How the Food Delivery Space Evolved From 2011 to 2017

Speaking of food delivery startups, here is market research company CB Insights on the food delivery space:

We define food delivery as companies facilitating the delivery of food to users’ doors, including restaurant delivery, grocery delivery startups like Instacart, farm-to-table services like Door-to-Door Organics, meal delivery startups like Delivery Hero or Sprig, and meal kit services like Blue Apron.

Food Delivery Startups 2017

CB Insights:

  • A slowdown in new entrants: The heaviest flurry of first fundings took place in 2012 and 2013, and again in 2014 through the first half of 2015, periods in which notable companies like Instacart, Blue Apron, and EatWith Media first attracted investor attention. However, 2016 and 2017 have only seen a combined 7 new entrants, compared to 8 in 2014, and 12 in 2013.
  • Untimely exits: There were a notable number of mergers, acquisitions, and deaths among food delivery companies that received first fundings since 2011. Kitchit, which first received equity funding in Q2’14, was already dead by Q2’16, and SpoonRocket was acquired by Brazil-based iFood, after it was essentially no longer able to operate due to lack of funding. As mentioned above, Maple ceased its operations and was acquired by Deliveroo in May 2017, less than 3 years after its first equity financing.
  • Glimmer of hope: Interestingly, some of the largest first funding rounds have taken place in the last year, including a $32M Series A to Habit, among others. This suggests that investors may believe there are still opportunities within the food delivery space amidst consolidation.

Sprig, another on demand food company in the US, seems exemplary for the sector. The Information on Sprig’s shutdown (paywall):

A few companies considering acquiring Sprig but not at a meaningful price, this person said. Instead the company, which still had money in the bank, opted to return the remaining money to investors. Sprig informed investors on Thursday.

Unlike rivals such as Eat24 which delivered meals from restaurants, Sprig made its own food, promising to deliver meals within an hour of a customer placing the order. That required the company to do everything from cooking the meals, managing a fleet of drivers as well as overseeing the technology, the person said. In an effort to offset losses, Sprig had raised prices but that only reduced the number of people who saw the service a bargain compared to getting a restaurant meal delivered.

Sprig’s shutdown comes after a series of failures in the on demand food and service sector. Last year, food delivery service Spoonrocket shut down as did on demand laundry service Washio. Sprig’s closest competitor, Munchery, has also struggled. Last year its CEO and co-founder stepped down and this January it laid off 30 employees. Other companies doing delivery such as Postmates and DoorDash have faced a tough funding environment, often needing to taking onerous terms from investors or raise at lower valuations.

Making its own food is insane for a food delivery startup. Restaurant deliveries through startups economically only make sense in almost all cases because the food creators themselves (the restaurants) don’t have to rely solely on revenues from deliveries. Going all the way down to creating the meals as well (going vertically integrated) changes the equation to a nonsensical level at subscale. It is like the founders went and asked, “how can I make this chicken-and-egg challenge more severe”. (Which is to say, this model can make sense at scale but certainly does not at startup mode; and to a ridiculous level it does not in a world with restaurants.)

Everyone needs to eat, as the great insight from Rocket’s Oliver Samwer, business genius, on the overall size of the food market goes. But that doesn’t mean everything can work in the food sector.

It seems founders and investors have been a tad naive.

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