Boom in food delivery gives New Yorkers more options than ever
Venture capital is pouring into these services. But is more actually better?
Photo: Buck Ennis
In the past three years, there has been a boom in food delivery services in the city.
The 10 a.m. text offered a single choice: deep-dish pizza. "Crusty. Cheesy. Saucy," it read. "Txt YES to order." Two and a half hours later, a warm $13 pizza oozed its way via cargo bike delivery to Crain’s midtown newsroom just in time for lunch.
Such is the premise of Eat Arcade, a fast-growing food-delivery service founded this spring. It promises to eradicate the burden of too many choices by offering users a single "dish of the day" from about 150 trendy New York restaurants. The text comes in the morning. Lunch is served between noon and 1 p.m. Other than the first sign-up, all communication is done via text.
"We want to eliminate the risk of ordering the wrong thing from a good restaurant," said Shaunak Amin, who launched Kitchen Stadium, Eat Arcade’s parent company, last year. "We learn your taste preferences, and it gets more personalized over time."
In the past three years, New Yorkers have seen a boom in delivery services, thanks to a flood of venture-capital money and technology that makes it easy to connect with consumers. The trend is taking hold in cities across the U.S., with New York the prime market and West Coast players Munchery, Chef’d and DoorDash angling for a piece of the $50 billion local food industry.
Brands have rushed to distinguish themselves: food by text, lunches for meetings, cooking kits, fully made meals. Some are delivery services that cook their own food; others pride themselves on partnering only with a select handful of restaurants.
Different models
The result is transformative for convenience-craving New Yorkers: Busy office workers now have a cornucopia of choices for desk-side or front-door delivery—not only for standards like pad Thai and pizza, but also for hard-to-transport items like ice cream and broth in a jar.
Most of these companies are venture-funded (Kitchen Stadium is in talks with investors now), and a few already have huge valuations (three-year-old meal-kit company Blue Apron is valued at $2 billion). One newcomer, mepNYC, which promises to save users time by prechopping and measuring its ingredients, has launched a Kickstarter campaign to raise enough money to enter the market later this year.
Yet do New Yorkers really need more upstart delivery companies? After all, GrubHub-owned Seamless and San Francisco-based Postmates already have most of the delivery market cornered. Experts aren’t convinced.
"In New York, you’ve got a big, dense, busy population that’s looking at time value," said Robyn Metcalfe, director of the Food Lab at the University of Texas at Austin. "What you don’t want to see is 1,000 little companies all on their bicycles or in their cute little cars—that’s not an improvement."
Food delivery is relatively easy to start in New York, where consumers aren’t hugely brand-loyal and are more eager to try new ventures. Having a brick-and-mortar presence isn’t necessary, so brands avoid paying high rents for ground-floor space. And there are couriers aplenty.
In 2012, Nick Taranto co-founded the meal-kit service Plated in his West 14th Street kitchen, where he packaged salmon and basil and hand-delivered the $12 boxes by walking door-to-door. Now the company has 100 employees, a 12,000-square-foot headquarters and four national distribution sites—one of which is in the South Bronx.
"People are hungry—they need food and they need better solutions than they have today," Mr. Taranto said.
Kitchen Stadium includes courier prices and tips in an item’s cost. Mr. Amin, who raised $500,000 from friends and family to start his business and expects to reach 1,000 daily orders by year’s end, tries to keep prices down by buying wholesale from restaurants. He pays his 30 deliverymen about double the $8.75 minimum wage.
"We’ll always be about discovery and less about delivery," he said. "Delivery is a byproduct."
Buck Ennis
Of course, there are risks. Empty promises can be a deal-breaker for hungry consumers. That’s why recent announcements of impending delivery services from Starbucks and Dunkin’ Donuts raised some eyebrows among those who doubt their coffee will arrive hot.
"Food-service companies entering the game need to be aware of their promises and the quality of their food," said Julia Gallo-Torres, a senior food-service analyst with Chicago-based market-research firm Mintel. "There are certain foods that don’t travel well—don’t even bother. It’s not worth it for your brand to have to take a hit. One of the ways to protect the brand is to keep your online-delivery quality the best it can be."
To get its delivery method down, five-month-old Maple, which is backed by Momofuku chef David Chang, tested 200 materials for its containers. The company delivers lunches and dinners it makes itself. It finally settled on biodegradable sugarcane to keep its empanadas hot and its salmon fresh.
Most startups keep mum on sales figures, citing huge growth rates (Plated’s revenue jumped more than 400% in 2014, for example), but are reluctant to offer any numbers. Experts say few, if any, are profitable, and they are trying to attract as much funding as possible in order to scale up. Most of these delivered meals are small-ticket items costing between $8 and $15. Those prices encourage repeat usage—up to twice daily—a business model that is attractive to investors.
Consolidation ahead
"The food business is not a high-margin business," said Ms. Metcalfe. She expects consolidation of some newbies with larger existing retailers, such as Costco or Walmart.
The crowded market has already seen some early failures. Local player Mealku, which started selling its own meals under the Made brand three years ago, is no longer answering its phone or emails.
"You can’t have 50 different platforms where people can all order similar types of foods," said Mike Dempsey, a research analyst at CB Insights, who expects a shakeout in the next two years. "It doesn’t make sense to the consumer."
Experts say that the novelty of ready-to-cook meal sites like Blue Apron and Plated could wane as consumers learn to cook on their own and gain more confidence in the kitchen. In addition, the heavy amount of packaging, sustainable or not, could be a turnoff. Matt Salzberg, Blue Apron’s co-founder and chief executive, disagrees.
"We are confident that Blue Apron is making a profound difference that extends far beyond any short-term trends in the industry," he said, noting that the company now ships 3 million meals each month nationwide.
Maple, meanwhile, is tempering its growth. One season in, and it’s still only serving customers below Chambers Street, according to Chief Executive Caleb Merkl.
"There are a lot of businesses and industries that look similar from the outside, but the reality is, each makes different decisions around what to prioritize," he said. "Those decisions lead to sustainability and success—or not—in the long haul."
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