Domino’s for Food­ies

With Munch­ery, Tri Tran tries to em­body the Amer­i­can dream

Bloomberg Businessweek (Europe) - - Contents - By Brad Stone

Tri Tran was al­ways look­ing for some­thing bet­ter to eat than gov­ern­ment gruel. He grew up in the des­per­ately lean decade af­ter the end of the Viet­nam War, in the small city of Ba Ria, about 50 miles south­east of Ho Chi Minh City. Be­cause his par­ents were pub­lic school teach­ers, they re­ceived dis­counts on ra­tions of rice, root veg­eta­bles, and sorghum, which his mother cooked to­gether. The paste was barely enough to sub­sist on and gave Tran ter­ri­ble di­ges­tive prob­lems. So he, his older brother, Trac, and their fa­ther oc­ca­sion­ally sneaked into des­ic­cated rice fields to gather wild veg­eta­bles and, if they were lucky, paddy crabs.

Tran’s par­ents knew their sons faced lim­ited prospects. Tran was only 11 years old in 1986, but he re­mem­bers failed es­cape at­tempts, bro­kered by shady op­er­a­tors who skirted the com­mu­nist gov­ern­ment’s pro­hi­bi­tion on leav­ing the coun­try. Once, the fam­ily stowed away in a ca­noe and pad­dled into the mid­dle of Ganh Rai Bay to meet a larger boat that never ar­rived. Later, walk­ing back from the bay af­ter an­other failed at­tempt, they were caught by po­lice and thrown in jail for 24 hours.

They tried once more and found a smug­gler will­ing to get them on a boat. But there was a catch: The man was su­per­sti­tious and, de­cid­ing the four fam­ily mem­bers’ zo­diac signs to­gether some­how added up to bad luck, would give them only three seats. Tran’s fa­ther was orig­i­nally set to go with the boys, but his ma­ter­nal grand­mother, a 64-yearold war widow, in­sisted that she take the boys her­self so that the par­ents could keep their mar­riage in­tact. Tran’s par­ents reluc­tantly agreed and took them to a bus sta­tion. There were no good­byes—an emo­tional pub­lic farewell would have drawn at­ten­tion.

Tran, his brother, and grand­mother took the bus 9 miles north to the ocean­side vil­lage of Phuoc Hoa. From there they made a mid­dle-of-the-night trek to a wait­ing ca­noe. They reached open wa­ter and a 35-foot-long fish­ing boat, which had a ca­pac­ity for 40 peo­ple. It was al­ready packed with at least 115, crowded shoul­der to shoul­der in the holds be­low.

Not want­ing fam­ily mem­bers to talk dur­ing the es­cape, the cap­tain sep­a­rated the Trans. As the boat be­gan its jour­ney to­ward the open sea, each wave threat­ened to cap­size the over­loaded craft. Diesel fumes hung in the heat; the pas­sen­gers threw up on each other and tried to sleep stand­ing up. All they re­ceived to drink were a few sips of wa­ter per day. “I re­mem­ber be­ing so thirsty that I didn’t even want to think about food,” says Tran, now 40. “I knew that if I ate some­thing, I was go­ing to die.”

Tran is telling this story from an of­fice on the third floor of a for­mer ware­house in San Francisco’s Outer Mis­sion dis­trict. He’s a Sil­i­con Val­ley en­tre­pre­neur and chief ex­ec­u­tive of­fi­cer now. Four years ago he started Munch­ery, which de­liv­ers fully cooked meals to peo­ple’s homes, each day pre­sent­ing an abun­dance of foods that stands in stark con­trast to the de­pri­va­tion of his early life.

Munch­ery is one of dozens of tech­nol­ogy star­tups around the world try­ing to solve the chal­lenge of meal­time plan­ning with the tap of an app. Grub­Hub in the U.S., Just Eat in Europe, and Ele.me in China, to name just a few, all con­nect In­ter­net users with restau­rants and their take­out menus. Crit­ics de­ri­sively call the pro­lif­er­a­tion of th­ese busi­nesses the “lazy food econ­omy,” but Munch­ery is dif­fer­ent. It cooks and de­liv­ers its own rel­a­tively healthy fare.

The com­pany is in four cities—San Francisco, Los An­ge­les, New York, and Seat­tle—op­er­at­ing in­dus­trial kitchens in each. One re­cent af­ter­noon in San Francisco, chefs and their as­sis­tants, wear­ing white caps and long-sleeved smocks, toiled over trays of grilled salmon atop brown rice with edamame and sweet car­rots ($10.99) and pork belly buns with hoisin sauce, shred­ded cab­bage, and pick­led daikon ($10.95). There were about two dozen other en­trees, side dishes, and kid-friendly op­tions be­ing pre­pared that day, some in sim­mer­ing sauce pots, oth­ers in a mas­sive, $50,000 stain­less-steel in­dus­trial oven ca­pa­ble of cook­ing 500 pieces of meat or fish at a time at a pre­cise tem­per­a­ture and mois­ture level. Af­ter they’re pre­pared, the dishes are chilled in re­frig­er­ated rooms, packed in com­postable boxes, and loaded into cars for de­liv­ery. Cus­tomers heat them up for about two min­utes in a mi­crowave or 10 to 20 in an oven.

Munch­ery has served more than 3 mil­lion meals since Tran and a friend, Con­rad Chu, de­liv­ered their first en­trees in 2010. The com­pany has raised more than $115 mil­lion in ven­ture cap­i­tal, and Tran says it’s now the largest sin­gle-kitchen pro­ducer of freshly pre­pared food in the cities where it op­er­ates. He hopes to open in at least 10 more mar­kets in the next few years but is se­cre­tive about ex­pan­sion plans. Like many other star­tups in the fren­zied on-de­mand econ­omy, Munch­ery isn’t yet prof­itable. It’s churn­ing through ven­ture cap­i­tal in search of new cus­tomers.

The crowd of well-cap­i­tal­ized din­ing star­tups, all fight­ing for at­ten­tion, is Munch­ery’s big­gest chal­lenge. There are ser­vices that send you gro­ceries, ser­vices that send pack­ages of in­gre­di­ents and recipes in boxes, even ser­vices that send cooks to your home to make you din­ner. “Peo­ple need to eat three times a day,” says Michael Dempsey, an an­a­lyst at CB In­sights. “Munch­ery is in a great po­si­tion. The prob­lem is that there are so many other op­tions, and there al­ways will be. There will never be a monopoly on din­ing out or get­ting food de­liv­ered, and it’s al­ways go­ing to be im­pos­si­ble to raise prices.”

Af­ter two days in the over­crowded boat’s com­part­ments, Tri and Trac were free to go on deck. They spent hours peer­ing into the churn­ing ocean; the boat was so small, they could touch the wa­ter. Five days into their trip, they started to see trash in the wa­ter and birds cir­cling over­head and knew they were near land. “That last day was the long­est,” Tran says.

The boat docked on the first is­land it en­coun­tered, where lo­cal res­i­dents gave the pas­sen­gers wa­ter and ba­nanas. But they couldn’t stay; there was an In­done­sian naval base nearby, and the mil­i­tary or­dered the refugees to get back on the boat and leave. The cap­tain re­sisted, pre­tend­ing to have en­gine trou­ble. The navy sent out he­li­copters that strafed the wa­ters near the boat with ma­chine-gun fire. “I re­mem­ber bul­lets land­ing a couple of me­ters away. It was right from a James Bond movie,” Trac says. Pur­sued by the he­li­copters, they headed back to sea.

Af­ter an­other day, the boat came to a more wel­com­ing is­land. The pas­sen­gers were iden­ti­fied and pro­cessed by the In­done­sian gov­ern­ment and sent to the Palau Galang refugee camp in In­done­sia’s Riau Is­lands. The Trans spent months there amid 10,000 other dis­placed peo­ple, some of whom had been stranded at the camp for as long as a decade. They lived in di­lap­i­dated bar­racks, slept on wooden boards, and washed and went to the bath­room in a nearby creek. In the few pho­tos the

fam­ily keeps from the camp, the mal­nour­ished Tran looks years younger than his ac­tual age.

The camp did have a tele­graph, and, 30 days af­ter leav­ing home, the three sent their first mes­sage to Tran’s par­ents back in Viet­nam, telling them they’d ar­rived safely in In­done­sia. The boys’ mother had spent that month of sus­pense cry­ing, hid­ing from neigh­bors, and recit­ing Bud­dhist in­can­ta­tions.

Six months af­ter they ar­rived at Galang, Tri, Trac, and their grand­mother boarded a flight from Sin­ga­pore to San Francisco. It was the first time any of them had been on an air­plane. Their des­ti­na­tion was San Jose, where Tri and Trac’s un­cle had a three­bed­room house in a Viet­namese neigh­bor­hood. They moved in with him, his wife, and two kids and stayed for the next eight years.

Tran as­sim­i­lated. He mud­dled through the lo­cal mid­dle school, learn­ing English, then ex­celled in high school. For a while, he nur­tured a se­cret bit­ter­ness to­ward his mother and fa­ther, feel­ing they’d aban­doned him and turned him into a bur­den on his un­cle’s fam­ily. “I thought to my­self, ‘Why did they do this?’ I couldn’t really understand,” he says. They com­mu­ni­cated ev­ery few weeks through what felt like su­per­fi­cial let­ters.

As a se­nior in high school, Tran played var­sity ten­nis, dom­i­nated lo­cal math tour­na­ments, and aced the math por­tion of the SAT. Like his older brother, he was ac­cepted to the Mas­sachusetts In­sti­tute of Tech­nol­ogy and at­tended on schol­ar­ships and Pell Grants. Near the end of his first year in Cam­bridge, Tran was able to speak to his par­ents on the phone for the first time. His mother’s voice sounded for­eign and un­fa­mil­iar. “My au­di­tory mem­ory of her was com­pletely dif­fer­ent,” Tran says.

By then he’d learned that his par­ents had sold the fam­ily home in Ba Ria, sent their en­tire life sav­ings to his un­cle, and moved in with his fa­ther’s par­ents in Ho Chi Minh City. “For a long time I didn’t re­al­ize how dif­fi­cult their sit­u­a­tion was,” he says. “Now that I have my own kids, when I look back, I can’t understand how they had the courage to do this.” Af­ter grad­u­at­ing from MIT, Tran landed an engi­neer­ing job back in Cal­i­for­nia at a soft­ware com­pany that made tools for non­prof­its. He got mar­ried at 23 to an­other Viet­namese im­mi­grant, Maria Su, now the ex­ec­u­tive di­rec­tor of San Francisco’s Depart­ment of Chil­dren, Youth, and Their Fam­i­lies. Soon they had two boys.

But one as­pect of his pros­per­ous new life both­ered him: Nei­ther he nor his equally busy wife had time to cook. They usu­ally picked up take­out on the way home. He pined for the home-cooked meals his grand­mother pre­pared for the fam­ily when they all lived in San Jose and rarely had the money to go out to din­ner. “When I was 22, I could eat card­board. As I got older, I couldn’t eat that junk ev­ery day any­more,” he says.

At the time, the fam­ily lived in Union City, south of Oak­land. Their neigh­bor was a for­mer per­sonal chef who’d visit peo­ple’s homes, cook meals, pack them in glass con­tain­ers, and then put them in the fridge to be re­heated later by the client. Serv­ing one or two homes, the chef earned $500 to $700 a day, but he wasn’t cook­ing as much as he’d have liked. “He could make real good food but had no way to do it for a lot of peo­ple,” Tran says.

Tran shared his frus­tra­tions about home cook­ing with Chu, his friend and col­league, and the ex­pe­ri­ence of the per­sonal chef got them think­ing. The idea for Munch­ery

was born, and Tran and Chu quit their day jobs.

In the be­gin­ning, they ran a sort of Etsy for food. They signed up in­di­vid­ual chefs who, work­ing from their own kitchens or restau­rants, would sell meals on­line on the side. There was lit­tle qual­ity con­trol, for ei­ther food or cus­tomer ser­vice. The chefs were also sup­posed to de­liver the food them­selves. If cus­tomers com­plained about a soggy meal, the chefs tended to bark back ob­scen­i­ties.

In the early go­ing, Tran him­self ran de­liv­er­ies in his dark green 1998 Lexus sedan, which al­ready had 200,000 miles on it. The fam­ily had moved to a rental in San Francisco, which dou­bled as Munch­ery’s head­quar­ters. Tran’s in-laws started teas­ing ner­vously that he’d gone to MIT to be­come a food de­liv­ery boy. “They half-jok­ingly asked, ‘Are you go­ing to pro­tect our grand­chil­dren?’” Tran says. “I said, ‘Look, I’ll give this a year. If it doesn’t work out, I’ll get a job.’”

A year passed, and he still wasn’t making any money. But in­stead of fold­ing the com­pany, he stopped telling his in-laws about it. Munch­ery was re­jected by Sil­i­con Val­ley’s pop­u­lar Y Com­bi­na­tor startup pro­gram in 2011 and the next year started de­liv­er­ing pre­pared lunches from its chefs to other tech star­tups to bring in some cash. Cus­tomers were fickle. When Munch­ery didn’t get the boss’s lean grilled chicken breast ex­actly right, it usu­ally lost the ac­count.

Even­tu­ally, Tran and Chu, by then his chief tech­nol­ogy of­fi­cer, re­al­ized ca­ter­ing was a dis­trac­tion. They needed to get more pro­duc­tion from their chefs, who were con­strained by their pri­mary jobs. So Munch­ery rented space at a shared kitchen and of­fered it to chefs with the prom­ise that they’d sell their cui­sine be­yond the phys­i­cal walls of con­ven­tional restau­rants. Putting so many chefs to­gether, each run­ning his or her own busi­ness, turned out to be a prob­lem. Tran had to break up con­stant fights over ac­cess to ta­bles and equip­ment. Dur­ing one con­fronta­tion, he re­mem­bers, a chef just stared at him while men­ac­ingly sharp­en­ing a knife.

The com­pany kept shift­ing strate­gies. It of­fered a sub­scrip­tion plan for a few meals each week, then piv­oted to an a la carte model, where cus­tomers could sched­ule a de­liv­ery time on­line if they didn’t feel like cook­ing din­ner that night. A se­ries of an­gel in­vestors—some of whom first dis­cov­ered Munch­ery as cus­tomers—con­trib­uted the first $210,000 in 2012.

A year later, Munch­ery took over the lease for the en­tire kitchen and started hir­ing its chefs as employees in­stead of con­trac­tors. That was more ex­pen­sive, but it al­lowed the com­pany to con­trol the food’s qual­ity and buy in­gre­di­ents in bulk. Lamb dishes were pop­u­lar but hard to make money on—the meat was costly and didn’t come with dis­counts. Salmon and chicken were both pop­u­lar and prof­itable, es­pe­cially at vol­ume. Any­thing with kale did brisk busi­ness.

Last May, Munch­ery raised $85 mil­lion in a round of ven­ture fund­ing that val­ued the com­pany at $300 mil­lion. It’s a rel­a­tively mea­ger sum by Sil­i­con Val­ley stan­dards, but it made Tran a mil­lion­aire, at least on pa­per.

In Au­gust, Hil­lary Clin­ton vis­ited the of­fices of Munch­ery on a pres­i­den­tial cam­paign swing through the Bay Area. She talked to Tran and a dozen other tech com­pany ex­ec­u­tives, in­clud­ing the CEOs of Airbnb, Lyft, and the gro­cery de­liv­ery ser­vice In­stacart. How to clas­sify con­tract per­son­nel who work on flex­i­ble sched­ules was one of the main top­ics of con­ver­sa­tion.

Munch­ery had just re­clas­si­fied all of its de­liv­ery peo­ple and kitchen staff as ei­ther full-time or hourly employees in­stead of con­trac­tors, out of prag­ma­tism more than benev­o­lence. Cat­e­go­riz­ing them as employees and giv­ing them ben­e­fits—and in some cases a share of the com­pany—made work­ers feel in­vested in do­ing a bet­ter job for cus­tomers, Tran says. The com­pany had also ex­am­ined IRS reg­u­la­tions and found its work­ers met most of the le­gal def­i­ni­tions for employees. They were care­fully screened and trained, asked to work at spe­cific hours, and given Munch­ery jack­ets to wear.

Still, Tran told Clin­ton that a new clas­si­fi­ca­tion be­tween con­trac­tors and full-time hires wouldn’t re­quire em­ploy­ers to shoul­der the full bur­den of health and re­tire­ment ben­e­fits. It also could al­low him to em­ploy more peo­ple to work a few hours a day around din­ner­time. The CEOs were “ad­vo­cat­ing for a way to make this fair for work­ers but to al­low our busi­nesses to op­er­ate,” he says. “Ev­ery pres­i­den­tial can­di­date is go­ing to have to deal with this sub­ject.”

Munch­ery’s high fixed costs pose one of the main drags on its busi­ness. Ser­vices such as Grub­Hub, which con­nect din­ers and restau­rants on­line, don’t have sig­nif­i­cant fixed costs, be­cause the restau­rants make the food and in most cases de­liver it to cus­tomers.

Tran and his ex­ec­u­tives, nat­u­rally, pitch Munch­ery’s ex­pen­sive in­fra­struc­ture as its big­gest ad­van­tage. It en­ables the com­pany to con­trol all of its op­er­at­ing costs, so it doesn’t have to wring prof­its out of de­liv­ery charges. Cook­ing tens of thou­sands of meals each night also lets Munch­ery save on in­gre­di­ents. Us­ing rout­ing and sched­ul­ing soft­ware and state-ofthe-art com­put­er­ized ovens makes the op­er­a­tion more ef­fi­cient. Munch­ery is also try­ing to save on real es­tate costs: In the next two months it will open a 30,000-square-foot kitchen in South San Francisco, a less ex­pen­sive neigh­bor­hood than the Outer Mis­sion.

Over time, Tran and Chu’s ar­gu­ment goes, meal prices will go down while the food stays de­li­cious and nu­tri­tious. As ev­i­dence, they point to one of their salmon en­trees: It started at $22 a por­tion four years ago. Now they can charge $11, with din­ers still reg­u­larly giv­ing it five-star re­views. It’s a bal­anc­ing act that tra­di­tional food fran­chises and chain restau­rants have strug­gled to pull off—they typ­i­cally sac­ri­fice qual­ity as they get big­ger. “This is a much harder thing to build, but when we’ve built it, it’s go­ing to be in­cred­i­bly dif­fi­cult to com­pete with,” says Kris Fredrick­son, Munch­ery’s vice pres­i­dent for oper­a­tions, who joined the com­pany af­ter six years as a banker at Gold­man Sachs.

The clos­est direct com­peti­tor Munch­ery has is Sprig, an­other San Francisco startup with a haul of ven­ture cap­i­tal—more than $50 mil­lion—a cen­tral­ized kitchen (in a for­mer Chevys Fresh Mex restau­rant), and a gospel of high-qual­ity, low-cost food. It de­liv­ers meals hot, no mi­crowave re­quired. Sprig CEO Ga­gan Biyani calls Munch­ery “an in­terim so­lu­tion”— fightin’ words in Sil­i­con Val­ley.

Tran laughs ge­nially at that. He says he, too, tried to de­liver hot meals early on, but it doesn’t work if the food needs to travel any sig­nif­i­cant dis­tance. You can al­ways put food un­der a heat lamp in the back of a car, but if it’s a fish fil­let or steak, the pro­teins break down and qual­ity suf­fers.

Tran is making some sur­pris­ing hires. Pas­cal Rigo, founder of the ritzy bak­ery La Boulange, which Star­bucks bought in 2012 for $100 mil­lion, re­cently left the cof­fee chain af­ter over­haul­ing its break­fast-food busi­ness and joined Munch­ery as “chief cus­tomer ex­pe­ri­ence of­fi­cer.” Rigo wants to add things such as French bread, break­fast, and more wine pair­ings to the menu; he’s over­see­ing a new line of ready-to-cook meal boxes, which have par­tially pre­pared pack­ets of in­gre­di­ents and take about 15 min­utes to cook at home. The meals, like chicken skew­ers with salad ($19.95) and falafel wraps ($18.95), serve two peo­ple each and put Munch­ery in com­pe­ti­tion with a pair of pop­u­lar New York-based star­tups, Blue Apron and Plated, which also de­liver high-qual­ity in­gre­di­ents to cus­tomers, though they cater to en­thu­si­asts who are drawn “to the fun and love of cook­ing,” says Blue Apron CEO Matt Salzberg.

Munch­ery in­tro­duced its meal kits in San Francisco in Oc­to­ber and will roll them out in its other cities in 2016. “I don’t know a lot of Tri’s story, but I know why he’s do­ing things,” says Rigo, who’s al­most a par­ody of a chef—heavy French ac­cent, ex­trav­a­gant hand ges­tures. “He has the in­ten­tion of bring­ing great, af­ford­able food to peo­ple’s homes. It starts with this in­ten­tion. If it doesn’t come from the heart, you have no chance to do it.”

Tran says his ex­pe­ri­ence as a refugee has stayed with him. He hates wasted food. Ob­sta­cles make him think cre­atively. The need to prove him­self in a for­eign coun­try makes him work harder. And there’s the enor­mity of his par­ents’ sac­ri­fice, which he feels he must val­i­date.

He and Trac made their first trip back to Viet­nam in 1997. They trav­eled the coun­try and vis­ited their child­hood home. A few years later, their par­ents im­mi­grated to the U.S., first mov­ing in with Trac in Mary­land—he’s now an engi­neer­ing pro­fes­sor at Johns Hop­kins Univer­sity—and then with Tran and his wife in Cal­i­for­nia, just as his re­silient grand­mother, Thinh, was near­ing the end of her life.

Amer­ica was a dif­fi­cult ad­just­ment. Ini­tially his par­ents couldn’t find jobs, and his fa­ther, Tram, who’d taught English at the most pres­ti­gious univer­sity in Ho Chi Minh City, had to take work making cur­tains. Even­tu­ally he be­came a trans­la­tor for the Oak­land school dis­trict, a job he loves. Tran’s mother got a de­gree in early child­hood ed­u­ca­tion and then worked at a day-care cen­ter. She re­cently re­tired.

His par­ents told him that those bi­weekly let­ters, which he’d viewed as shal­low cor­re­spon­dence, were their life­line. “We never lost con­sid­er­able time with my chil­dren while they were grow­ing up in Amer­ica,” says his mother, Phi Phuong Nguyen. “From half­way around the planet, we fol­lowed their ev­ery step.” When Tran was preparing to give up a safe job to start Munch­ery, they never ques­tioned it.

Last fall, he in­vited his friend Thuan Pham, chief tech­nol­ogy of­fi­cer of Uber Tech­nolo­gies, over to his house for din­ner. They or­dered a ban­quet of dif­fer­ent Munch­ery items, spread them around the din­ing room ta­ble, and talked about their com­pa­nies and back­grounds.

Pham, too, was a refugee as a child, es­cap­ing from Viet­nam to the U.S. with his mother and brother. He also grad­u­ated from MIT and has had a dis­tin­guished tech ca­reer. “The thing we all share is that we saw the level of sac­ri­fice that our par­ents had to go through for us,” Pham says. “We have to make some­thing of our lives in or­der to be wor­thy of it.” <BW>

Bag­ging meals in a re­frig­er­ated room

Tran (right) with his grand­mother and brother in San Francisco

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