When Soa Davies, a New York City chef, first heard the premise of the food delivery startup Maple, she had her misgivings. After all, the company aimed to deliver restaurant quality food in a matter of minutes--without an actual restaurant. Maple operated out of a single kitchen at launch, developing its own high-end entrees and sourcing ingredients (greens, tortillas) from local makers.

"I told them [the co-founders] that they were absolutely out of their minds," Davies told Inc. in 2015. "It's mind boggling how many different things you need to juggle to make sure that the end result is a restaurant quality dish. In my experience with food delivery, there's a reason why people just stick with pizza." Still, she decided to join the company as its executive chef, noting that David Chang--the entrepreneur behind Momofuku and an early Maple investor--had ultimately swayed her.

As it turns out, Davies' initial prediction was correct. On Monday, Maple co-founders Caleb Merkl and Akshay Navle announced in a blog post they would be shuttering operations in New York--their only market--citing the difficulty in getting to scale. To that end, the company is merging with the U.K. meal delivery startup Deliveroo, which has operations in 12 countries and 140 cities globally. Several of Maple's staffers, including Merkl, Navle and CTO Dan Cowgill, will be joining the company, which is reportedly valued at more than $1 billion.

"As with most maturing businesses, the Maple of today still has many challenges to overcome," the founders explained. "While an incredibly difficult decision for us given the effect on our core operations, it became clear that we needed to close the Maple operation here in New York and look for a partner with scale--one that would allow us to leverage all that we had built across a broader platform." Merkl and Navle declined to comment further when reached by Inc.

Maple's loss, Deliveroo's gain

Maple's technology, it's worth pointing out, is an attractive selling point--especially to a company like Deliveroo, which has its own network of some 20,000 couriers. When customers placed an order, the Maple app would alert the kitchen to which dishes were in highest demand. It would also project what it expected to be popular in the near future, based on factors such as the number of people viewing a particular dish on the site. The delivery team then received details on which trips to make first. "The phone is beaming back location and velocity every second so we know exactly where they [the deliverers] are and how fast they're moving," Navle explained in an earlier conversation with Inc.

Deliveroo's founder and CEO, Will Shu, declined to comment for this story, though noted in a statement that he plans to incorporate Maple's logistics system with a new program that helps young restaurants to launch and test their menus.

"Maple's great work will live on through Deliveroo," Shu, an American expat and former Morgan Stanley banker, added. "Their leading technology and kitchen design expertise will help accelerate the growth of Deliveroo Editions, a brand new platform that helps restaurants to launch, test and take their menus nationwide without the need for a high street premise."

An expensive sector

The news comes as a growing number of food delivery startups are forced to contend with mounting losses and a chilling VC climate. Munchery, the San Francisco startup that cooks and delivers meals in several cities across the country, has reportedly been bleeding money--at times to the tune of $5 million a month. It recently cut staff and replaced its CEO in an effort to reverse course. Meanwhile, the food delivery service SpoonRocket shut down in March of last year when it failed to raise more capital. For Maple's part, leaked documents obtained by Recode show that the company was losing money on every meal in 2015, on average, resulting in an operating loss of $9 million. Maple was forecasting an operating loss of $16 million for 2016, on revenues of $40 million.

Sucharita Mulpuru, an independent e-commerce analyst, notes that even larger companies should be wary of getting into food delivery services. "Food is such a large category that I think lots of companies like Amazon and Uber are seduced by the revenue gains they could get from it," Mulpuru says. "But it's so hard to get to profitability in restaurant or grocery services--especially when a company is trying to use brute force to buy market share and show big revenue numbers."

Published on: May 9, 2017