Dive Brief:
- More consumers are dining in, with meal delivery startups growing by 18% last quarter. Grocery delivery startups, however, were dormant in Q2 2017, though at 27% they expanded by one deal more than meal delivery startups, CB Insights reports.
- Meal delivery companies also experienced high disclosed equity funding from Q1 2017 to Q2 2017, mostly thanks to $500M+ mega-rounds to Ele.me and Delivery Hero. These numbers have inflated the annual rate for 2017 meal delivery funding, currently projected to hit $3.3B.
- Though meal delivery is currently seeing greater investment interest than grocery, the two share a number of stumbling blocks. Unit costs in the on-demand market combined with relentless competition together have generated a tough start for food delivery beginners.
Dive Insight:
The main factor playing into the success or failure of a meal or grocery delivery company is a company's ability to manage operating and supply chain costs.
High costs, narrow margins and considerable competition from others brought down Sprig, a formerly thriving meal delivery company, in May. With 20-30% of costs stemming from delivery alone, meal kit builders are struggling to remain solvent, as revealed by Blue Apron's 25% drop in stock value since its IPO in June.
Grocery delivery services delivery services are faring little better, thanks to reluctance on the part of consumers to purchase food online. A full 69% of shoppers feel uneasy about leaving their shopping to a stranger, while 61% wished to touch and view their own purchases, according to a report by Field Agent. Additionally, the extra cost of delivery serves as a disincentive to many, especially when extra fees for purchases below $50 are factored in, as well as the need to tip delivery staff.
