Food delivery is not a novel concept, and if you live in a city, it is as much a way of life as it is a service. But in the last few years there has been an insurgence of companies aimed at making mealtimes easier. According to CB Insights, in 2014, food tech startups received $1 billion in funding, and a significant portion of that money went to companies focused on online food delivery like Blue Apron, Postmates and Sprig. As the myriad of companies compete for consumer dollars, Munchery, the San Francisco on-demand food service, is betting that it has the winning recipe.
Founded in 2010, Munchery wanted to reinvent the weeknight dinner. “The company started as a very small thing to solve a personal problem with my family of what’s for dinner,” explained Tri Tran, co-founder and CEO of Munchery.
Going beyond the typical greasy takeout food, the company created an online marketplace with healthy, gourmet meals prepared daily by local chefs that could be delivered within 20-40 minutes of placing an order. The food arrives chilled to ensure freshness, but can be heated in the oven or microwave and ready in a matter of minutes.
With an infusion of $85 million in series C financing at the end of May, Munchery is now setting its sights on becoming the default mealtime option.
Lowering the cost of meals
Food service is notorious for being a low margin business. But Munchery believes it has created a model that will allow the business to scale up while keeping operational costs low. “We cannot be a positive force if we are not a sustainable business,” said Tran.
For traditional brick-and-mortar restaurants, labor and ingredients are significant expenses that can eat into profits. Munchery has been able to keep labor costs down by investing in equipment like a $50,000 oven that can cook upwards of 500 servings at once, using less time and fewer people. It has also been able to keep food costs low by negotiating bulk rates with producers.
These are savings that Munchery can pass off to its customers. Currently, the average cost of an entree is $10-12, but Tran wants to get prices to $7-9 where it is more approachable and becomes a daily habit for customers. Even at its current price point, there is some evidence that Munchery is habit-forming. In more established markets like San Francisco and Seattle 90 percent of the week’s orders are from repeat customers.
Expanding its footprint
Becoming the default option means getting its meals into more people’s hands. Today, the company exists in four major metros – San Francisco, Seattle, New York and Los Angeles. Compare this to larger players like GrubHub, which serves 900 U.S. cities. Tran said the company would like to be in 10 major markets within the next two years. “To be the default option and to be accessible to everyone, we are going to have to be everywhere.”
While that may not seem like fast growth for a company that has a lot of competition nipping at its heels, Michael Dempsey from the research firm CB Insights, thinks that being a first-mover will not be the most important attribute as the company looks to expand. “When you think about the business model of quick food prep and delivery, they are competing against so many players that they have to out-execute almost across the board on time, food quality and price.”
Munchery’s ability to scale might be best demonstrated through its early wins in new markets. In March, the company launched dinner service in New York and saw 25 percent week-over-week growth in the first seven weeks, and in the last several weeks that number has climbed to 45 percent. And early numbers from its introduction into the Los Angeles market look equally promising with orders from week one to two increasing by 40 percent.
Increasing meal options
Changing the weeknight dinner might have been Munchery’s original charter, but in the coming months it plans to move beyond its initial focus. It has already launched weekend delivery in Los Angeles and San Francisco and will be introducing it to the other markets. Lunch is also on the menu, and the rollout will start with San Francisco in a couple of months.
But part of growing the business might also hinge on its ability to keep pace with consumers’ ever-changing tastes. With the proliferation of fast-casual chains like Chipotle, where customers can design their meals, people have become accustom to a personalized dining experience. Tran said the company plans to expand its services to provide a level of customization, but he would not elaborate further only saying, “We have the opportunity to offer something unmatched in the market.”