I've been just grabbing fast food and putting on more weight than I would like. Toying with the idea of hiring a personal chef along with a nutritionist to plan/prepare meals, I was hoping to have a high quality meal served within seconds of walking in the door. Basically eliminate the stress of dinner and poor diet. I seriously wish I would have heard of this service as it solves my problem in a vastly less expensive way.
So yeah, sorry to hear of the closure and I wish everyone over there the best of luck on future projects.
Give KBK a try. Our focus is on healthy meals delivered right to your home or gym.
To add value to this thread: the ordering platform is a SPA with all the typical complexity problems. We're in the process of making it way better. Blog posts incoming!
* marketing and promotional costs
* management overhead and office expenses
Perhaps I’m naive, but looking at their fundraising history, $125M in investment should have been more than adequate to cover launch and build-out costs, considering their core food supply costs would have been covered by actual customers’ order fees.
Is this another example of scaling prematurely and hoping you can recoup all of the massive promotional expenses you’ve employed once you have major regional markets under your thumb?
Generally expensive corporate office space rates in the Bay Area, Los Angeles, Seattle, and New York don’t often help, either.
Edit: Added clarification of questions.
So, if you are in the market for some industrial grade kitchen supplies, now is the time to act on that impulse!
I live in the bay area, have ordered over 200 times with Munchery, and haven't gotten any shutdown email.
All meals are shown as sold-out through Friday. Normally you can order up until 2pm the day of.
(I also just got the email that OP quoted.)