Daily Delivery piques new dragons’ interest
Dragons’ Den returned to CBC this week with some new faces and another crop of deals. Each week during the season, Financial Post contributor Mary Teresa Bitti revisits the previous week’s episode. She captures what the cameras didn’t and in the process provides a case study for readers, zeroing in on what pitchers and dragons were thinking and what the challenges for the deal are going forward.
The pitch Vancouver-based brothers Hafez (Fez) and Sal Rismani entered the Den to pitch Daily Delivery, a crowdsourced on-demand urban delivery service. They described their service as the Uber for food delivery and said it was based on their experience growing up in Tehran. (Uber has since launched UberEATS.)
“Labour was so cheap, that even small corner stores had dedicated drivers doing deliveries,” Fez said. “Our grandmother would call and order two jugs of milk and in 20 minutes it was there.” When they moved to Vancouver in 2005 for university, they quickly realized that same level of convenience was not available.
In 2012, Sal was working at a restaurant, outsourcing website design projects to India and developing the idea for Daily Delivery. The brothers set up a Facebook page and started emailing friends: “Hey guys, we’re downtown from 5:30 p.m. to 9 p.m., Monday to Friday, do you want anything?”
“Six to eight months in, some of the restaurants we were picking up from started to realize we were doing deliveries,” Fez said. “They were getting calls for delivery but didn’t have drivers so they had to turn down orders. They asked if they could outsource deliveries to us.”
That’s when Daily Delivery began to pivot from a consumer-facing model to a B2B, driving volume and creating a more reliable revenue stream. “This is when we understood the actual pain we are trying to solve is not the customer’s but the businesses that don’t have in-house drivers,” Fez said.
By mid-2013, they had purchased an electric scooter and were working on alternate days so they could keep their other jobs. “It got to the point where we were filling five orders an hour and we knew we had to fully engage,” Sal said. Daily Delivery officially launched in January 2014 after a pilot project with an online restaurant aggregator that led to a contract. That pushed the company from electric scooters to crowdsourcing drivers in neighbourhoods across Vancouver, who can download an app and check for any pick ups in their area. “Once we made the switch, it became much easier to scale,” Fez said.
These days, 90 per cent of revenues come from business clients largely in the food space — restaurants, bakeries, etc. — who pay a monthly or yearly subscription or flat rate per order based on volume plus a service fee depending on the service. Daily Delivery earns 10 per cent of the total purchase.
“This is a volume business. Our primary goal is to empower local businesses by taking care of the last mile of delivery at a much lower cost, between $8 and $10 versus $20 for a conventional courier, and within a much tighter time frame, about 20 minutes versus three to five hours,” Fez said. “Plus, conventional couriers don’t typically deliver food.”
In its first year, Daily Delivery hit about $300,000 in sales. The deal The brothers asked for $200,000 in exchange for a 10-percent equity stake valuing the business at $2 million. The money was targeted for growth, specifically refining the platform and expanding in three new markets: Toronto, where they plan to launch next year, Montreal and Seattle. They accepted a deal from Michele Romanow, cofounder of Buytopia and Snapdeal, and Joe Mimran of Joe Fresh fame, who asked for a 33-per-cent stake. The deal is still in due diligence.
Fez and Sal would like the deal to close and hope to raise another $400,000. They also see opportunity in groceries and are in talks with national retailers and convenience stores. The brothers expect sales to hit $800,000 this year. The dragon’s point of view “I think it’s important to give companies a little bit of time before we close the deal. I think some of them come on the show for a variety of reasons, so we give them a cool-down period to see what’s happening, if sales are continuing to go up the way described,” said Romanow, whose team is handling the deal. “The last-mile delivery space is becoming very crowded, so I want to understand what differentiates them,” she added.
Romanow sees potential for a good deal to be done, and likes that they found a niche that made sense and were able to mobilize and get one market done quickly. However, she expects there will be a lot of consolidation in the space. “Even if they aren’t the biggest, there might be cool opportunities for partnership.
“More than anything, I have a lot of respect for the entrepreneurs. They got interrupted so many times during the pitch but they kept their calm and their focus.” An expert’s opinion John Cho, partner, KPMG Enterprise, says success will hinge on the company’s ability to scale. “This is a volume business. I like that they are diversifying into grocery and convenience chains. On the surface, the model sounds good, but there are few barriers to entry. Uber has already entered the space. My concern is the competitive threat.”