A look at what will happen next in the world economies
Monday, June 5, 2017
Meal Delivery Sector Notches Another Shutdown
Reminds me of the DOT-COM days yet again...... Aivars Lode
Sprig Inc. is the latest startup casualty in the meal delivery sector.
The San Francisco company had raised more than $58 million in venture funding from firms including Greylock Partners, Social Capital, Accel Partners, Battery Ventures and others.
After growing quickly flush with venture cash, on-demand meal delivery startups have struggled to become sustainable businesses, weighed down by food and delivery costs, thin margins and fierce competition from startups as well as traditional restaurant delivery methods.
“The demand for Sprig’s convenient, high-quality food was always incredibly high, but the complexity of owning meal production through delivery at scale was a challenge,” Chief Executive Gagan Biyani said in a message to customers.
Like other on-demand services from home cleaning to laundry providers, many meal delivery startups saw rapid growth by using steeply discounted marketing offers to get people to sign up. But long-term loyalty of customers hasn’t been easy with the many different options that consumers have to choose from.
“It’s a classic venture reality,” said Ben Narasin, partner at Canvas Ventures. “I think there’s great companies doing great things here, but the category has been overfunded.”
Earlier in May, Maple Food Co. ceased operations and sold some technology to another company, Deliveroo, after raising about $26 million. Others that have shut down include SpoonRocket Inc., Dinner Lab Inc. and Kitchit Inc. In December, Berlin-based HelloFresh SE raised €85 million but at a lower share price.
Meanwhile, Munchery Inc. recently brought in a new chief executive and its two co-founders left the company amid cost cuts.
Sprig had struggled to make its model work, reorganizing last year and cutting its number of chefs. It stopped delivering to Palo Alto, Calif. to focus on San Francisco and Chicago. The company had started off with well-known chefs, but later brought in an executive who had managed airline meal production to cut costs and improve operations. Sprig’s shutdown was first reported by The Information.
A larger player in food delivery is Blue Apron Inc., which has raised $193 million and delivers meal kits for people to cook at home instead of delivering cooked meals. Despite some meal startups’ arguments to the contrary, Blue Apron’s business effectively competes against the meal providers, Mr. Narasin said. “I eat three meals day,” he said. “If Blue Apron takes one meal away, (that means) I’m not using somebody else.”