Food Delivery

Is the U.S. Still Hungry for Meal Delivery Services?

Is the U.S. Still Hungry for Meal Delivery Services?
Image credit: Dan Forbes
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This story appears in the December 2015 issue of Entrepreneur. Subscribe »

This article is part of our Trends 2016 coverage.

Home delivery of freshly prepared meals, meal kits and provisions took off in 2015, with dozens of new ventures kicking into gear, each with its own spin on convenient, healthful food. Get ready for a shakeout in 2016: Too many concepts supported by too little market research have been funded with too much money. It’s a scramble already.

Good Eggs, a farm-to-home grocery-delivery service with $50 million in venture funding, laid off 140 of its 300 employees at the end of the summer, shuttering its service in Los Angeles, New York and New Orleans to focus on San Francisco, where it launched in 2011. Customized food delivery “is really challenging to do right,” says a Good Eggs rep. “We scaled up too quickly, before we were a proven success.”

Still, the opportunity with local food-delivery services is real, say analysts, who believe Americans want healthful, convenient options for dinner. The sector could generate U.S. sales of $3 billion to $5 billion by 2020, according to Bob Goldin, executive vice president of Technomic, a food-industry research firm. “There is room for enterprises that deliver unique values to people.”

The consumer demand surprised Danielle Gould, founder and CEO of Food+Tech Connect, a community for technology and innovation. “At first, I was skeptical of the model; I thought people would use it once or twice, then just search for recipes and shop for ingredients on their own. That hasn’t been the case. The demand has been phenomenal. It’s about convenience. Home-cooked meals without effort.”

For deep-pocketed investors, there is the tantalizing prospect of disrupting the $1.4 trillion U.S. food industry. “Everyone is rushing to place their bets,” Goldin says.

In the delivery sector, Blue Apron has raised $193 million since its 2012 launch, for an estimated $2 billion valuation. This pales when compared with the $278 million invested in Hello Fresh since its launch the same year, according to CrunchBase. Munchery has scored $125 million since 2011; Plated and Sprig have each raised $56 million in the last year or two.

“There have always been high-end, get-what-you-want-when-you-want-it food services,” says Tri Tran, co-founder and CEO of Munchery, a chef-driven delivery service operating in Los Angeles, San Francisco, New York and Seattle. Smartphones changed the food-delivery game, he says, facilitating remote ordering and payment.

Munchery clients click through pictures of meals with nutritional and ingredient data and pay online for same-day delivery. The meals are made that day in a central kitchen and arrive cold to be reheated. Tran says that with scale and process efficiencies, he has brought the average meal price below $12, the norm for most of the new delivery services.

And that’s a problem: It’s too expensive for average folks. Specialization is key, says Brian Todd, president and CEO of the information service Food Institute. “Hit a niche: vegetarian, vegan, gluten-free or a special- need group like diabetics.” Also, startups should consider new markets; with everyone focused on San Francisco and New York, second-tier cities are underserved.

That’s what Jan Leife thought when he launched Just Add Cooking in 2013 in Boston. He moved from Sweden, where home-delivered meal kits have been popular for a decade. His customers select from seven new recipes each week; kits include all ingredients, premeasured to fit that recipe. The food is local, fresh and delivered the day it’s packed.

The venture has been more costly than Leife anticipated, but the opportunities seem enormous when compared to Europe. “I didn’t realize how much investment money was available,” he says, “but you need a warm introduction to have access to those investors. How do you do that if you don’t have a network?” Leife says he has spent “many, many hours getting to know people.”

Moving into the nonprofit incubator CommonWealth Kitchen, which houses 50 food ventures, helped, and Leife has raised undisclosed funds from investors including Fresh Source Capital.

“To be honest,” Leife says, “it has been much more complicated than I thought it would be -- getting all of the recipes together, finding all of the ingredients, premeasuring everything. It’s a lot of small things.”

Indeed, logistics is the business. “Local food producers drop off food at our hub based on orders,” says the Good Eggs rep. “It is packed up and then delivered to customers. A storm can disrupt things. A broken oven at one of our purveyors can mean a disappointed customer.”

So the best advice may be: Grow slowly. Know your customer. And understand how complicated it will be to get people exactly what they want.

Edition: December 2016

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