RIP

A lot of early money has flowed from investors into food delivery startups, hoping they would be the next big thing. The industry is indeed good business, but just for those who make it. Just Eat, key player in UK and other large markets, made £546 Billion in revenue last year and is still growing fast. But even many of the largest players in the industry are still losing money. Takeaway.com lost €19.5 million in 2015 and €30.9 million in 2016. Deliveroo made £129 Million in revenue in 2016, but still had losses for £129 million.

Losses do not mean that these companies are going bankrupt. It might be that they are continuing to reinvest money to further expanding the business (just like Amazon did for more than a decade). Businesses go bankrupt when they run out of cash. They run out of cash when investors don’t want to put any more cash into them. Investors don’t invest more when businesses do not have a credible path to growth.

User growth is especially important in the food delivery business, because the winner takes it all. Restaurants, users, investors will always follow the bigger platforms, since it’s where they all get more orders, more choice, more profits. And then the more users come into the platform, the more attractive it is for more restaurants to join too. The more restaurants join, the more customers will come. And so forth. Economists refer to these as ‘network effects’. Almost like a spiral, fueling more and more growth for a platform. In reverse, if growth is slow and another service is growing faster, then users and restaurants will start running into the other one. No one joins a platform where no one else is, everyone is where everyone else is, just like with social media.

We wanted to take a moment and remember here a few of those food delivery companies which did not make it. Rest in peace.

One of the pioneers of the industry. Focused on going beyond a cost-centric approach, they always aimed to deliver quality food from local shops. A service of the people, by the people. Many investors said ‘interesting but I wouldn’t use it’, leading to a lack of funding and eventual shut down. Hubbub was actually profitable one week before closing doors. One to be missed and an inspiration (and guidance) for the rest of the services out there.

If there’s one thing that characterised Sprig, it was its need to control the process and make sure everything was just right. Making and delivering healthy meals that was their promise. But even a $45 million investment couldn’t cover all the costs and complexity needed to run a quality operation.

Celebrities can’t save the world. Backed by celebrity chef David Chang, its proposition was to have a fixed lunch and dinner menu that you could enjoy, resting assured that quality was going to arrive right at your doorstep. But quality comes with a price. They were losing money with each meal for a long time. By March 2016, they achieved a 30 cent profit margin per meal, but they were still projecting $16 million in losses. New Yorkers will always remember.

The London-based startup did not make it. Not enough funding to go through the tough business of food delivery. Good relationships with restaurants and customers, yes. Delivery software. But things cannot go far if you don’t have enough money in the bank.

The UK-based startup who once promised orders in under 30 minutes and managed to
do millions of those. For all its efforts to go nationwide, $20 million in investment wasn’t enough to compete with more established players. Even if as early as 2017 Jinn presented some 30% contribution margins and had some $22 million in projected sales to close the year. Acquisition talks went nowhere, and the company closed prematurely.

After raising $1.5 million in funding in 2015, things were shaping up for this food delivery startup. The vision was crystal clear: connecting users with chefs and get healthy meals delivered within 20 minutes. Pronto suffered against the much bigger marketing budgets of established competitors like Deliveroo or Uber Eats. It left the scene pronto.

With a pun-friendly name, it entered the French market, focused on providing food from top restaurants in less than 45 minutes. Sales were growing fast. Costs grew too and drivers were expensive to run. Failing to get more investment led to their premature death.

They offered customers in Austin area a full week of meals for $75. Margins were positive and customers loved the convenience. Orders were large and regular. But, once again, funds were not enough. Investors did not feel the business model they created was sustainable

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