PayDragon proves that mobile grocery ordering is sticky, sees revenue grow 35% per week

By Michael Carney , written on May 24, 2013

From The News Desk

As we approach universal smart phone ownership among American consumers, retailers and startup entrepreneurs are scrambling for ways to integrate mobile into the everyday shopping experience. In April of last year, PayDragon launched its mobile food ordering and pre-payment platform allowing hungry restaurant guests to skip the lines at their favorite eatery. The service is now live in Los Angeles, Portland, Seattle, and Tucson.

The company followed this up with a September redesign that added the option to purchase non-perishable household products for home delivery as simply as scanning the barcode on the package already in their kitchen, bathroom, or garage. It has been a big hit. The marketplace currently offers 10,000 items which effectively includes every shelf-stable product you can buy at Ralphs, Trader Joes, Whole Foods, and Walgreens, or their local equivalent – all available via iOS and Android apps.

Since its re-launch last fall, the company has seen this mobile ordering activity explode, with revenue growing at 35 percent per week on average for the last seven plus month, with "thousands of orders" now placed each month, according to founder and CEO Hamilton Chan. Unlike many personal shopping platforms, PayDragon is not taking a slow and steady approach to its geographic roll out. The service is available throughout the US and has completed orders in 45 of the 50 states.

“We would like to be known as the definitive app for buying anything quickly,” Chan says, adding that the groceries service is most popular among affluent males. “We like to joke that we’re ‘maximum laziness enhanced.’”

Remarkably, PayDragon has achieved its growth very little paid advertising or customer acquisition after the first month. The primary driver of viral growth has been a $2 credit for referring a friend or posting details of a purchase to Facebook. Wisely, the resulting Facebook post includes a product photo and barcode, allowing the viewer to scan and purchase the item from their screen. The company also features three items per day with an attractive discount, which has helped drive regular engagement.

Chan confesses that the popularity of mobile grocery ordering has been the biggest surprise of this whole process. “I expected to hear that it was convenient, but I didn’t expect to have people to say the app is addictive,” he says.

The average purchase includes nine items, which is a big relief for PayDragon’s already strained fulfillment and delivery budget – the company offers free shipping and completes all fulfillment internally.

The current model is not profitable for PayDragon, although Chan isn’t concerned with that today. Rather, he’s focused on changing consumer behavior to make frictionless ordering a familiar concept. The strategy is also part land grab, with the company focused on growing its registered accounts – each of which enables frictionless ordering via credit card and shipping details on file. This sort of makes you wonder his ultimate plan for the platform and this roster of checkout ready customers.

“We measure success based on how many credit cards we can get on our system,” the CEO says. “It’s an expensive process, but it’s working. We have started to be contacted by major brands who want to tap into this audience for advertising, direct sales, etc.”

PayDragon announced a $1.35 million Seed round in July of last year, but has since increased that amount to $1.6 million adding 500 Startups and others. Existing investors include Rustic Canyon Ventures, Ron Conway’s SV Angel, Yuri Milner, and Mark Schwartz.

The startup ordering platform has generated impressive traction, given its size and limited resources. But the company has an enormous distance to go to compete with the Amazons and WalMarts of the world in CPG ecommerce. Amazon, after all, owns both a patent and a trademark on the concept of 1-Click ordering and has no shortage of product selection.

The startup surely can’t compete on price, or on selection. Chan is counting on PayDragon’s simplicity, its mobile-first focus, and its consumer-friendly user experience (UX) to compete with these legacy giants. One key difference, according to the CEO, is that when searching for an item on Amazon or WalMart’s Web or mobile commerce platform, the consumer is presented with multiple sizes, quantities, and choices for each purchase. PayDragon focuses on limiting choice and making the transaction as frictionless as possible.

While this may work when the company is small and insignificant, it provides little protection if and when these competitors take notice of PayDragon’s growing popularity and decide to pop it like a teenage pimple.

“Sometimes the most protection in the startup world is when you swim right next to the shark,” Chan says. “We think that it’s less about who you’re competing with, than the answer to the question, ‘Are you satisfying the need of the customer?’”