The pitches for tech-driven food companies tend to blur together: customers visit a site or launch an app to order food, and in a few hours or days, dinner is delivered.
While there are doubts about the business model, time and again investors see upside in
trying to carve out even a tiny niche in a trillion-dollar food industry. So they invest.
The results have not been encouraging. For as many companies that have tried, almost the same amount have failed.
Locally, a pair of food-tech startups have gone under. The most recent bust came from Santa Monica incubator Science Inc. with a service called Fresh Dish, positioned as a remote prep cook. In it, customers ordered a meal online and days later received raw ingredients and a recipe, allowing them to bask in the accomplishment of having cooked a meal.
But high costs and low engagement caused the idea to peter out months after launch. It has since pivoted to an online marketplace where customers can hire personal chefs. Fresh Dish recently changed its name to Tastery to formalize the new direction.
Then there’s the tale of Hollywood’s Pop-Up Pantry, a food delivery service that sold mail-order meals advertised as restaurant quality. The company touted partnerships with celebrities and chefs (and celebrity chefs) and would even offer the winning dishes featured in Fox’s “MasterChef.”
But it took barely a year for Pop-Up Pantry to go through its entire life cycle, from seed funding to death. Although the company existed briefly, it was around long enough to burn through the bulk of a $1.7 million investment.
That’s still peanuts compared with the hundreds of millions wasted on Webvan, erstwhile grocery delivery service and poster child of ’90s dot-com flameouts.
Veterans of the food-tech trenches, many of whom have had great successes in other fields, insist they were well aware of the category’s famous debacles. But when the inspiration struck, or business came pitching with a novel approach, they told themselves this time would be different.
“It takes more capital than people think to make food delivery work,” said Rick Smith, a managing partner at Santa Monica’s Crosscut Ventures, an investor in Pop-up Pantry. “I’m still not sure it wouldn’t have worked, but we didn’t want to pour in more millions.”
The problem, many say, comes down to the product. Unlike books or electronics, food doesn’t sit too well on shelves. There is a tiny window for it to go from wholesaler to fulfillment center to delivery truck to a person’s fridge. For those selling fresh food, as Fresh Dish did, they live constantly under the threat of impending spoilage.
“The joke around here is ‘How hard is it to get raw chicken into a box delivered to your home?’ ” said Science co-founder Michael Jones in an interview earlier this year. “It’s really hard. We spent a lot of money figuring that out.”
Munchery, a San Francisco startup that delivers chef-prepared meals in the Bay Area, keeps the window even smaller: All orders are dropped off that day by the company’s fleet of drivers.
It’s a solution to the delivery conundrum, but also makes the business difficult to scale because the company would need to build out a local fleet in every city it serves.
Last year, Munchery had plans to expand to Los Angeles but scrapped them after realizing the logistical challenge was too great.
“A lot of things have to be done right and there are so many chances of failing,” said co-founder Tri Tran. “We had to work on every aspect at the same time. Frankly, I’m amazed we made it through our early days.”
In addition to spoiled products, the shipping costs are crushing.
Pop-Up Pantry sent its meals by FedEx two-day shipping in unwieldy plastic foam containers packed with dry ice. That explained its high price point: The cheapest option for the monthly subscription service was a $90 three-course meal for two.
Even then, it barely covered expenses. The hope was that people would order several meals a month, which could be shipped in the same box. But even a discounted $280 for four meals was well on the high side of online subscription services – itself a dying fad.
There also weren’t any areas to scrimp. The food was cooked sous-vide – vacuum packed then warmed in temperature-controlled water – in an industrial kitchen in Marina del Rey then flash frozen. These are expensive tasks performed by skilled workers, a world away from iPhones rolling off an assembly line in China.
“Shipping food with dry ice is heavy and has to get here quickly,” said Crosscut’s Smith. “It can’t take a slow boat from China or be left in a West Texas warehouse in July.”
Had the company reached a point where it was shipping 2,000 meals a day there would be a price break on shipping, but it reportedly never crested that mark.
That was the same problem that ultimately felled Webvan. The company, which had gone public during the heady days before the dot-com bubble burst, was hemorrhaging money from its nationwide fleet of delivery trucks. Some of them made drop-offs carrying no more than a single person’s order.
The company racked up nearly $1 billion in debt before a prolonged lull in orders forced the directors to put it into bankruptcy and shut down in 2001.
Interestingly, the one thing Webvan and its descendant food-tech failures never suffered from was bad reviews. The owners of these businesses all claim the people who used them genuinely liked the service.
The afterlife of the food-tech startups might indicate how the inevitable next series of attempts will look.
Fresh Dish, in becoming Tastery and a chef-on-demand service, has switched to a different time line. When it comes to dinner, people tend to think about what they’re having that night, which was a need Fresh Dish couldn’t satisfy. But hiring a chef to cook for a party gives a lead time that fits into a more reasonable, proven model.
“Chefs are everywhere in the major cities,” said new Tastery Chief Executive Romi Lassally. “It makes sense to put them to work in a branded experience.”
For Webvan, its remaining assets were acquired by Amazon Inc. and have, a decade later, become the foundation of grocery delivery service AmazonFresh.
The system was tested in Seattle for some time before coming to Los Angeles this June; it recently expanded to San Francisco.
That cautious approach is uncharacteristic of Amazon, where top executives consider rapid expansion a divine right. But it demonstrates just how hard it is to get food delivery right.
“It took them five years before they went to another city,” said Munchery’s Tran. “And groceries are much easier than prepared food. And it’s Amazon!”
There are some nontraditional delivery options cropping up lately that could be the foundation for the next food startup. Car-sharing and hailing services have taken on some courier duties. For instance, San Francisco’s Uber Inc. delivered Christmas trees for a day in December. Why not food in future years?
Amazon Chief Executive Jeff Bezos last month stoked some interest when he announced on a “60 Minutes” segment that his company was working on a fleet of delivery drones. That technology, not to mention its legality, is far from clear, but it hasn’t stopped people from sketching out an array of possible uses.
But for investors, what might spark the next attempt in this beleaguered category is the abiding belief that somewhere in the world, and at some point in time, some business will get it right. Because, how often can they keep getting it wrong?
“It feels like this can be done and challenges overcome,” Smith said. “But it’s certainly going to take more capital than is easy to stomach.”
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