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On Demand Businesses 101

Why Munchery Failed? It’s Not What You Are Expecting

There’s no such thing as a free lunch, except in Silicon Valley.

On-Demand food delivery startup Munchery shut down its operations with immediate effect. Munchery has raised a total of $ 125 Million in venture capital funding. In May, after shutting down operations in New York, LA and Seattle, Munchery promised to double down on its strongest market but failed to deliver.

The Chicken and Egg Problem:

As start-ups piled up into the food delivery space, attracting new customers was one of the biggest challenges. They showered customers with promotional discounts and coupons from the funding.

Funding in food delivery is supposed to be a virtuous circle. The food delivery chains expected the customers who are drawn in by coupons to be won over by the convenience and quality of the service. The soaring user and order numbers attracted more funding, which inturn went into more discounts and coupons, and so on and so forth.

For instance, Munchery offered $20 off on first two orders, 50% off + Shipping free to attract new customers who continued to stay as long as there were coupons and a $10 on referral scheme. They become regular users, placing more orders more often until the discounts existed.

It’s not that customers don’t want food brought to their doors. Seamless is incredibly successful in New York. Domino’s Pizza has 14,000 stores and delivers more than 1 million pizzas a day. Its stock is up more than 5,000% since 2008. In June 2016, researchers at Morgan Stanley estimated the market for online food delivery could be worth up to $210 billion.

Unfortunately, where Munchery lost the battle was in finding out how much most people are actually willing to spend on speed, convenience, and slick interfaces and retain loyal customers.

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