Let's Admit it: Food is a shit business
This weekend Bloomberg had what should have been a rare positive article for the grocery biz.
Despite everyone sucking – even (free)market darling Whole Foods! – totally unsexy Kroger is slowly but steadily showing real growth.
The reasons: Sophisticated data analytics, embracing local and organic foods earlier than other chains, and high-margin general merchandise sprinkled into the mix. That’s right: Kroger basically stole elements of Amazon, Whole Foods and Wal-Mart/Costco to defy the odds. And investors are loving it: Kroger’s shares are up a crazy 250% since 2010.
And yet, this chart is decidedly unsexy:
Reminder: Kroger – that maroon line – is the one investors are losing their minds over. The grocery business is a shit business.
Yes, a huge part of that are physical retail footprints, armies of employees, and other fixed horrific costs. But it’s also the nature of food. It’s low-margin, because it’s the ultimate in commodities, and much of it is highly perishable.
Software can certainly eat a lot of the problems with the food business. But only so many. At its core, food is a hard business, from traditional retail to prepared, prepped, or delivered.
We talked about this in detail at last week’s PandoMonthly with Sequoia’s Alfred Lin and DoorDash’s Tony Xu (full video available int he members area.) Xu described – at length – the challenges of keeping his three very different constituents – Dashers, customers, and merchants – happy.
It’s not easy. Customers want delivery from anywhere, but some merchants (and competitors) cry foul when DoorDash delivers their food without a formal partnership. Meantime, it’s hard to know who is to blame when an order is unsatisfactory: DoorDash’s customer service, the Dasher in question, the merchant or even DoorDash’s software.
Worse: Xu said over and over again the only thing that matters is the last delivery. One bad experience, and they are ripped and replaced. Each experience has to be great. With all the moving parts – hills, weather, food time – this is a brutal undertaking.
Layer on top of that financial pressures. DoorDash and Postmates generally are trying to keep their slice of the on-demand economy more financially sound than ridesharing – where Uber alone wildly burns billions per year in subsidies. Especially as it expands internationally, Uber’s recent “pre-announced” $2 billion fundraising is essentially just shoveling coal into a train engine. It’ll burn more than that this year in India and China alone. And the latter is a market it’s all but guaranteed to lose.
So what are DoorDash and Postmates to do? Charge for their value. As Grubhub’s CEO Matt Maloney recently penned with glee, that means Postmates charges 30% more per order than they do, and Doordash is even higher.
This is just a shit business. And these are a few of the entrants I’m bullish on in the software-eats-dinner-wars. This is the one that solves an immediate problem, that people (like me, at least) will actually overpay for.
I continue to be stunned that so many companies are in the non-demand food space. We’ve run months of test on the non-demand, pre-prepped meal-in-a-box companies. They were fun at first. Blue Apron in particular delivered excellent, foolproof meals with fresh seasonal ingredients sourced from local farms. If you want to understand how hard that is to do consistently week-after-week, try any other service in your Facebook feed. In our experience, they all paled next to Blue Apron. Coming up with new recipes anyone would love, anyone can cook, and where the ingredients fit the extremely low $70 or so per week for three meals for two (which really feed three people each) is brutal.
And you know what the reward is? If you’re like us, you tire on the service after a few months. The novelty wears off. Others have told me they learned recipes then quit, or just moved on with a new phase of life where having three nights of weekly cooking no longer seemed a guarantee.
That’s right: Blue Apron was a great value. We were never let down on the quality. It filled a need. And we still indefinitely postponed after a few months.
...Speaking of the crazy ad spending in this space, the retargeting is getting real. We had a door-to-door salesman show up at the house from HelloFresh last week. And that’s the one that isn’t based in the US. How much are they spending on marketing in primary markets?
Lin commented before our PandoMonthly and during it that companies like DoorDash aren’t “Amazons” or “eBays.” (Sound familiar?) They are brutal with tough margins, and they require excellent, rigorous management, not merely coders and disrupters. What impressed him about Xu was that he could rattle off any stat about his business and industry while still at Y Combinator. He’s an operational beast, according to Lin. This is no longer an age where “monkeys” can run a business, as Meg Whitman famously once said about eBay’s “perfect store.”
Everyone celebrates how mobile has allowed us to disrupt the world of atoms. But that still means dealing with atoms. And it is a whole new challenge that requires a whole new skill set than past Web companies, argues Lin.
I do think what to have for dinner is a problem the smartphone generation wants solved elegantly, and I believe there will be a few winners here. But I don’t see how there aren’t a dozen casualties among the leaders in the food space…. and how Uber doesn’t give up on casseroles in Buicks in a year or two years’ time. Of all the spaces that should be over-crowded, I can’t fathom why this is one.