VCs hungry for sustainable food-delivery business

Over the past year, meal-delivery businesses have mostly served up pessimism. Several have closed their doors, the most recent being Maple, a venture- backed New York startup that shut down this month. Others, including Munchery Inc., Postmates Inc. and Zesty Inc., have cut workers. Sprig Inc., which is backed by Accel and other venture capitalists, is burning through US$ 850,000 a month and is seeking a buyer, said people familiar with the matter.

But VCs aren’t giving up on the dream of getting food delivered cheaply through an app. They’re just trying to find ways to do so with fewer subsidies, or even profit- ably. One promising niche is targeting the hungry office worker. Investors recently put US$ 30 million into Eat Club Inc., which delivers lunches in the San Francisco Bay area and Los Angeles. The company, which said it’s profitable, plans to use the money for an expansion to New York.

Eat Club offers similar options to Munchery or Sprig, with about 20 entrees per day, but only delivers to offices with 20 or more employees. Workers can order from an app or website. By delivering an office’s meals together, the company estimates it costs 90 per cent less per dish compared with on- demand startups. Eat Club said its couriers drop off 20,000 meals a day, mainly to mid-size technology companies such as Flipboard. Eat Club declined to say how many corporate customers is has but expects to generate US$50 million in revenue this year.

Global investors had high hopes for on- demand meal delivery, doling out US$ 4.1 billion in 2015, according to research firm CB Insights. Startups competed by offering elaborate marketing campaigns and steep discounts to customers. VCs quickly learned food delivery is a difficult business. In 2016, investments in the industry dropped to US$1 billion, and some startups began to fold.

As investors tighten their belts, companies are looking to cut costs or sell out. Square Inc. held talks last year about selling its delivery app Caviar. Munchery, which burned through about US$ 120 million, dismissed employees and recapitalized its stock in March. Sprig hasn’t received funding since 2015.

There’s still reason to be optimistic. Morgan Stanley predicted the U. S. food delivery market could grow from US$ 11 billion today to as much as US$210 billion at some point.