Worldwide, the market for food delivery stands at €107.4 billion in 2019. It has already matured in most countries, with an overall annual growth rate estimated at just 3.5 percent for the next five years, but the post-COVID era has a tremendous upsurge in the Online-food delivery business and customers just love it.
The business of food delivery is undergoing rapid change as the market is racing to capture customers across America, Asia, Europe, and the Middle East. Although these new Internet platforms are attracting considerable investment and high valuations, there is little real knowledge about market dynamics, growth potential, or customer behavior.
Full Stack Meal Delivery Services That Failed: Learning from mistakes
For every thriving billion-dollar unicorn, there are endless numbers of full-stack food delivery startups that have passed onto the other side leaving heartfelt goodbye notes for customers on their soon-to-be-defunct websites.
Munchery, a San Francisco-based startup that prepared and delivers meals, had struggled with high food waste and losses that at times topped $5 million a month. SpoonRocket, a Bay Area startup that cooked and delivered meals, went out of business in March 2016.
Sprig: A San Francisco-based full-stack food delivery service raised a capital $57 million and made its last delivery on May 26, 2017. Sprig promised delivery within 15 minutes and offered locally sourced produce. The business model was not sustainable because the complexity of owning production through delivery at scale was a challenge according to the founder.
Capital raised: $57 million
Peak valuation: $110 million
Maple: A New York City-based full-stack meal delivery service, closed down in August. Maple was a darling of the foodie space. Its unique service included both tips and delivery charges in its prices, and each meal came with a free gourmet sugar cookie.
Capital raised: $29 million
Peak valuation: $115 million
It is time to take a tally and learn from the mistakes of some of the best-funded full-stack meal delivery startups who shut their doors in the last 2 years.
What would allow a full stack meal delivery company to truly go mainstream?
Full-stack food delivery has the potential of operating under much better unit economics and is also perhaps the only space in which we will see lovable brands emerge. However, this is an extremely challenging business difficult to scale and get right.
The secret ingredient: Full-stack food players operate a tightly controlled supply chain, managing everything from cloud kitchens right up to the last-mile delivery to the customer. By doing so, this model can control and guarantee every aspect of the customer food experience, from ingredients, hygiene, packaging to delivery times.
- Work out the unit economics: Full stack cloud kitchens have 80% lower occupancy costs and focus just on delivery. Gross margins greater than 50% per delivery when compared to aggregators or restaurants create a powerful scale of economics.
- Go Local: Full stack players should go local and craft their product and service offering such that its appropriate for the locality, is delivered on-time and is healthier compared to restaurant food.
- Go Premium: Full stack cloud kitchen can offer premium service focusing on niche cuisines and categories.
Many startups are working in this space, but very few are focusing on the most important aspects of the business like food standardization and backend efficiency improvement. Some of the startups in full-stack food delivery will be forced to shut down due to poor unit economics and the high cost of deliveries. While few others focusing on niche cuisines and categories will find it difficult to scale to different cities. The ones who will solve this challenge and use technology in building a scalable food production system will be the ones who will sustain the business and generate profit.
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