There’s no such thing as a free lunch, except in Silicon Valley. For years now, we have been living in a golden era of VC-subsidized meals. As startups piled into the food delivery space, they showered customers with coupons and promotional offers made possible by generous investor financing.
Funding in food delivery is supposed to be a virtuous circle. Customers who are drawn in by coupons are supposed to be won over by the convenience and quality of the service. They become regular users, placing more orders more often, until the value of their spending exceeds the money the startup invested to win their loyalty. The startup tells investors about its soaring user and order numbers, and the lifetime value of its customers, and they award it even more money, which goes into more discounts and subsidies, and so on and so forth.
The problem is that it rarely works like this in reality. Postmates has struggled to make its on-demand deliveries cheap and missed profitability targets for two straight years. It charges a delivery fee and a 9.99% service fee (recently raised from 9%) on most orders. Munchery, a San Francisco-based startup that prepares and delivers meals, has struggled with high food waste and losses that at times topped $5 million a month. The company has cut staff, replaced its CEO, and stiffed early backers to stay afloat. SpoonRocket, a Bay Area startup that cooked and delivered meals, went out of business in March 2016. Maple, a startup that dreamed of delivering a better office lunch, closed its kitchen earlier this month. On Friday, Sprig, a gourmet meal delivery service in San Francisco that raised nearly $60 million, became the latest casualty, announcing it would shut down by the end of the day.