SpoonRocket shuts down(techcrunch.com)
techcrunch.com
SpoonRocket shuts down
http://techcrunch.com/2016/03/15/spoonrocket-shuts-down/
193 comments
Reminds me of recent Instacart news.
http://www.bloomberg.com/news/articles/2016-03-11/instacart-...
Here's the money quote: "[Instacart] said 40% of the company's volume is profitable - meaning most orders still lose money. It also said that it will be profitable globally by summer. However, its calculation for profitability doesn't include the cost of office space, the cost of acquiring shopper workers, or the salaries of its executives, engineers, designers or other employees..."
In other words, a $2b company figured out how to "not lose money" 40% of the time when their lowest paid workers deliver things. Ignoring those pesky cost centers that are developers, designers, hiring managers and executives. When every corner deli within 10 miles of me delivers (often for free) and presumably does so profitably (disclaimer: I live in a major metro area).
Technology has a peculiar ability to light gigantic piles of money on fire. These are strange times we live in.
http://www.bloomberg.com/news/articles/2016-03-11/instacart-...
Here's the money quote: "[Instacart] said 40% of the company's volume is profitable - meaning most orders still lose money. It also said that it will be profitable globally by summer. However, its calculation for profitability doesn't include the cost of office space, the cost of acquiring shopper workers, or the salaries of its executives, engineers, designers or other employees..."
In other words, a $2b company figured out how to "not lose money" 40% of the time when their lowest paid workers deliver things. Ignoring those pesky cost centers that are developers, designers, hiring managers and executives. When every corner deli within 10 miles of me delivers (often for free) and presumably does so profitably (disclaimer: I live in a major metro area).
Technology has a peculiar ability to light gigantic piles of money on fire. These are strange times we live in.
At traditional restaurants and cafes, not every item on the menu is a profitable one.
Often some items are actually loss-leaders, enticing you to come in more often, or to pair it with a more profitable item that makes up for its cost.
Sometimes it is, even more, obvious that something is a 'loss leader'; such as at fancy dinners where they'll simply give you bread for free while you wait for your meal or bars where they give you salty snacks like popcorn to encourage you to buy more beer and not leave to have a real meal somewhere else.
Often some items are actually loss-leaders, enticing you to come in more often, or to pair it with a more profitable item that makes up for its cost.
Sometimes it is, even more, obvious that something is a 'loss leader'; such as at fancy dinners where they'll simply give you bread for free while you wait for your meal or bars where they give you salty snacks like popcorn to encourage you to buy more beer and not leave to have a real meal somewhere else.
A loss leader is one thing, but imagine a restaurant that only sold 40% of their meals above cost, and the 40% that are above cost only have enough margin to cover the minimum wages owed to the waiters.
I think part of the problem here is failing to use correct terminology. We might say, in GAAP terms:
* For 40% of the orders, they achieve a positive gross margin * We anticipate reaching positive gross margin on 100% of orders by the end of year * Even after reaching positive gross margins, non-COGS operating costs are sufficiently high to result in a negative EBITDA
* For 40% of the orders, they achieve a positive gross margin * We anticipate reaching positive gross margin on 100% of orders by the end of year * Even after reaching positive gross margins, non-COGS operating costs are sufficiently high to result in a negative EBITDA
To expand: non-COGS operating costs would include SG&A costs (Selling, General, and Administrative), among others. It's how a company like Box might have healthy gross margins on its unit sales but be unprofitable due to considerable marketing expenses as it tries to capture market share in a growing market.
That sounds taken out of context, or misquoted. Its reasonable to talk about the marginal profitability of an activity. E.g. Given employee base (shopper workers already hired), current app and backend (no marginal cost for developers/executives) then the sales price minus cost-of-sale was positive. Very important number! Means the company would be profitable after scaling that part of the business enough to cover fixed costs.
Most startups are actually looking for that magic formula. They spend spend spend until they find it, then scale scale scale to become a profitable business as a whole.
Most startups are actually looking for that magic formula. They spend spend spend until they find it, then scale scale scale to become a profitable business as a whole.
Doesn't look like a misquote to me. And while, yes, unit economics are a thing, there can be a huge gap between being unit profitable and profitable as an organization. A bunch of delivery companies flew into the ground during the first crash under the same circumstances (including a few grocery delivery companies).
If you're running a company with 500 employees an a big office in San Francisco (where employees average ~$100k a year, fully loaded), and each of your deliveries nets 1% of a $50 order, on average ($0.50; not a ridiculously low net margin for the grocery industry, even in logistically optimal scenarios -- which delivery is not), you've gotta be doing (500 * $100,000) / .5 = 100 million sales a year just to break even. AKA, $5 billion a year revenue run rate.
So then you say: "OK, we'll just cut some of those expensive SF people, and we'll bring the curves closer together!" And that could happen. Or you could discover that getting those margins was only possible with X million sales a year, and getting those requires at least 500 employees to run operations without dropping the ball. And then your investors stop throwing money at you, because the business economics look scary, and the funding climate has changed. And then you die.
Again, this is not a made-up story.
When huge investors get involved in land-grab businesses before they're profitable, they're all betting that their horse will be the next Amazon. But there's only one Amazon. And even Amazon isn't that profitable. And Amazon started by competing in a high-margin industry.
If you're running a company with 500 employees an a big office in San Francisco (where employees average ~$100k a year, fully loaded), and each of your deliveries nets 1% of a $50 order, on average ($0.50; not a ridiculously low net margin for the grocery industry, even in logistically optimal scenarios -- which delivery is not), you've gotta be doing (500 * $100,000) / .5 = 100 million sales a year just to break even. AKA, $5 billion a year revenue run rate.
So then you say: "OK, we'll just cut some of those expensive SF people, and we'll bring the curves closer together!" And that could happen. Or you could discover that getting those margins was only possible with X million sales a year, and getting those requires at least 500 employees to run operations without dropping the ball. And then your investors stop throwing money at you, because the business economics look scary, and the funding climate has changed. And then you die.
Again, this is not a made-up story.
When huge investors get involved in land-grab businesses before they're profitable, they're all betting that their horse will be the next Amazon. But there's only one Amazon. And even Amazon isn't that profitable. And Amazon started by competing in a high-margin industry.
Yeah it was a pretty big stretch.
While I agree that marginal probability is important, I think it is a fallacy to assume all of those other costs don't have some variable component as well. There will always be shopper worker churn that will grow as the business grows, additional (albeit low) costs in software to scale and add new regions, etc.
In a business with sizable margins, it may be OK to discount some of these other things, but in a business with teeny tiny razor thin margins like grocery delivery, one should have a very healthy skepticism about hand-waving away real costs.
In a business with sizable margins, it may be OK to discount some of these other things, but in a business with teeny tiny razor thin margins like grocery delivery, one should have a very healthy skepticism about hand-waving away real costs.
Yeah their story was a pretty big stretch.
[deleted]
"Technology has a peculiar ability to light gigantic piles of money on fire."
Just wanted to say thanks for the laugh! It's not often than a comment on HN makes me laugh out loud. As in laughing with you, not at you...
Just wanted to say thanks for the laugh! It's not often than a comment on HN makes me laugh out loud. As in laughing with you, not at you...
Peapod looks like it hasn't changed in 10 years and basically does the same thing as instacart but cheaper and better.
Ignoring the app, and disruptive gimmick, I have to wonder what your average diner could have achieved with $13.5m in funding. You could build a small, well branded chain. Probably selling food above cost to boot! :)
Food service has a terrifying reputation as a business sector—restaurants routinely go out of business in their first year. Deep funding would create a buffer and help it grow, of course, but I still wouldn't want to bet on a restaurant.
One of the amusing ironies of the food-delivery bubble for me was that you're taking the crappiest part of a crappy industry's economics, and scaling it.
It's all of the costs and logistical pain of running a restaurant, with none of the margins. Brilliant!
It's all of the costs and logistical pain of running a restaurant, with none of the margins. Brilliant!
Indie restaurants, maybe. But for franchises, the opposite.
Depends on the franchise. Subway, for example, is apparently an absolutely brutal franchise to run, whereas Chik-fil-a is super careful about who they give them to.
Restaurants, not junk fast food chains. He or she was probably referring to corporations like Bloomin' Brands (OSI) and Brinker International.
I happened to pick two fast food chains because I know they're on polar ends of the "How nice is it to be a franchise" spectrum. The core of the point is that not all franchises are created equal.
But it matters which franchises you are talking about. A restaurant like Maggiano's, or Bonefish Grill is as far removed from Subway as Subway is as far removed from a 7-Eleven.
It's worth noting that Bonefish Grill operates a "managing partner" system, vs an ordinary franchise. The corporation owns 85% of the business, while a location's managing partner (who invests some money to get started) owns 10% (a regional manager owns the other 5%).
IOW, they're not, strictly speaking, a franchise.
IOW, they're not, strictly speaking, a franchise.
What is the upside for owning only 10%? Seems that the only asset that you have is that interest which you can sell to someone else, that is managing partner, with approval of corporate.
In the bonefish grill's that I have been at (several), the managing partner is typically present at the restaurant when I have been there. As such this is in a sense like buying yourself a job. (You could say the same about some franchises but somehow I see this a bit differently..)
In the bonefish grill's that I have been at (several), the managing partner is typically present at the restaurant when I have been there. As such this is in a sense like buying yourself a job. (You could say the same about some franchises but somehow I see this a bit differently..)
I agree. The benefit of this system is primarily that of the corporation. You get a manager, sell them a small percent, which helps cover some (a small amount) of the location's launch costs, gets the manager committed and makes them feel like a real owner, which makes them focus on success much more... with little serious upside. Not to mention, it puts the manager at a financial loss (their initial investment), if they quit within 5 years.
I knew a managing partner of a Carrabba's. He quit something like 2 years later and bought this little burger drive through. It must have been really bad at Carrabba's...
I knew a managing partner of a Carrabba's. He quit something like 2 years later and bought this little burger drive through. It must have been really bad at Carrabba's...
AH, but you couldn't get any investors for that.
You could absolutely get investors.
Just not any VCs.
Just not any VCs.
Nothing is impossible: Philz Coffee has raised $15m [1] and The Melt (grilled sandwich chain) has raised money from Sequoia [2]
[1] http://techcrunch.com/2015/02/18/philz-coffee-funding/
[2] http://blogs.wsj.com/venturecapital/2014/11/12/sequoia-backe...
[1] http://techcrunch.com/2015/02/18/philz-coffee-funding/
[2] http://blogs.wsj.com/venturecapital/2014/11/12/sequoia-backe...
In fairness, that's because VCs can't really make money investing in companies like those.
I think it's just that the VC model is predicated on finding that fraction of a percent of investments that gives you astronomical ROI as opposed to more conservative investors seeking lower returns more often (the type of person who would invest in a restaurant just to get a check every month). They are willing to get nothing back a majority of the time while the more conservative investor would probably be bankrupt if even 50% of his investments netted a total loss of investment.
Right. If you're going to accept a 50% failure risk, your average return from the companies that don't fail has to be better than 2x. If 70% of them fail, even 3x isn't enough.
Chipotle, even after getting hammered in the recent past, has a market cap of 15.5 billion dollars. It's rare, but it's possible.
That's not the point. VCs are interested in quickly (5-7 years) getting to 15B in market cap, not 22 years.
Chipotle went public 13 years after it was founded at half a billion dollars in market cap. While not as flashy as some of the unicorns, that would still have been a pretty decent showing.
In fairness, that's because VC culture is a parasite on normal society.
Are they really? The high failure, high return model has allowed many programmers (and others within VC-backed companies) to have employment that wouldn't otherwise exist. I'm happy to be outside of SV, doing well in a 100% bootstrapped company, but I think VC culture has had the opposite effect of a parasite (or at worst, I'd call it a symbiote)
Yes, in many many ways.
They are money losers. It only looks like they are not because of a temporary bubble. This bubble is popping and their losses are becoming clearer. There are many that will personally make money despite running a fund that loses money.
Their culture is steeped in groupthink. Which by definition results in malinvestment and destruction of wealth. This wealth comes from pensioners who can't get sufficient returns from lower risk investments.
At some point pension funds and pensioners are going to run out of money which will be bad.
Specifically for bootstrapped companies. VCs increase the input cost; labor and rent etc. And they subsidies competitors. E.g. Customers who would normally pay you for services get it free from a VC funded startup. Then VCs run out of money and competitor goes bust. This induces boom and bust cycles that mask steady improvements with hype. This hurts the market.
Programmers would be much better of with a steady market where there is a discoverable market value for their work.
They are money losers. It only looks like they are not because of a temporary bubble. This bubble is popping and their losses are becoming clearer. There are many that will personally make money despite running a fund that loses money.
Their culture is steeped in groupthink. Which by definition results in malinvestment and destruction of wealth. This wealth comes from pensioners who can't get sufficient returns from lower risk investments.
At some point pension funds and pensioners are going to run out of money which will be bad.
Specifically for bootstrapped companies. VCs increase the input cost; labor and rent etc. And they subsidies competitors. E.g. Customers who would normally pay you for services get it free from a VC funded startup. Then VCs run out of money and competitor goes bust. This induces boom and bust cycles that mask steady improvements with hype. This hurts the market.
Programmers would be much better of with a steady market where there is a discoverable market value for their work.
Pension funds invest tiny, tiny portions of their portfolios in venture capital, and they do it deliberately, as part of a strategy to diversify asset classes. Venture capital is probably not going to mess with too many people's pensions.
The Kaufmann report on venture capital (which is not, to put it charitably, aggressively pro-venture-capital) is a good place to start on this.
As for bootstrappers (I am one of those, and have been for ~12 years now), I think @Pinboard has a thing or two to say about the VC threat/menace.
The Kaufmann report on venture capital (which is not, to put it charitably, aggressively pro-venture-capital) is a good place to start on this.
As for bootstrappers (I am one of those, and have been for ~12 years now), I think @Pinboard has a thing or two to say about the VC threat/menace.
Blue Bottle Coffee.
https://www.crunchbase.com/organization/blue-bottle-coffee
https://www.crunchbase.com/organization/blue-bottle-coffee
Yes, but on a serious note the difference in potential upside between investing in this vs. a traditional restaurant chain is like that between investing in Amazon vs. a traditional book store chain. If you can find a way for the business model to work it is operating in a way where the inventory and distribution are handled in fundamentally different ways than in the past.
Your average diner knows NOTHING about scaling a business to a national or international level, nor about venture capital and the pressures of shareholders.
From the look of things around here, your average tech company ain't much better.
"Positive unit economics; couldn't cover engineering salaries, marketing, or G&A" is how I'd read that.
This is notable because some of the on-demand companies are engaged in a bidding war out of perceived land-grab economics, either on the supply or demand side (or both), so they price the customer-side service or the supply-side cut in such a way that the company loses money on most or all orders.
Think like: We'll deliver you a $8.50 sandwich for $10.25 and a $1 delivery fee, with a guaranteed payment to the driver of $5.00 per order.
If that's a little gobsmacking, suffice it to say that there are a lot of people with Uber envy, and that this is part of the playbook in expansion phase for them, too. (They are presently engaged in a bidding war against an Uber-for-China which is transferring billions of dollars from investors of both firms to drivers/riders.)
This is notable because some of the on-demand companies are engaged in a bidding war out of perceived land-grab economics, either on the supply or demand side (or both), so they price the customer-side service or the supply-side cut in such a way that the company loses money on most or all orders.
Think like: We'll deliver you a $8.50 sandwich for $10.25 and a $1 delivery fee, with a guaranteed payment to the driver of $5.00 per order.
If that's a little gobsmacking, suffice it to say that there are a lot of people with Uber envy, and that this is part of the playbook in expansion phase for them, too. (They are presently engaged in a bidding war against an Uber-for-China which is transferring billions of dollars from investors of both firms to drivers/riders.)
That's the way I read it as well. They were selling food for more than it cost them make/buy it and deliver it, but not enough to cover all other expenses.
Under sane conditions, I'd presume this is the type of company that could get money, either through debt or equity. The business model works, it just needs scaled. However, that also assumes scaling the business does not also scale those other expenses at a ratio well below 1. If the ratio is closer to 1, it's a bit dubious to not count those towards the unit costs.
Maybe the Uber playbook shouldn't be used for every on-demand service or maybe it would be smart for on-demand services to offer a non-commodity product so their success is a lower bar than shooting the moon.
Under sane conditions, I'd presume this is the type of company that could get money, either through debt or equity. The business model works, it just needs scaled. However, that also assumes scaling the business does not also scale those other expenses at a ratio well below 1. If the ratio is closer to 1, it's a bit dubious to not count those towards the unit costs.
Maybe the Uber playbook shouldn't be used for every on-demand service or maybe it would be smart for on-demand services to offer a non-commodity product so their success is a lower bar than shooting the moon.
[deleted]
"contribution margin positive" ought to win a creative writing award.
Actually, this is standard finance terminology for "if I add X revenue to the business, how much flows to free cash flow" - what we can reinvest/pay back to shareholders.
I, for one, am surprised they shut it down if they in fact had achieved positive contribution margin. Probably just couldn't tell a good enough story for how they'd grow, and demonstrate good upside, for new money in, given all the preferences/dilution/creditors already in their capital stack.
I, for one, am surprised they shut it down if they in fact had achieved positive contribution margin. Probably just couldn't tell a good enough story for how they'd grow, and demonstrate good upside, for new money in, given all the preferences/dilution/creditors already in their capital stack.
[deleted]
Are you suggesting that my read was incorrect, and that they are cash flow positive after not just food costs but logistics as well?
From wikipedia:
>> Contribution margin, or dollar contribution per unit, is the selling price per unit minus the variable cost per unit. “Contribution” represents the portion of sales revenue that is not consumed by variable costs and so contributes to the coverage of fixed costs.
So, positive contribution margin should imply they covered all the fixed and variable costs, the way I read it.
But then, why do they need to shut down? It looks like their def on "contribution margin positive" is something else after all.
https://en.wikipedia.org/wiki/Contribution_margin
>> Contribution margin, or dollar contribution per unit, is the selling price per unit minus the variable cost per unit. “Contribution” represents the portion of sales revenue that is not consumed by variable costs and so contributes to the coverage of fixed costs.
So, positive contribution margin should imply they covered all the fixed and variable costs, the way I read it.
But then, why do they need to shut down? It looks like their def on "contribution margin positive" is something else after all.
https://en.wikipedia.org/wiki/Contribution_margin
Interesting. I stand corrected, thanks to HN for teaching me something. Contribution margin is only for variable costs, it doesn't cover fixed costs -- so it doesn't mean positive CM goes to free cash flow, only to fixed cost coverage.
Which brings up another interesting point...I'm not sure how companies like this do cost accounting. When running a traditional business, say, a restaurant, variable costs (labor, food inputs) dominate vs. fixed costs. On the other hand, places like Microsoft spend a ton of cash to build a huge fixed asset (Windows) that gets sold to millions of people over time without any depletion, practically the very definition of a "fixed asset".
I wonder how Spoonrocket allocates their platform R&D in unit economics; how they do this will make all the difference in whether their "contribution margin" is in fact, positive, or not.
It's important to realize that even if a business is, strictly speaking, "profitable", it doesn't mean it's a good business. I don't stand on the corner selling newspapers because it's not a valuable use of my time vs. other pursuits, and a comparable argument can be made for use of shareholder capital, too.
Which brings up another interesting point...I'm not sure how companies like this do cost accounting. When running a traditional business, say, a restaurant, variable costs (labor, food inputs) dominate vs. fixed costs. On the other hand, places like Microsoft spend a ton of cash to build a huge fixed asset (Windows) that gets sold to millions of people over time without any depletion, practically the very definition of a "fixed asset".
I wonder how Spoonrocket allocates their platform R&D in unit economics; how they do this will make all the difference in whether their "contribution margin" is in fact, positive, or not.
It's important to realize that even if a business is, strictly speaking, "profitable", it doesn't mean it's a good business. I don't stand on the corner selling newspapers because it's not a valuable use of my time vs. other pursuits, and a comparable argument can be made for use of shareholder capital, too.
Fixed no, variable yes (or else they would just be profitable).
An explanation with an example can be found here[0].
But let's throw out some easy (but completely false numbers).
Assume:
The fixed cost for the entire operation for one month is $1000.
The operation makes 1000 widgets in one month.
A widget can be sold for $2.
Analysis:
If the company sells all 1000 widgets that it made in a month, then it will have revenue of $2000. If each widget had no variable costs, then each widget sold 'contributes' $2 to paying off the fixed costs of the company. $2 is greater than zero, so the company has a positive contribution margin.
Take the same assumptions as listed above, but the variable costs for each widget is $3. If the company sells all 1000 widgets, then it will have a revenue of $2000. However, each sale of the widget contributes -$1 towards the fixed costs of the company. Thus the company has a negative contribution margin.
So the first situation boils down to "we sold a widget for more than it costs to make", and the second situation boils down to "we sold a widget for less than it costs to make". Where "costs to make" includes just the variable costs. Which is what the article implies, "SpoonRocket had reached a positive contribution margin — it was selling meals for more than it cost to cook them."
Note also having a positive contribution margin also doesn't mean the company will ever realistically be profitable. Imagine a scenario where the fixed costs are $100.000 per month, and the contribution margin of each widget was $0.01 (ex: variable costs per widget $9.99, sale price $10). Each widget has a positive contribution margin, but the company would need to sell 10.000.000 per month to actually cover the fixed costs and become profitable.
Edit: had fixed/variable backwards on the first line.
[0] - http://www.accountingcoach.com/break-even-point/explanation/...
An explanation with an example can be found here[0].
But let's throw out some easy (but completely false numbers).
Assume:
The fixed cost for the entire operation for one month is $1000.
The operation makes 1000 widgets in one month.
A widget can be sold for $2.
Analysis:
If the company sells all 1000 widgets that it made in a month, then it will have revenue of $2000. If each widget had no variable costs, then each widget sold 'contributes' $2 to paying off the fixed costs of the company. $2 is greater than zero, so the company has a positive contribution margin.
Take the same assumptions as listed above, but the variable costs for each widget is $3. If the company sells all 1000 widgets, then it will have a revenue of $2000. However, each sale of the widget contributes -$1 towards the fixed costs of the company. Thus the company has a negative contribution margin.
So the first situation boils down to "we sold a widget for more than it costs to make", and the second situation boils down to "we sold a widget for less than it costs to make". Where "costs to make" includes just the variable costs. Which is what the article implies, "SpoonRocket had reached a positive contribution margin — it was selling meals for more than it cost to cook them."
Note also having a positive contribution margin also doesn't mean the company will ever realistically be profitable. Imagine a scenario where the fixed costs are $100.000 per month, and the contribution margin of each widget was $0.01 (ex: variable costs per widget $9.99, sale price $10). Each widget has a positive contribution margin, but the company would need to sell 10.000.000 per month to actually cover the fixed costs and become profitable.
Edit: had fixed/variable backwards on the first line.
[0] - http://www.accountingcoach.com/break-even-point/explanation/...
"So, positive contribution margin should imply they covered all the fixed and variable costs, the way I read it."
That's not what the passage you included says. It says it only covers variable costs.
That's not what the passage you included says. It says it only covers variable costs.
Passage no, but TC report says they were contribution margin "positive", which, they way I understood it, implies it should cover fixed costs, otherwise it is still contribution margin-negative (vis-a-vis fixed costs)
So, the passage explains what contribution margin is, but TC is talking about being "contribution margin positive". How would you understand the second term?
So, the passage explains what contribution margin is, but TC is talking about being "contribution margin positive". How would you understand the second term?
As I mentioned in an example above, just because you have covered all of your variable costs doesn't necessarily mean that you have the ability to cover all of your fixed costs at a reasonable sales rate. Contribution Margin Positive just means that each widget sold contributes towards fixed costs (as compared to negative, where each widget sold reduces the amount of money available to pay fixed costs), even if that contribution is one cent. So you could be positive by selling a product for $10 that has a variable cost of $9.99, but damn if you'll ever make a profit (where contribution margin * widgets sold > fixed costs).
> So, the passage explains what contribution margin is, but TC is talking about being "contribution margin positive".
TC has a terrible reputation for using business terms that aren't really generally considered business terms.
TC has a terrible reputation for using business terms that aren't really generally considered business terms.
The reason it's called contribution margin is because it contributes to the other costs of the company.
I've only ever heard contribution used in the sense of COGS, not foxed costs.
I've only ever heard contribution used in the sense of COGS, not foxed costs.
Negative contribution margin would be if your sales did not even cover your variable costs.
It appears they were still at the "do things that don't scale" stage. Every company goes through this, even a diner. Why it took $13+ million to get there, though, is the real question.
Some companies (e.g. in biotech, autonomous vehicles) may take significant upfront costs, but anything requiring massive scale to be profitable means the margins are going to be razor thin (see: Amazon vs. Jet.com, freight shipping, payment processors).
Some companies (e.g. in biotech, autonomous vehicles) may take significant upfront costs, but anything requiring massive scale to be profitable means the margins are going to be razor thin (see: Amazon vs. Jet.com, freight shipping, payment processors).
I'm pretty sure you are, that's serious bubble talk
"But due to other costs" < aka paying for people, the website, the delivery, marketing, etc?
"But due to other costs" < aka paying for people, the website, the delivery, marketing, etc?
Reminds me of that famous Marion Berry quote, "If you take out the killings, Washington [DC] actually has a very very low crime rate."
Maybe its criminals being killed?!
No, it is pretty bog-standard analysis.
Over the long term, this is necessary but not sufficient to build a business line that makes sense. You also have to control all the other costs... which can be difficult if your business model requires large scale growth.
Over the long term, this is necessary but not sufficient to build a business line that makes sense. You also have to control all the other costs... which can be difficult if your business model requires large scale growth.
The former. The logistics/overhead costs were what damned them.
Just as well they worked that out after burning through only $13.5M in funding, and not after the IPO.
Those are "lifestyle businesses", this is a "startup". They're different, because reasons...
Most non-fastfood resturants actually price their food at or near cost after the overheads are factored in. Profit actually came from (overpriced) beverages and drinks. If a startup is to compete with them there is no way for them to make much money.
"If a startup is to compete with them there is no way for them to make much money." Selling overpriced drinks? If a startup is in an area where "there is no way for them to make much money" then what the hell are they doing there?
The line of thought was probably that they may reach a scale that can overcome these overheads since they don't have to pay rent or hire full time staff for every outlet.
It makes sense if you consider very early examples like Amazon which took more than 10 years to become profitable. Unicorns like Twitter and Dropbox are not profitable and are unlikely to become so in the near future, but they have reached a scale that their finances are relatively secure for now.
It makes sense if you consider very early examples like Amazon which took more than 10 years to become profitable. Unicorns like Twitter and Dropbox are not profitable and are unlikely to become so in the near future, but they have reached a scale that their finances are relatively secure for now.
Yes - I assume there is some cooking labor and other items (electricity) factored in. So yes, they're on par with the deli. :-)
With early stage companies, many haven't even gotten to that point though. The first step is "Will someone pay for this?" Then the second is "Can we make money on each unit they sell." True profitability is "Can we sell enough units to cover our fixed costs"
What makes this interesting is the norm for a while was to fund #1. (And good ideas are still funded that way) #2 used to be the bar to get further funding, but now it looks like #3.
With early stage companies, many haven't even gotten to that point though. The first step is "Will someone pay for this?" Then the second is "Can we make money on each unit they sell." True profitability is "Can we sell enough units to cover our fixed costs"
What makes this interesting is the norm for a while was to fund #1. (And good ideas are still funded that way) #2 used to be the bar to get further funding, but now it looks like #3.
I would guess that the customer-acquisition costs alone are way higher than the food itself...
There are lots of startups that expect to lose money for a lengthy period of time while they attempt to capture the market or grow to a sufficient scale that their business becomes profitable.
In fact, it's not even limited to startups. I worked for Red Bull many years ago and when they open a subsidiary in a new country, the only metric that matters for the first few years is how much money they are SPENDING on marketing & promotion - sales just aren't that important until the brand has been established.
In fact, it's not even limited to startups. I worked for Red Bull many years ago and when they open a subsidiary in a new country, the only metric that matters for the first few years is how much money they are SPENDING on marketing & promotion - sales just aren't that important until the brand has been established.
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Good. It's not just me that reads this stuff and constantly wonders at the the complete lack of reason in Silicon Valley. (silly con?)
"All logistics costs" being delivery? That does sound like what they are suggesting.
I find it strange when companies use this terminology:
"We were exploring different strategic options, but deals fell through last minute."
Of course deals fall trough last minute. It's not like they would fall through a few months in advance.
"We were exploring different strategic options, but deals fell through last minute."
Of course deals fall trough last minute. It's not like they would fall through a few months in advance.
Why not? Deals can easily fall through in early stages. "Last minute" basically means the details were pretty much hammered out, everybody was just about ready to sign, then something happened to scuttle it.
I think he was suggesting that when something falls apart it's always at the last minute for that something. Kind of like how you always find something in the last place you look. I guess it's kind of accurate since you wouldn't describe an early stage deal as having "fell through".
That doesn't make any sense. If the deal falls through in the middle of negotiations, you would never describe that as "at the last minute" even though it turned out to literally be the last minute for that particular deal. That phrase means "right before we would have completed the deal," not "right before we stopped."
Sorry, I wasn't intending to say it was correct, only that I think it's the only way to read what he wrote as internally consistent.
Sad to see any startup die, but this was not unexpected.
I know I am but a tiny sample of the overall SF food market, but I'm squarely in the target demographic (work at home, don't like to go out to eat). I used SpoonRocket a few times, but entirely gave up on them after trying a few times. I love Sprig and order from the often. Here's why:
* SpoonRocket's meals simply weren't healthy. A lot of the folks in this space (Sprig, Munchery, etc.) are really focused on healthy food. I can call the Chinese place down the block and have an unhealthy meal delivered, but there traditionally have been very few good healthy options other than cooking yourself. SpoonRocket's food was heavy, carb-y, greasy, and just not that good.
* I know they had to do this for time efficiency/cost reasons, but the requirement that you meet the driver out at the curb was too big of a psychological barrier. I live/work in one of the (relatively rare, to be fair) SF highrises, but knowing that a SpoonRocket meal meant getting up, waiting for the elevator, going downstairs, meeting the driver, then going back upstairs - meant that I just never ordered from them (especially when Sprig will bring the meal right to my door.)
This just goes to show that in an absolute sense -- these relatively small differences might not matter (i.e. of course I'd rather go downstairs to pick up food vs. walk to a restaurant for lunch), but in the highly competitive environment where easier and healthier alternatives exist, their offering was unsustainable.
I know I am but a tiny sample of the overall SF food market, but I'm squarely in the target demographic (work at home, don't like to go out to eat). I used SpoonRocket a few times, but entirely gave up on them after trying a few times. I love Sprig and order from the often. Here's why:
* SpoonRocket's meals simply weren't healthy. A lot of the folks in this space (Sprig, Munchery, etc.) are really focused on healthy food. I can call the Chinese place down the block and have an unhealthy meal delivered, but there traditionally have been very few good healthy options other than cooking yourself. SpoonRocket's food was heavy, carb-y, greasy, and just not that good.
* I know they had to do this for time efficiency/cost reasons, but the requirement that you meet the driver out at the curb was too big of a psychological barrier. I live/work in one of the (relatively rare, to be fair) SF highrises, but knowing that a SpoonRocket meal meant getting up, waiting for the elevator, going downstairs, meeting the driver, then going back upstairs - meant that I just never ordered from them (especially when Sprig will bring the meal right to my door.)
This just goes to show that in an absolute sense -- these relatively small differences might not matter (i.e. of course I'd rather go downstairs to pick up food vs. walk to a restaurant for lunch), but in the highly competitive environment where easier and healthier alternatives exist, their offering was unsustainable.
Their meals were not just unhealthy, they were off the mark entirely. For example, they had a partnership with Stouffer's. As in, reselling Stouffer's lasagna. Like the same Stouffer's frozen lasagna I can buy at Safeway that feeds 8 people. At that point I just laughed and closed my app. Why would I ever choose to pay a premium for that?
I found it so funny and off putting I sent a screenshot to my friends: http://imgur.com/He7Hfkj
I found it so funny and off putting I sent a screenshot to my friends: http://imgur.com/He7Hfkj
Excellent points. Honestly it's the founders fault why this happened. They ignored these obvious signs and shouldn't be surprised. It's easy to order unhealthy food. It's a pain to make healthy food.
Ironically UberEATS launched officially today.
Ironically UberEATS launched officially today.
It's also easy to see all the issues in hindsight. Perhaps at the time they thought there's a market for less-healthy-but-cheaper food, and perhaps they were right and messed up the execution...
Founders are responsible for the business, you are right. You were probably down-voted by a "founder" who become unhappy at that thought.
Source: I'm a co-founder, if my business fails it's my fucking fault.
Source: I'm a co-founder, if my business fails it's my fucking fault.
> Ironically UberEATS launched officially today.
"If they cut off one head, two more shall take it's place"
"If they cut off one head, two more shall take it's place"
The on-demand apocalypse?
Well, knowing Techcrunch they're probably overreacting, but this is a prediction I can get behind.
Maybe now VCs can invest in companies that don't rely on questionable labor tactics in order to deceive themselves and others into thinking that they're unicorns.
Well, knowing Techcrunch they're probably overreacting, but this is a prediction I can get behind.
Maybe now VCs can invest in companies that don't rely on questionable labor tactics in order to deceive themselves and others into thinking that they're unicorns.
As a middle class person I signed up to two subscription services the other day. This is on top of my netflix, A-Prime and other common subscriptions. I realize they might not qualify to "on-demand services" 1:1 but seeing as the customer demographic is pretty much the same I believe on-demand services will always be viable as long as people demand things. And my god do some people demand things.
One start-up is an insignificant sample size.
One start-up is an insignificant sample size.
A few months ago there was a lot of talk about "negative gross margin" businesses, particularly in delivery, going under: http://avc.com/2015/10/negative-gross-margins/ .
I'm not an on-demand-food customer because the economics don't make sense to me. I either bring leftovers from dinner to work (I just have extra from dinner and spend an extra minute packing it the night before) or snag something from my work's decent cafeteria. And yet, I still see food deliver signs at my work and see coworkers utilizing them.
What's the deal? ROI for food delivery seems ridiculously low in comparison to other options. I don't want to sound like a curmudgeon but it seems quite wasteful.
What's the deal? ROI for food delivery seems ridiculously low in comparison to other options. I don't want to sound like a curmudgeon but it seems quite wasteful.
It was a lifesaver for those times when it was 6pm and you didn't have dinner ready for your kids.
Also for me when it's 6:30pm, but my partner is too tired to cook and I can't deal with that day's chronic pain. I'll miss Spoonrocket - they had a much more interesting menu than Sprig ever did, and many of the meals were quite delicious and freshly made. In terms of cost, about the same as just plain delivery, with the bonus of getting food maybe a little bit faster :)
Do you need cooked dinner for kids every day? There are plenty of healthy meals which take 10 minutes to prepare and will do as a dinner.
It makes a lot more sense if you don't make dinner, which I think is pretty common. (The ROI on that life decision is also ridiculously low.)
> The ROI on that life decision is also ridiculously low.
How are you figuring the ROI? If you're not factoring in opportunity cost, then you're not even considering it as an investment.
I make well over $100/hr doing contracting work. I can get a good meal delivered for $15. I highly doubt I could cook a decent meal in 9 minutes, and that's assuming ingredients and training are free (time and cost-wise).
How are you figuring the ROI? If you're not factoring in opportunity cost, then you're not even considering it as an investment.
I make well over $100/hr doing contracting work. I can get a good meal delivered for $15. I highly doubt I could cook a decent meal in 9 minutes, and that's assuming ingredients and training are free (time and cost-wise).
$100 pre-tax right?
Also, it may take 10 min but it won't require 10 minutes of unbound attention
On a personal note cooking dinner is just relaxing, it's good to get off the screen sometimes
Also, it may take 10 min but it won't require 10 minutes of unbound attention
On a personal note cooking dinner is just relaxing, it's good to get off the screen sometimes
> $100 pre-tax right?
Yes, but that's just a baseline. Even if you knock it down to $60, that doesn't change the overall result, especially when you consider the additional cost of groceries.
If you derive utility from cooking dinner, that's fine! I totally respect making individual choices which increase your utility. It's just the attitude that those of us who don't cook (and don't like cooking) are being economically irrational that annoys me.
Yes, but that's just a baseline. Even if you knock it down to $60, that doesn't change the overall result, especially when you consider the additional cost of groceries.
If you derive utility from cooking dinner, that's fine! I totally respect making individual choices which increase your utility. It's just the attitude that those of us who don't cook (and don't like cooking) are being economically irrational that annoys me.
I don't think there's much economic irrationality on display here - at least, on the short term. The ROI on those decisions is certainly an individualized calculation. However, I would wonder how healthful your options are when you resort to food delivery services. There's certainly not a lot of wiggle-room here because most humans require the same nutrients to be healthy and need to avoid the same ingredients to avoid being unhealthy.
Delivery food, even the "healthy" kind, is often packed with excessive amounts of sugars, salt, and artificial flavors. You're going to need to make a lot more than $100/hr pre-tax to afford the heart surgery, diabetes treatment, or other major health interventions that result from decades of eating food products prepared by people making about 10% of your base income.
Delivery food, even the "healthy" kind, is often packed with excessive amounts of sugars, salt, and artificial flavors. You're going to need to make a lot more than $100/hr pre-tax to afford the heart surgery, diabetes treatment, or other major health interventions that result from decades of eating food products prepared by people making about 10% of your base income.
Well, this sucks, I've been really enjoying my VC-subsidized services.
Dude, tell me about it, I was a VIP with them, and ordered almost every single day due to a busy schedule, they would show up within minutes... the meatloaf stack, the enchiladas, the pasta, I always enjoyed it except for a couple times in all. RIP I will miss you Spoonrocket!
Now that I think about it more, there was something odd about how most times I would order, the app would say 30-60 minutes which was discouraging, but experience told me it would be sooner, and it always was, like much much sooner, 5 minutes usually. I wonder how many customers didn't use it thinking "why would I wait 30-60 minutes?" oh well.... the drivers were very nice too...
Now that I think about it more, there was something odd about how most times I would order, the app would say 30-60 minutes which was discouraging, but experience told me it would be sooner, and it always was, like much much sooner, 5 minutes usually. I wonder how many customers didn't use it thinking "why would I wait 30-60 minutes?" oh well.... the drivers were very nice too...
Their food was largely gross and very unhealthy. Mac and cheese daily, often with ranch and/or bacon?! And that Korean dish?
I don't know where all they were located, but it felt more appropriate for dorm delivery than SF. Where's the kale man?!
I don't know where all they were located, but it felt more appropriate for dorm delivery than SF. Where's the kale man?!
I don't agree that their food was "largely gross and very unhealthy" - mac & cheese was just one of the options, they always had 2-3 other nicer options
I was a user since 2013 and enjoyed their stuff, too bad it's gone
wonder if sprig's gonna survive..
I was a user since 2013 and enjoyed their stuff, too bad it's gone
wonder if sprig's gonna survive..
Ya like meatloaf, ribs, burritos, etc. Everything was 700 calories+++
Not true at all. I'm a vegetarian and the veggie options were usually in the 4-600 range.
I'm not a vegetarian so I ignored those. I imagine that's often true for vegetarian dishes in the US that they're less calorically, with the exception of heavy pasta/cheese/butter dishes.
They also sometimes had salad. But in general the options were on the heavy side. I say this as a person who orders delivery from these apps regularly, and 80% of the time checked spoon rocket's options (and 5% of the time ordered).
They also sometimes had salad. But in general the options were on the heavy side. I say this as a person who orders delivery from these apps regularly, and 80% of the time checked spoon rocket's options (and 5% of the time ordered).
Why would you ignore them? Some of them were pretty good.
Food doesn't need to have meat to be tasty.
I need 3000+ daily, so it's good for me... busy, yet riding 100+ miles a week
obviously, not for everyone, yah, 700 calories can add up
obviously, not for everyone, yah, 700 calories can add up
does anyone know of other services which can deliver in around that 10 minute mark?
Indeed. Thanks to the VCs I was able to have something delivered for less than it would be to walk across the street and buy it myself.
SpoonRocket was an "on-demand pre-made meal delivery service"?
So... Like the pizza place down the street?
So... Like the pizza place down the street?
It was like the pizza place down the street if the pizza place made all their pizzas in the morning, put the into a truck and drove it around all day until they were delivered. Enjoy the pizza!
Well... That's a viable business model, if you want to run a family pizza shop, and have a 50% chance of going out of business in two years.
I don't understand how anyone could think it has the margins to pay engineers, founders, and VCs.
I don't understand how anyone could think it has the margins to pay engineers, founders, and VCs.
I can see how these businesses rationalize short term losses with a bet on a long term play that consists of one of the following outcomes:
1) Monopoly - If they can get enough lock-in on customers, they can outlast their competitors and then eventually move the prices up without losing customers (since there would be few viable alternatives).
2) Economies of Scale - In many businesses, the marginal cost does go down once you scale up significantly. They probably expected to cut the cost of food production significantly with volume pricing on raw materials and perhaps more automation of the cooking processes.
I think all of these services understand that this is a low margin business so you have to make up for it in high volume and short term losses are acceptable if you will win out eventually and increase the margins.
1) Monopoly - If they can get enough lock-in on customers, they can outlast their competitors and then eventually move the prices up without losing customers (since there would be few viable alternatives).
2) Economies of Scale - In many businesses, the marginal cost does go down once you scale up significantly. They probably expected to cut the cost of food production significantly with volume pricing on raw materials and perhaps more automation of the cooking processes.
I think all of these services understand that this is a low margin business so you have to make up for it in high volume and short term losses are acceptable if you will win out eventually and increase the margins.
I have a hard time seeing how you can get a monopoly on restaurant food/fast food. There are few barriers to small-scale competition, and it's very easy for your competitors to differentiate their offerings.
If McDonalds were to buy up every competing fast-food franchise in an area overnight, it'd be just a matter of time before somebody would open a Kurger Bing across the street.
Speaking of economies of scale, those are the kinds of economies of scale you need to compete with to make it big. You need to own half of your supply chain - which seems to be an anathema to VC-funded businesses.
A better question to ask is: Why aren't established food franchises, who own their logistics networks, and can compete on price, not interested in getting into this game? Perhaps they are all missing the forest through the trees - or perhaps food delivery-as-your-core-business is a race to unprofitability.
Now, if you do think that they are missing the forest through the trees, why not have your startup aim for a partnership with Subway, where they handle the food, and you handle the distribution?
If McDonalds were to buy up every competing fast-food franchise in an area overnight, it'd be just a matter of time before somebody would open a Kurger Bing across the street.
Speaking of economies of scale, those are the kinds of economies of scale you need to compete with to make it big. You need to own half of your supply chain - which seems to be an anathema to VC-funded businesses.
A better question to ask is: Why aren't established food franchises, who own their logistics networks, and can compete on price, not interested in getting into this game? Perhaps they are all missing the forest through the trees - or perhaps food delivery-as-your-core-business is a race to unprofitability.
Now, if you do think that they are missing the forest through the trees, why not have your startup aim for a partnership with Subway, where they handle the food, and you handle the distribution?
I thought DoorDash was trying to be the behind-the-scenes logistic network for handling distribution for chains like Subway, etc. It's a smart move, why not let the stores own their own brand but use a 3rd party for doing the delivery?
Are there any examples of (1) actually ever happening in practice?
I believe this is Uber's strategy, no? Basically sell at a loss and force your competitors to follow suite (and lose money even faster) which in turn drives them out of business leaving only Uber as the dominant player in a market.
Airport terminals where there is only one "cafe"/snack kiosk.
I met Sama at one once. He was incredibly humble.
I met Sama at one once. He was incredibly humble.
Yeah I don't get how you brand restaurant delivery is a tech startup. Absurd. I can understand a 'meal sharing' service like airbnb or uber, but not this.
Meal sharing concept is too finicky IMO. These places doing pre-made, delivered food are on the right track but I imagine the delivery component is a heavy cost.
I'd be curious to know if any of the food delivery apps have incentivised delivery to grouped buyers. e.g., $10 if someone buys, $8 if 5+ people in the same street buy, etc. Encourage delivery efficiency and also delegate marketing to word of mouth.
I'd be curious to know if any of the food delivery apps have incentivised delivery to grouped buyers. e.g., $10 if someone buys, $8 if 5+ people in the same street buy, etc. Encourage delivery efficiency and also delegate marketing to word of mouth.
Delivery is not as heavy as a cost as running the kitchen itself. I think food production is so overlooked in these discussions. The operating cost for a kitchen is insane, labor, ingredients, storage, inventory, etc...
Peter Thiel always uses restaurants as a good example of a business model that is so costly that there's no margin left, combined with the impossibility of a monopoly. So you take something that's already tight on margins and you make that even tighter with delivery.
Peter Thiel always uses restaurants as a good example of a business model that is so costly that there's no margin left, combined with the impossibility of a monopoly. So you take something that's already tight on margins and you make that even tighter with delivery.
Why would a business like this get funding and ultimately be viewed differently than any other restaurant? It looks like the pizza delivery model to me, so why is the funding so much higher?(serious question)
reminds me of the time in the 90s when literally just adding .com to a company's name and having a website made its valuation jump
Because there has been a mini-bubble in the "on-demand economy," a.k.a., delivery businesses. Investors are highly subject to groupthink and trend chasing. When one or more companies start to take off in the same space, a category is (theoretically) born. And then everyone wants exposure to the category.
Now, in the public markets, there's no problem jumping into a category; just buy some stock in X, Y, Z companies. But in the private market, if you didn't get in on X company's Series Y, you can't just buy in tomorrow to gain some exposure. So you invest in the next company with a similar concept (but perhaps in a different vertical).
All the while, nobody stops to think whether the newborn category they're chasing is even fundamentally viable, or if viable, whether it's nicely profitable at scale. Or whether it can bear so many entrants into the space.
Now, in the public markets, there's no problem jumping into a category; just buy some stock in X, Y, Z companies. But in the private market, if you didn't get in on X company's Series Y, you can't just buy in tomorrow to gain some exposure. So you invest in the next company with a similar concept (but perhaps in a different vertical).
All the while, nobody stops to think whether the newborn category they're chasing is even fundamentally viable, or if viable, whether it's nicely profitable at scale. Or whether it can bear so many entrants into the space.
SpoonRocket actually had the most decent meals I'd seen out of any of the healthy food delivery apps and the most options. Just discovered it a week or two ago and this news is incredibly dissapointing.
They had essentially the same stuff everyday, all of it super heavy and NOT healthy. What other competitors are you even referencing?
Sprig (pricey + limited selection), Bento (very limited selection), HealthyOut (super generic and not enough relavent results), Thistle (very limited selection).
Sprig's food is way better than spoonrocket, so at least their cost is justified. For SF, it's pretty normal pricing. Bento is meh, but munchery probably is the highest quality (and most expensive) of all.
Hadn't heard of healthyout or thistle until now, but they don't seem to be on-demand food services?
Hadn't heard of healthyout or thistle until now, but they don't seem to be on-demand food services?
Munchery has gone down hill.
Calling meals with 70g of fat "healthy" is a bit of a stretch.
They used to be more focused on good quality/fresh/healthy.
The menu is now the same every day and it's basically a restaurant delivery service where they pre-make the food in large quantities.
Presumably this is more sustainable for them money wise, but I used to order Munchery for dinner every single day (when open) for years, and now I do it maybe 1-2 times a week, begrudgingly.
Hopefully just a phase. They tried this same-every-day thing last year and lost a tonne of users.
Calling meals with 70g of fat "healthy" is a bit of a stretch.
They used to be more focused on good quality/fresh/healthy.
The menu is now the same every day and it's basically a restaurant delivery service where they pre-make the food in large quantities.
Presumably this is more sustainable for them money wise, but I used to order Munchery for dinner every single day (when open) for years, and now I do it maybe 1-2 times a week, begrudgingly.
Hopefully just a phase. They tried this same-every-day thing last year and lost a tonne of users.
It's funny because this happened today:
http://sf.eater.com/2016/3/16/11247194/pascal-rigo-leaves-mu...
Especially this:
"I just did not share anymore their strategy for growth and their ‘vision’ for the future," Rigo wrote to Eater in an email.
The translation is: the food sucks.
http://sf.eater.com/2016/3/16/11247194/pascal-rigo-leaves-mu...
Especially this:
"I just did not share anymore their strategy for growth and their ‘vision’ for the future," Rigo wrote to Eater in an email.
The translation is: the food sucks.
IMO, these companies would be insane not to pre-make suitable food in large quantities (curries, etc) in order to achieve profitability at reasonable pricepoints.
I'll have to try Munchery, looks like they have a pretty decent selection of healthy and tasty meals. My problem with Sprig beyond price point is much of the food doesn't seem appetizing enough for the price to be worth paying, not that I can't actually pay it. Thistle is more in the category of "healthy food delivery" than on-demand ordering, which is another downside, but I'd still say at least that one category overlaps. HealthyOut actually is probably not in fact relevant to this discussion so my bad on mentioning that.
EDIT: Munchery doesn't delivery for lunch so that's a pretty big limitation there.
EDIT: Munchery doesn't delivery for lunch so that's a pretty big limitation there.
Munchery has before so maybe it wasn't successful for them.
Munchery got old pretty quickly for us. I remember them having the same "questionable lasagne" entree on the menu four days in a row. Anything decent would sell out almost immediately.
Not a uniform experience. From the OP "I ordered SpoonRocket a few times soon after launch. However, I and other customers I spoke to found the meats to be sketchy and the whole meals to be somewhat gross. I ended up switching to SpoonRocket’s more expensive and slower competitor Sprig."
Have you tried Sprig?
Have you tried Sprig?
Sprig's price is usually in the $11-14 range while SpoonRocket was a bit lower at $7-11. The extra money is definitely noticeable.
I think part of their problem is that they hammered downward with the food quality in an effort to cut costs, rather than raising rates. People who are using these on-demand food delivery services wouldn't mind a couple extra dollars if it meant that the food was of good quality. SpoonRocket's food was abysmal; it satisfied the occasional need for shitty-hangover-food, but that's not sustainable (for them or for my gut).
When they started they were cheap meals under $10 out in Berkeley or Oakland (I forget), and they did raise prices after they started expanding into SF. The problem was most of their customers were use to the lower price point of the service.
They sound like these guys who I am afraid are going to end up the same way: https://foodjets.com/
They only operate in Sacramento. The main things I liked are that it takes usually under 10 minutes and there was no tipping or delivery fee. The price you saw is what you paid. However, they just added tipping to their app which isn't a good sign. On top of that, it asks you to tip before you even get your food and there is no option to tip later that I know of. I haven't ordered from them since I was first prompted to tip.
Older article that discusses them: http://www.bizjournals.com/sacramento/news/2015/10/30/what-s...
They only operate in Sacramento. The main things I liked are that it takes usually under 10 minutes and there was no tipping or delivery fee. The price you saw is what you paid. However, they just added tipping to their app which isn't a good sign. On top of that, it asks you to tip before you even get your food and there is no option to tip later that I know of. I haven't ordered from them since I was first prompted to tip.
Older article that discusses them: http://www.bizjournals.com/sacramento/news/2015/10/30/what-s...
Is the delivery person aware of whether you tipped before the delivery even occurs? If so, I will never use their app.
As someone who's ordered from spoon rocket dozens of times over the past two years, I'm definitely sad to see it go.
A quick timeline (from what I can remember):
- Initially started out in Berkeley / Emeryville area by a couple of Berkeley alumni who had previously launched a food delivery startup focused on midnight munchies (aka, unhealthy food for college-type students). Each meal was initially only $6, tasted quite good, and delivery only took ~15 minutes.
- Expanded to Oakland area (first Downtown, then eventually other areas like Lake Merritt). Meals were still only $6, taste was usually good but sometimes wasn't as good. Delivery was still fairly fast (usually <15 minutes), but could take up to 30 minutes.
- Expanded to SF. Meals became more expensive and had variable pricing (I think it was first $8, $10, then $12, depending on which dish). A delivery fee ($2.50) was created. Food quality dropped (usually was OK, but not as good as it used to be); meals could take up to 1hr to get delivered (usually under <30 min though)
- Started their elite food delivery plans which provided free meal delivery and a bit of extra credit, by agreeing to pay upfront each month (e.g. $20).
Thoughts:
- From a business perspective, I think SpoonRocket (SR) made a lot of the right moves. While a lot of people say "disruptive innovation" loosely right now, I think SR actually did it by: 1) focusing on a low-end market that wasn't well addressed (e.g. college students), 2) used a technology to rapidly improve the experience for this low-end market (e.g. using Google Maps to efficiently route drivers to deliver on-demand meals), and 3) go upstream in the market to gain market share in higher-end consumer segments.
- So why did SR fail? I'm speculating here, but I think it's because scaling all these type of on-delivery startups is really, really hard work. Unlike Google or Facebook which could effortlessly scale up across the world with its technology-heavy solution, scaling up a company like SR requires hiring a linear amount of employees like drivers and support staff. As others have noted, it's difficult to get the economics right for an inherently low-margin business with a high labor component.
- Can other food startups succeed? I'm willing to bet most food startups probably won't survive this fundraising crunch if it extends another year. As far as I could tell, SR was ran as a very lean operation where they tried to batch deliveries, produce a small set of meals in large quantities, and focused on efficiency (e.g. calling you two minutes ahead of time to minimize delivery driver's waiting time). If SR couldn't make the economics work, I'm not sure how others could. Perhaps by going more high-end than SR, and charging a higher price (a la Munchery) or is it perhaps by selling a lot more quantity?
- Lastly, what I'm hoping for is the "Airbnb" of food, where regular people could cook meals and sell them to neighbors on a marketplace with reviews, pictures, etc. Of course the economics would be challenging like any food business, but that's the kind of service that I could see myself regularly using. There's also the regulatory side (after all Airbnb itself has followed the policy of 'asked for forgiveness, rather than permission') Who doesn't like the sound of buying a home cooked meal from a neighbor?
A quick timeline (from what I can remember):
- Initially started out in Berkeley / Emeryville area by a couple of Berkeley alumni who had previously launched a food delivery startup focused on midnight munchies (aka, unhealthy food for college-type students). Each meal was initially only $6, tasted quite good, and delivery only took ~15 minutes.
- Expanded to Oakland area (first Downtown, then eventually other areas like Lake Merritt). Meals were still only $6, taste was usually good but sometimes wasn't as good. Delivery was still fairly fast (usually <15 minutes), but could take up to 30 minutes.
- Expanded to SF. Meals became more expensive and had variable pricing (I think it was first $8, $10, then $12, depending on which dish). A delivery fee ($2.50) was created. Food quality dropped (usually was OK, but not as good as it used to be); meals could take up to 1hr to get delivered (usually under <30 min though)
- Started their elite food delivery plans which provided free meal delivery and a bit of extra credit, by agreeing to pay upfront each month (e.g. $20).
Thoughts:
- From a business perspective, I think SpoonRocket (SR) made a lot of the right moves. While a lot of people say "disruptive innovation" loosely right now, I think SR actually did it by: 1) focusing on a low-end market that wasn't well addressed (e.g. college students), 2) used a technology to rapidly improve the experience for this low-end market (e.g. using Google Maps to efficiently route drivers to deliver on-demand meals), and 3) go upstream in the market to gain market share in higher-end consumer segments.
- So why did SR fail? I'm speculating here, but I think it's because scaling all these type of on-delivery startups is really, really hard work. Unlike Google or Facebook which could effortlessly scale up across the world with its technology-heavy solution, scaling up a company like SR requires hiring a linear amount of employees like drivers and support staff. As others have noted, it's difficult to get the economics right for an inherently low-margin business with a high labor component.
- Can other food startups succeed? I'm willing to bet most food startups probably won't survive this fundraising crunch if it extends another year. As far as I could tell, SR was ran as a very lean operation where they tried to batch deliveries, produce a small set of meals in large quantities, and focused on efficiency (e.g. calling you two minutes ahead of time to minimize delivery driver's waiting time). If SR couldn't make the economics work, I'm not sure how others could. Perhaps by going more high-end than SR, and charging a higher price (a la Munchery) or is it perhaps by selling a lot more quantity?
- Lastly, what I'm hoping for is the "Airbnb" of food, where regular people could cook meals and sell them to neighbors on a marketplace with reviews, pictures, etc. Of course the economics would be challenging like any food business, but that's the kind of service that I could see myself regularly using. There's also the regulatory side (after all Airbnb itself has followed the policy of 'asked for forgiveness, rather than permission') Who doesn't like the sound of buying a home cooked meal from a neighbor?
>Lastly, what I'm hoping for is the "Airbnb" of food, where regular people could cook meals and sell them to neighbors on a marketplace with reviews, pictures, etc.
I really don't want to buy food from random strangers that are not regularly being inspected for the cleanliness of their operations. A dirty room or a car is an inconvenience. A meal prepared in an unsanitary way could potentially kill you.
I really don't want to buy food from random strangers that are not regularly being inspected for the cleanliness of their operations. A dirty room or a car is an inconvenience. A meal prepared in an unsanitary way could potentially kill you.
> A dirty room or a car is an inconvenience.
I too have no desire to buy food from strangers, but I also feel like the potential risks of room-sharing or ride-sharing aren't limited to cleanliness. In both cases you're implicitly trusting a stranger with your physical safety.
Speaking for myself, I think I'm more comfortable with the notion of ride & room sharing because I can maintain a greater (and quite possibly illusory) sense of control. Drunk or unreliable driver? I can get out. Sketchy apartment? I can leave, or prop a chair against the door. etc.
I too have no desire to buy food from strangers, but I also feel like the potential risks of room-sharing or ride-sharing aren't limited to cleanliness. In both cases you're implicitly trusting a stranger with your physical safety.
Speaking for myself, I think I'm more comfortable with the notion of ride & room sharing because I can maintain a greater (and quite possibly illusory) sense of control. Drunk or unreliable driver? I can get out. Sketchy apartment? I can leave, or prop a chair against the door. etc.
Seems to me, Neighbors would be less likely to have an inspected kitchen. I'd much rather get food from a kitchen 'vetted by SpoonRocket or some organization. In fact in my state, its illegal to sell food out of your kitchen. Unless it passes inspection, which no home kitchen could (e.g. need 7 sinks minimum and so on).
> Who doesn't like the sound of buying a home cooked meal from a neighbor?
I won't claim this is a rational fear, but I'm personally far more apprehensive about buying food from my neighbor than I am about staying in said neighbor's home (airbnb) or getting a ride in their car (uber / lyft / etc.)
I won't claim this is a rational fear, but I'm personally far more apprehensive about buying food from my neighbor than I am about staying in said neighbor's home (airbnb) or getting a ride in their car (uber / lyft / etc.)
> - Lastly, what I'm hoping for is the "Airbnb" of food, where regular people could cook meals and sell them to neighbors on a marketplace with reviews, pictures, etc
This is already happening here: https://josephine.com/
This is already happening here: https://josephine.com/
It's not legal to do so. You have to be a licensed commercial kitchen to do this stuff.
Just like you need to be a licensed hotel operator to rent out rooms?
That's cool! Have you ever tried them before?
I looked at them once before, and there's nothing super close to where I live (would need to drive to pick it up), but I'd definitely consider using it if there was someone who cooked within walking distance of me.
I looked at them once before, and there's nothing super close to where I live (would need to drive to pick it up), but I'd definitely consider using it if there was someone who cooked within walking distance of me.
A friend of mine participates, so I tried some of his pretzels/granola and they were fantastic (and I'm not just saying that because he's a friend). I haven't tried anything else yet, but I've talked to him about the service and he's had a positive experience thus far.
> Who doesn't like the sound of buying a home cooked meal from a neighbor?
It'd take a lot for me to consider it, because it creates all kinds of awkwardness if the quality is poor, and I'd have little reason to trust that they'd deliver consistent quality.
It'd need to be far cheaper than any alternative, and I'd need to not afford the alternatives, before I'd consider something like that.
It'd take a lot for me to consider it, because it creates all kinds of awkwardness if the quality is poor, and I'd have little reason to trust that they'd deliver consistent quality.
It'd need to be far cheaper than any alternative, and I'd need to not afford the alternatives, before I'd consider something like that.
I can definitely see the potential of awkwardness, especially if you know the neighbor already, etc. But like Airbnb, I think reviews go a long way to ensuring good quality in the long run.
We tried a variant of this with Mise very early on but we've since pivoted to a much more stable model with massively improved results & proper regulation.
There are some highlights from what we learned trying "Airbnb for food."
1. Our target was not home chefs, but instead professional chefs. We worked in the industry for several months and identified how difficult being a chef. Lack of progression, opportunity, and a chance to showcase your skill.
2. We rented out a commercial kitchen for chefs, let them work their own hours, and cook the things that they wanted. We took on amateur chefs as an experiment, using their passion and food samples as determinant/predictor of success.
3. We wrote stories for every chef and dish. We'd even take photos of the chefs and edit those to make sure that they looked just as respectable as they sounded.
The Findings:
1. Food quality was inconsistent, ranging from inedible to passable. Because most professional chefs (professional doesn't mean much) and home cooks don't have any experience running a business of their own, their ability to scale and cost-control is poor.
2. That resulted in not only inconsistent food, but insanely overpriced meals ($15 for a bowl of chili, $16 for shrimp & pesto pasta).
3. The amateur chefs we worked with did not understand how to cook outside of recipes and/or they'd cut corners in production. Resulting in some shockingly bad food or overpriced mediocre meals.
4. Because there is no one checking over the food during production, you can't catch people cutting corners. If any of our chefs woke up on the wrong side of the bed that day, one of these things would happen (shitty food, tiny portions, unfulfilled orders).
5. No rational user is going to stick around and experiment their way around a Wild West marketplace that has such a wide range of quality and price. And no amount of "humanization" with stories, photos is going to save the fact that the food sucks.
6. Chefs are really good at pumping up their own food. "Best in the Bay Area", "everyone tells me they love it", "people ask me to open my own restaurant all the time", "there's so much love in this", or "I cooked for X person for Y years". (None of this means anything.)
7. Poor retention (and deservedly so from shitty product) and declining sales. With small orders, our chefs earned minimum wage or worse, which either drove them away ("I quit, fuck you!") or encouraged them to cut even more corners (smaller portions, terrible inedible quality).
8. We experienced ridiculous turnover (someone would quit every week, mad rush to find someone else to replace, unconsciously lowering standards in desperation).
9. At the end of the day, if the food sucks, it sucks. Doesn't matter if it's coming from your "neighbors" or "supporting the local chef down the street".
We've now partner with the best Bay Area mobile food businesses and sell their most popular items. Mise is now sustainable, food quality is consistent/high, customers are really happy (feels awesome whenever we have power users). And we've been able to offer more affordable and better-tasting meals week over week.
Ben (my awesome cofounder) and I take a lot of pride in what we do now, because we know it's awesome food going out to awesome people at affordable prices.
Order for the week ahead, get it all delivered to your door on Saturday, and enjoy a meal on your own schedule. :)
www.eatmise.com
There are some highlights from what we learned trying "Airbnb for food."
1. Our target was not home chefs, but instead professional chefs. We worked in the industry for several months and identified how difficult being a chef. Lack of progression, opportunity, and a chance to showcase your skill.
2. We rented out a commercial kitchen for chefs, let them work their own hours, and cook the things that they wanted. We took on amateur chefs as an experiment, using their passion and food samples as determinant/predictor of success.
3. We wrote stories for every chef and dish. We'd even take photos of the chefs and edit those to make sure that they looked just as respectable as they sounded.
The Findings:
1. Food quality was inconsistent, ranging from inedible to passable. Because most professional chefs (professional doesn't mean much) and home cooks don't have any experience running a business of their own, their ability to scale and cost-control is poor.
2. That resulted in not only inconsistent food, but insanely overpriced meals ($15 for a bowl of chili, $16 for shrimp & pesto pasta).
3. The amateur chefs we worked with did not understand how to cook outside of recipes and/or they'd cut corners in production. Resulting in some shockingly bad food or overpriced mediocre meals.
4. Because there is no one checking over the food during production, you can't catch people cutting corners. If any of our chefs woke up on the wrong side of the bed that day, one of these things would happen (shitty food, tiny portions, unfulfilled orders).
5. No rational user is going to stick around and experiment their way around a Wild West marketplace that has such a wide range of quality and price. And no amount of "humanization" with stories, photos is going to save the fact that the food sucks.
6. Chefs are really good at pumping up their own food. "Best in the Bay Area", "everyone tells me they love it", "people ask me to open my own restaurant all the time", "there's so much love in this", or "I cooked for X person for Y years". (None of this means anything.)
7. Poor retention (and deservedly so from shitty product) and declining sales. With small orders, our chefs earned minimum wage or worse, which either drove them away ("I quit, fuck you!") or encouraged them to cut even more corners (smaller portions, terrible inedible quality).
8. We experienced ridiculous turnover (someone would quit every week, mad rush to find someone else to replace, unconsciously lowering standards in desperation).
9. At the end of the day, if the food sucks, it sucks. Doesn't matter if it's coming from your "neighbors" or "supporting the local chef down the street".
We've now partner with the best Bay Area mobile food businesses and sell their most popular items. Mise is now sustainable, food quality is consistent/high, customers are really happy (feels awesome whenever we have power users). And we've been able to offer more affordable and better-tasting meals week over week.
Ben (my awesome cofounder) and I take a lot of pride in what we do now, because we know it's awesome food going out to awesome people at affordable prices.
Order for the week ahead, get it all delivered to your door on Saturday, and enjoy a meal on your own schedule. :)
www.eatmise.com
Thanks for the enlightening view from the inside. Maybe you should submit it to HN as a blogpost and get more attention for Mise.
Thanks! Means a lot. It's a good idea - one day, I hope when we're successful, perhaps then writing such findings then may be more meaningful and valuable as learnings for others.
> Lastly, what I'm hoping for is the "Airbnb" of food, where regular people could cook meals and sell them
Given the current lay of the land, I sadly find that to be a less likely to survive the regulatory requirements.
http://newyork.cbslocal.com/2013/09/11/cbs-2-investigation-u...
Given the current lay of the land, I sadly find that to be a less likely to survive the regulatory requirements.
http://newyork.cbslocal.com/2013/09/11/cbs-2-investigation-u...
Weird that the article didn't mention, Postmates already has reached critical mass with high quality on-demand delivery. For the 5 minute meals, UberEats is literally eating these small startups alive.
Maybe Lyft will acquire Swig if they're not already cooking something up. :-D
Maybe Lyft will acquire Swig if they're not already cooking something up. :-D
Damn, I will miss those breakfast burritos. These guys had some great food and the service was incredibly fast. Bummer!
Makes me wonder about Gobble. We've used it a couple of times and the food is awesome. Healthy, attractive. Very much enjoyed it.
But we only tried it because they offered a Groupon that put the price where we thought it should be. I've heard that in fact, they are doing very well, and I hope that is the case.
But we only tried it because they offered a Groupon that put the price where we thought it should be. I've heard that in fact, they are doing very well, and I hope that is the case.
Isn't one of Gobble's selling point is that it's super cheap? like $10/person? I remember seeing that as their main homepage jumbotron, which seemed to successfully target and reassure their audience of parents who wanted to know how much it'd cost to feed a family of X.
One of the non-breakout members of the on demand food delivery space dies as capital consolidates towards winners and we're in for an apocalypse? We VERY well may be in for one but I don't think this is a strong sign of that.
Accounting 101: (No matter if it is 1900, 1950, 1999, or 2015)
Revenue -Cost of Goods (food, in this case) = Gross Profit
Gross Profit -Sales & General, Administrative = Net profit
(SG&A = office space, Webdev, logistics, etc...)
I'm sorry, but anything else is just plan BS.
Revenue -Cost of Goods (food, in this case) = Gross Profit
Gross Profit -Sales & General, Administrative = Net profit
(SG&A = office space, Webdev, logistics, etc...)
I'm sorry, but anything else is just plan BS.
Half-kidding, but where is "growth" in your calculations? A big reason why companies discount their "fixed costs" (e.g. full-time employees' salaries, rent, etc) is because if they can get a marginal profit on their goods, then it's a matter of "making it up in volume". A company can still be losing a tremendous amount of money but have a bright future (I think this is what Amazon did for years): if you're making $0.50 per item, but have $1b of overhead costs, it very well might be possible to get to a profit, it just means you have to move a LOT of items.
Yes, I suspect Amazon has razor thin margins, so does Walmart and Supermarkets, but they can make it up on volume.
SpoonRocket... I suspect there is limited volume based on their market. (not everybody want's food delivered, people still like to go out every once and a while...)
SpoonRocket... I suspect there is limited volume based on their market. (not everybody want's food delivered, people still like to go out every once and a while...)
The free "VC funded" meal has ended.
Time to whip out my free Chipotle burrito coupons.
Time to whip out my free Chipotle burrito coupons.
Was SpoonRocket still having issues with the National Labor Relations Board or were those resolved?
Cheap meals with low quality ingredients sitting in a warm box being driven around all day in some random persons car didn't appeal to people?
Sprig's ingredients are actually quite high quality and delicious.
Which is probably why their volume is 6x Spoonrocket's.
can you show us something to back this statement? I'm really curious
From the article: "Sprig had looked into acquiring SpoonRocket, but decided against it and is now doing 6X the meal volume SpoonRocket did in SF."
Right, in SF, which is different from 6x overall volume.
SpoonRocket also served the East Bay, which Sprig doesn't.
Sprig also serves Palo Alto and Chicago, which SpoonRocket doesn't.
SpoonRocket also served the East Bay, which Sprig doesn't.
Sprig also serves Palo Alto and Chicago, which SpoonRocket doesn't.
And so it begins
Wait, so what made these people think they could beat seamless?
Ironically UberEATS launched today. The founders have no one to blame but themselves.
The standalone app perhaps, but it's been available in many places for a while.
Am I reading this correctly, and the business metric this company managed to achieve is simply "selling food above cost", like every deli and diner in the country does? Or is the article instead suggesting that they were profitable after all logistics costs?