When Spoonrocket announced recently it was closing shop, the startup's shuttering brought into focus the challenges of launching in the overcrowded food delivery market.

Venture-capital tracker CB Insights said in June it saw trouble brewing for the Bay Area purveyor of prepared meals. Why? The Y Combinator company with close to $14 million in venture capital money was falling behind its peers in fundraising and social media mentions.

It might seem then that Spoonrocket--whose technology has been acquired by Brazil-based delivery platform iFood according to TechCrunch--is just a straggler falling out of the race. But while the company doesn't indicate a coming wave of failing food startups, it won't be the last startup in the space to fold, says CB Insights analyst Matt Wong.

"We're definitely expecting more consolidation in this space," says Wong, but "I don't think there's one company that has a real stronghold."

A June analysis by CB Insights cited meal and meal-kit startups Blue Apron, DoorDash, Postmates and Munchery as leaders in valuations in the space with valuations between $300 million (Munchery) and $2 billion (Blue Apron) at the time.

Wong says last year was a period of major fundraising for food delivery startups. The third quarter saw 74 food delivery funding deals, according to CB Insights. With capital now scaling back generally in the U.S. startup world, earning a spot in the top tier of food delivery startups probably isn't something smaller organizations in the field can count on.

Even big players could get pushed out, Wong says. One key challenge to expansion is getting a foothold in a variety of locations, an aspect of expansion with which Spoonrocket struggled. The San Francisco-based operated continuously in the Bay Area and sporadically in Seattle, and launched and closed in San Diego, according to Bay Area blog Berkeleyside.

With regard to geographical saturation, Uber may seem to have the upper hand in food delivery with its recently launched separate app UberEATS. The restaurant delivery app is currently active in Toronto, Los Angeles, Chicago, San Francisco and Houston. But Wong says that with Uber, other factors need to be taken into account outside of food delivery.

The question is how thin does Uber want to stretch itself by pouring resources into food delivery when the company is already dumping money into international markets in hopes of dominating transportation globally, Wong says. Given how Uber's resources are already distributed fairly far and wide, companies like Sprig and Munchery that put all their effort behind food delivery could still have an edge.

"It's up to their ambition, right? We didn't even know Uber would be entering the food market as of a few years ago," he says.

Inc. has reached out to Spoonrocket for comment. Stay tuned for updates here.

Published on: Mar 17, 2016