It's not quite noon, and I'm hungry. I debate whether to drum up a scramble and scour my fridge. I'm not impressed; supplies are low.
There's a taco joint, a cafe, and a Whole Foods all within a five-minute walking distance (I'm lucky to be in a very central part of San Francisco). But, I'm in middle of something. Plus, I want to try something new. Something convenient.
A meal from SpoonRocket is $10 bucks (including delivery and tips) and promises a fast delivery. But what really gets me to submit an order is the humor. Step 3 is "put on your pants." Hey, how did you guys know? (I wonder if I would be instructed to put on my skirts if I were a woman.)
I get a two minute warning text almost immediately, so I walk out to the curb. A minute later, a SpoonRocket delivery truck pulls up, I grab a boxed lunch and I get back to my kitchen. What did I have? Grilled chicken apple sausage with BBQ chipotle sauce. The meal was decent; the speed and convenience was superb.
Motivated by the positive experience and the promotion, I share the referral code on my social media and email a few friends. My friends will get $10 bucks off when they make their first order.
In fact, a few days earlier, my roommate had sent me an email, subject "free food." I was invited to try Munchery and claim a $10 credit. Whereas SpoonRocket's tagline is "Good Food Fast," Munchery promises "wholesome meals from the best chefs in town." I guess I'll eat free tonight.
While at it, I decide to take advantage of promotions by Sprig ("Dine on Demand") as well. And to fill up on my low running fridge, I try out Instacart. After placing an order of groceries from a local Whole Foods (yes, the one that's three minute walk away), someone shows up in the evening with a bag of groceries at my door. Call me a bit old fashioned, but I oddly feel obliged and sorry for the gentleman who delivered the grocery bag. Is this how millionaires live? Someone shops your groceries for you and cooks your meals for you.
Insight Into Food Startups
This foodscapade taught me quite a bit about this food startups. For one thing, I began to be more attentive to the space. It turned out one of my friends worked for a team that delivers corporate catered meals. He was paid $25 per hour to pack food. Not bad. But, what did I really learn, though?
1. Logistics as core UX - These companies all have to get the logistics right. Food startups have to assemble the food, manage perishable ingredients, and deliver on time. These companies were more like Amazon than they were like LinkedIn; more analogue than digital.
2. Engagement model - Sprig's CEO Gagan Biyani often speaks in public about growth hacking. I once watched him give a presentation about Sprig's user lifecycle. It shows a feedback loop consisting of "before the buy -> first purchase -> repeat purchase -> referral." The referral leads to another "before the buy" cycle. My own story above reflects this business model. And this gives you an idea about where key drivers and costs of the business are. What is the drop off from first purchase to second? From second to third? What are some things that can go wrong? Try out the service once or twice, and ask your friends, and you can gain a grasp of these metrics.
3. Expensive customer acquisition - And speaking of the repeat purchase to referral, this is an expensive way to acquire new customers. Remember that free meal I had? Well, it wasn't really free. It's coming out of investor's pockets, and reflects the competitive pressure and pressure to scale quickly. By contrast, consider Intercom.io. When I click to download a 'free' e-book, I'm asked to share 2 emails to get the free book. That friction will lead to something less than 100% conversion, but that's a much cheaper way to build virality in my book.
4. Huge market - So, with logistics as a constraint, and expensive costs, why all the fuss about food delivery services? Well, as a friend of mine likes to say "I'm pretty good at eating. I do it three times a day." And so does hundreds of millions of others.
For me, taking the product or the service for a drive and a little digging helped me put my arms around the business. For food startups, if I wanted to learn more about the team of executives, I would expect to see some logistics or operational excellence experience: someone from Amazon or Walmart, perhaps. I would also be keen to pay attention to emails or promotions to assess whether the team can efficiently retain a new customer.
In general, when customer lifetime value (current value of all future purchases by that customer) exceeds the cost to acquire the customer, the business is making money. Take Munchery, for example. It took $10 to get me to try it. If I spend more than $10 down the road (and I did), they come out ahead. The more profitable customers a business has, the more valuable the business becomes.
Finally, these food startups have different goto market strategies and different market constraints. For example, if Munchery limits itself to providing food by local chefs, expanding to new cities may challenge greater logistical complexities. By contrast, a template model of assembly simple food in a kitchen and delivering could be repeated much more efficiently.
Have fun investing! And don’t go hungry!
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