Food-Tech: The battle for your wallet

Yang Yu
Yang Yu
Mar 6, 2018 · 7 min read

last updated: April 14, 2018

40% of the food produced goes to waste because it’s hard to predict the volatility of consumer demand when much of the data is fragmented, and experience is offline. But this is an optimization problem perfect for computers to solve, so it’s inevitable for this trillion-dollar industry to come online. Amazon, Walmart, and Instacart will continue to invest heavily in digitizing the supply-chain side. Last-mile restaurant meal delivery companies like Uber and DoorDash will attempt to become the POS for most QSRs. As minimum wage increases, the pressure will rise for businesses at the top layers of the stack, including last-mile delivery. This should be an opportunity for grocers to create product offerings that compete with ready-to-eat. It also strengthens the business case for QSR automation, replacing human labor with machines. But perhaps all of this is not really solving the actual problems for consumers, which to me is simple: how do I eat well without much effort? Where making money to pay for it is part of the effort.

Currently, most of the models in the market seem to be focused on solving one side of this question. When my meals start costing $20 each with meal delivery and the cost of ingredients is still $3, I think we’ve just been over-indexing on the latter part of that question. On the other hand, when fresh ingredients show up in a lot of packaging and still require cooking, it’s not sustainable.

In this post I’d like to go over some of these trends that major companies and incumbents are betting on.

Minimum wage increase affects the entire meal stack

I think the thesis for QSR cooking automation is short-sighted. In a world where the food comes to the consumer, there is no need for retail automation, mainly because the bulk of the labor happens upstream in the supply chain. In a world where consumers still go to food, there are n-ways to provide high-quality meals fast. I think it’s more likely that a 0–1 solution will win instead of a widget on top of the hardware used by humans. Despite this, here’s what the market is doing.

  • Chowbotics raises $5M seed, Mar 9, 2017 [TechCrunch]
  • Momentum machine raises $15M, June 12, 2017 [BusinessInsider]
  • Zume Pizza raises $45M, Oct 11, 2017 [TechCrunch]
  • Miso robotics raises $10M, Feb 21, 2018 [Forbes]

Last-mile restaurant delivery infrastructure deepens

I can’t help but cringe every time I see a food delivery bike pass by in terrible weather. This empathy for the delivery person can quickly translate into disgust after looking at the bill. Despite the obvious challenges with this model, investors remain optimistic that robots will eventually solve the op-ex. In the meantime, everyone suffers.

  • Uber launching credit card to collect all data, Oct 25, 2017 [ProductHunt]
  • Deliveroo installs ghost kitchens, Oct 28, 2017 [TheGuardian]
  • UberEats CEO said Uber would be the largest food delivery company in the world this year, Jan 22, 2018 [VentureBeat]
  • Uber acquires ghost kitchen Ando, Jan 22, 2018 [TechCrunch]
  • DoorDash raises $535M, Mar 1, 2018 [TheSpoon]

To combat the delivery expenses, some interesting models emerged like MealPal, a monthly subscription for curated QSRs. I think this is flawed since it’s in the company’s best interest to not incentivize the frequency of use. On the other hand, the piggyback model from Ritual is quite interesting as it solves for the 3-sided marketplace problem and promotes higher frequency. However, if they don’t build it carefully, it could result in its kind of 3-sided marketplace as a new class of Ritual users will emerge who don’t actually do any of the pickups.

  • MealPal raises $20M, Sep 19, 2017 [TechCrunch]
  • Ritual raises $43M, Sep 26, 2017 [BetaKit]

Consumers want both convenience and quality

The traditional cooking experience is slowly eroding. People used to drive to the supermarket and stock up on week’s worth of groceries. This generation doesn’t own cars, and would rather spend their time with friends at a restaurant after a busy day at work.

As the demand for ready-made meals rises and consumers cook less, there is a need left open for higher quality meals as a default option. Grocers realize this shift and have been transforming all their stores to offer a variety of ready-to-eat meals using ingredients they already sell. As people drive less, retail locations will start to lose the foot traffic required to sustain their margins. To combat decreasing foot traffic and compete on convenience, wholesalers are now investing big in beefing up their e-commerce capabilities so they can bring the food to you.

  • Walmart acquires Jet for $3B Aug 8, 2016 [Walmart]
  • Instacart raises $400M, Mar 7, 2017 [TechCrunch]
  • Amazon acquires Whole foods for $13.7B, June 16, 2017 [Bloomberg]
  • Instacart acquires Unata for $65M, Jan. 16, 2017 [The Globe and mail]
  • Instacart raises $200M, Feb 12, 2018 [VentureBeat]

Outside the actions taken by grocers, the need for convenience and quality has given rise to meal-kit companies, which promises farm-to-table locally sourced ingredients curated into visually appealing recipes which you must cook yourself. While the value prop of fresh sounds good, it’s at the expense of ridiculous packaging, delivery, and still 30–60 minutes of work. I just can’t imagine a world where everyone’s (hundreds of millions) food comes in a box filled with ice every week. That’s not better than our current model, and certainly isn’t progress.

  • Blue Apron files IPO, June 1, 2017 [Bloomberg]
  • Blue Apron lays off 6% of staff, Oct 18, 2017[TechCrunch]
  • HelloFresh files IPO, Nov 2, 2017 [Fortune]

At the end of the day, people aren’t dumb. Ingredients + recipe page does not = $12 per meal + my time spent cooking. These meal kit companies are mostly leaking water buckets.

BlueApron’s retention

However, it does make sense for grocery stores to sell meal-kits since they’ll require much less packaging and delivery. It’s also another way to repackage ingredients they’re buying anyways and sell at a higher margin.

  • Albertson acquires Plated for 200M Sep 20, 2017 [Fortune]
  • Amazon and Walmart go into the Meal-kits business, Dec 19, 2017 [Fool.com]
  • Longos launches Meal-kits on Grocery Gateway, Jan 10, 2018 [Grocery Gateway.com]
  • Walmart launches meal-kits in 2,000 locations, Mar 5, 2018 [TheVerge]
  • Plated lunch meal-kits in stores, Apr 6, 2018 [TechCrunch]

An early signal of meal-kit auto-cooking model viability

The promise of meal-kit auto cooking makes sense for both consumers and food suppliers. It addresses the question: how do I eat well without much effort? However, current companies are going direct-to-consumer (complex logistics, packaging, lower LVT) using hardware that still requires a lot of effort.

  • Freshly raises $77M, June 19, 2017 [TechCrunch] (microwave)
  • Nomiku teams up with Samsung, Oct 29, 2017[SiliconAngle]
  • Tovala raise $9.2M, Dec 18, 2017 [TheSpoon]
  • Tovala raises from Tyson, Feb 8, 2018 [TheSpoon]
  • Genie Enterprise raises $10M, Apr 12, 2018 [NoCamels]

Toronto is ideal for playbook before entering the US

The landscape for food has been shifting rapidly, with many models promising higher quality meals without much effort to consumers. One interesting trend is a lot of the successful models were first tested in Toronto before expanding to the US. I think this makes sense. Toronto is the 4th largest metro in North America, has 9M people (50% urban); resembles the economies of cities like Chicago, Boston; is multicultural and trendsetting. However, it’s way more low-key, market forgiving, and it’s in Canada! Plus, Canadians shop online at 2.5% 6.5% compared to 9% for Americans.

  • UberEats launches in other cities after Toronto, March 15, 2016 [Wired]
  • Walmart launches grocery delivery in Toronto, Mar 23, 2017 [CanadianGrocer]
  • Amazon Fresh launching in Toronto, Aug 31, 2017 [WSJ]
  • Ritual lunches piggyback in Toronto, Sep 18, 2017 [Techvibes]
  • Instacart partners with Loblaws and launches in Toronto, Nov 15, 2017 [TheStar]
  • Longos acquires GroceryMarket in Toronto, Dec 14, 2017 [CanadianGrocer]
  • Platterz raises $18M, Jan 31, 2018 [BetaKit]
  • Loblaws launches grocery pickup at Union station, Feb 26, 2018 [Global and Mail]

The battle will have a happy ending

Food is one of the oldest industries but has yet to realize the imaginations of entrepreneurs in the age of the internet. The numerous early starts failed attempts, and wrong starts have planted the seed for the next generation of startups. As technology companies fight for consumers’ wallets with new business models enabled by faster delivery, lower prices, and higher quality, something wonderful is happening. When technology companies transact directly with the end customers, it’s much easier to incentivize and implement the right changes down the stack to drive innovation. Knowing what individuals’ eating habits are is essential for knowing what should be produced and when. It’s not only good for business but good for the planet. Perhaps one day soon, we’ll be using data instead of preservatives to ensure the food we produce is consumed.

Thanks to Aditya Bali and Arwid Bancewicz

Yang Yu

Written by

Yang Yu

CEO at KitchenMate.com, Making great food accessible to everyone

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