Pando

The what’s for dinner shakeout: Would you rather be killed by churn or Amazon?

By Sarah Lacy , written on May 26, 2016

From The Sharing Economy Desk

Companies attempting to “solve” dinner closed more rounds of funding in the last five years than any other on demand category.

And, yet, here we are in 2016: I’ve spent months trying most of the major ones-- eight of them at last count. So I’m deeply familiar with all the major offerings. And after all of that, I only regularly use one (Postmates) and only for about one or two meals a week.

Even as a busy, working, single mom in San Francisco, the center of the on demand primordial soup, I still find myself getting to 5 pm and wondering what I’ll have for dinner. Just like I did five years ago. Months after spending hundreds of dollars on BlueApron, HelloFresh, Sunbasket, PlateJoy, Munchery, and so many others, you know what I do most nights? I throw my kids in a wagon, walk down the street to the local market and buy some fresh produce and meat to cook at home.

And I should be the exact demographic: Time pressed urban professionals who want to cook but don’t have the time or focus to come up with recipes or go buy ingredients every night.

Having picked off most of the low hanging fruit in the hierarchy of needs, this era of the Internet-- particularly in the mobile era-- has resorted to solving little daily existential annoyances.

  • How do we communicate better at work? (Slack.)
  • How can I feel more like a baller? (Uber.)
  • What should I wear? (Poshmark, RentTheRunway.)
  • What should I have for dinner? (Soylent, Postmates, BlueApron and the rest.)

It’s not that dinner isn’t a problem or “solving” it isn’t an opportunity. Some 40% of people don’t know by 4 pm what they are having. It is a little daily existential annoyance. A so-called first world problem. Just like walking up to a full closet and determining you still have nothing to wear. The problem is almost that the problem is too big. Or rather, too broad for the rather restrictive solutions on the market that require subscriptions, planning ahead, limited menus, and little control in choices.

To get the kind of scale you need to please a mass market. But that takes massive choice, and flexibility. And that kills a food startup’s ability to scale.

Unless all you are is delivery. It’s far more likely a broad swath of people people all want something brought to them and are willing to pay a premium for it, than want that same beef fried rice from Munchery or the slightly tweaked pan seared salmon from BlueApron five nights a week until the end of time.

But the problem with delivery is you are swimming with sharks. Postmates shouldn’t be worried about DoorDash or even GrubHub. It should be worried about Uber somewhat. But Uber’s commitment to this category is hard to parse, and Uber is about to have to reinvent its own core business around self-driving cars in five to ten years. Postmates-- and Instacart for that matter-- should be worried about only one big existential threat: Amazon. (And maybe, to a lesser degree, Google and Jet.)

That may be why despite the volume of deals, there are precious few unicorns in the category-- coming off an era where an astounding 150 unicorns were minted. Neither DoorDash nor Postmates have hit that mark (although Postmates is said to be raising now so we’ll see…) and of the non-demand companies only BlueApron has the distinction.

Researchers have shown that new money going into this category has finally -- finally-- slowed. Deals fell nearly 70% in this sector from the second quarter of 2015 to the first quarter of 2016, according to CB Insights. The largest deals were $135 million to DoorDash and $35 million to India’s Swiggy, both pure-delivery, not meal kit or prepared food offerings.  

But given how much has been raised, even a decline in new funding by 70% is hardly a shakeout. Sure a few of the crappier entrants like SpoonRocket have gone under, but plenty of undifferentiated me toos like MarleySpoon have still found believers with checkbooks.

Still, we are probably at the beginning of the beginning of the end for many of these companies. Over the next six months to a year, they’ll have to prove if they are real defensible businesses.

Plenty of people are trying to parse which approach to solving the same problem will ultimately win. CB Insights, for one, recently published a report detailing that grocery delivery companies had always outpaced meal delivery in deals, but the latter outpaced in terms of dollars. And that now, in 2016, grocery delivery appeared to be getting the most deals and dollars.

It’s a bizarre way to look at the market, though, because CB Insights separates the market exactly not how I would. It looks at meal delivery and grocery delivery, rather than companies that have to source and buy actual food, versus those that simply deliver from third parties.

That means it lumps meal kits in with grocery delivery, which doesn’t make a lot of sense. In terms of the business, there’s a huge difference between sourcing and packaging perishable meal kits, and simply packing a cart at Whole Foods and driving it across town. The two have even less in common from a consumer point of view. Instacart, for instance, is on demand. BlueApron is non-demand. You cannot decide at 5 pm that you want a BlueApron for dinner. You have to decide weeks in advance and those services come with hard to cancel, restrictive subscriptions.

It makes a lot more sense to look at this market in terms of its existential threats: Churn or Amazon. Meal kits and prepared food options like Munchery sound great, but many people quickly tire of the limited or restrictive options. They are good for a moment.

I’ve spoken with dozens of people who found BlueApron a great way to learn to cook, and pick up some recipe ideas, and then cancelled. Likewise, I used Munchery heavily after I was hospitalized with pneumonia, and prioritized total convenience over anything else. But I rapidly tired of the limited options.

Delivery is much more of an ongoing way of life. But Amazon gets that. That’s why Kevin Kelleher recently surmised that Amazon’s move into private brands was a potentially lucrative next act to AWS revenues.

Amazon hasn’t commented on the rumor. Still, anyone in the grocery business-- delivery or otherwise-- was served notice. From Kevin’s piece:

When Amazon goes for blood, it doesn't binge. It laps like a killer kitten, takes the blood out more slowly than its victims ever expected. This is not bad, the victims think, why one could learn to live like this. Death by Amazon is a snackable feast.

As we’ve written before, consolidation will occur. Will it be WholeFoods buying Instacart or BlueApron? Uber or Amazon that buys PostMates? Google buying the fellow Stanford alum founded DoorDash? Lyft and PostMates voltroning up to take on Uber, funded by Didi?

When it comes to continuing to fund “dinner,” VCs mostly have two unenviable choices: A logistically challenging category with high churn that simply may not be broad enough in its appeal (food kits, prepared meals) or a broadly appealing category of getting ingredients and meals prepared by others to you that will almost certainly be at war with Amazon (pure delivery of groceries and meals.)


Given those two, I’d bet my money on the latter, because there may at least be a nice acquisition and at least there’s a broad market. But out of all the overfunded categories, my bet is “dinner” will see the least returns when it’s all said and done, and quite possibly GrubHub is the only stand alone dinner company that gets public.