Scheduled Bulk Delivery is the Future
People often asked why I started Zumplings. Well, it’s a long story I wish to tell another day. But one of the main reasons I started Zumplings is I want to understand the food industry better. Over the years, I invested in a good number of food startups such as Munchery, Bento and CafeX. The investments on Munchery and Bento were completely wiped out and they were losing money in such a stunning rate that any amount of money raised would be gone in no time. I had a vague idea that food industry is hard but I wanted to understand it better. Now, after more than a year I am proud to wear the restaurant owner badge and I would summarize the food industry’s challenges as follows:
High Startup Costs. Before you could open the door for business, you have to have your facility approved for food production in addition to the general building and fire inspection. You could rent a catering kitchen to avoid this cost but the ongoing rate for a station in a catering kitchen in the San Francisco bay area is $25-$30/hour. In the case of Zumplings, we spent $150K buying an existing restaurant and another $100K for the dumpling bot and other related improvements. It took us 4 months from the purchase of the restaurant to the soft opening. This was considered light speed in the world of restaurant opening. It’s not uncommon for a new restaurant to take more than a year and $500K+ to build out.
In addition, it also took us insane amount of time and money to have our dumpling bot NSF certified. FYI, any equipment used in a commercial kitchen has to be NSF certified for most states in the United States. In other words, startups who try to use robots to make food will be facing giant regulatory hurdles before they can make a penny from selling robot made food. In that regard, CafeX has done a tremendous job clearing that hurdle and that would give them unique advantages to be THE coffee robot in USA.
High Fixed Costs. Obviously, there’s rent, which was really expensive in the bay area. There’s also labor cost. If you are open from 11:00AM — 9:00PM, you have to make sure you are staffed the whole time even if the business is slow during non-peak hours. The ever increasing minimum wage in recent years exacerbates the situation and makes restaurants less and less viable as a business. One thing I could tell you is that restaurant owners are not swimming in cash. Asking them to shoulder the burden of increased minimum wage in my opinion is a losing proposition.
Low Predictability. I would say this is the hardest challenge. If business is consistent, startup costs and fixed costs can be planned out. Not knowing how much business you will be getting makes managing food and labor costs hard. People used to rely on good retail locations for consistent business. With DoorDash, Ubereats and now COVID-19, walk-in traffic is no longer a reliable predictor. The on-demand delivery companies on paper bring in more business but they also caused more problems. The 30% cut they take is hardly sustainable for restaurants which mostly run on 5–10% margin. If they could bring consistent business, it could potentially work. But on-demand means it’s fickle. You could have a fully staffed kitchen and just a handful of orders for an entire dinner shift. Sadly, more and more restaurants in the country are facing this new reality.
The Solution
Zumplings is temporarily closed since the start of SIP in March, 2020. I have been thinking hard about how restaurants could survive and thrive in the long run post COVID-19. Fast food will probably be fine since most of their food is from freezer to table. I am talking about the independent farm to table or mom-and-pop ethnic restaurants who use fresh, perishable ingredients where unsold food becomes waste and financial loss. These are restaurants people cherish and love. How could they keep serving the community while making a decent living?
Well, the answer is clear. They need a way to generate consistent business to keep doing what they are doing. During SIP, I spent quite a bit of money ordering food/meal kits from restaurants who would deliver a few days later. From my understanding, this is a viable way for them to make it work and the overall experience is on-par with on-demand deliveries. This brings the point I am trying to make for this article. Scheduled bulk delivery is the future of restaurants/dark kitchens. It’s a more efficient way for restaurants to plan how many food ingredients to purchase and how many cooks to schedule for a shift so they can actually make a profit. It would also make deliveries more efficient since a delivery driver can delivery a lot more than just one or two orders at a time.
Based on this, I invested three YC S20 companies that focus on scheduled bulk deliveries. I still shy away from companies that directly make food though. I believe an asset-light, marketplace model is the way to go and restaurants / caterers could participate in these platforms to make their business stronger. The food delivery companies I invested from YC S20 are
— MilkRun: Food from farmers, delivered. Based in Portland, OR.
— TyltGo: Powering retailers with same-day delivery based on time and distance. Based in Toronto, ON, Canada
— Oco Meals: Delivering prepared meals for your week from local catering companies. Based in Vancouver, BC, Canada
Note that all the companies I invested are outside California. California’s AB5 is classifying delivery drivers and other gig workers as employees and that could cause a lot of disruptions for food delivery companies operating in California. It would be interesting to see how it plays out in the end but from an investment point of view, I believe we will definitely see more innovation in the bulk delivery area outside Silicon Valley and hopefully, my early bets on these companies would pay off.