Munchery is Eating the Restaurant
A case study of entrepreneurial excellence: building the world’s largest restaurant.
<tl;dr>
This month Munchery delivered it’s 1 millionth meal. Their story is a case study of entrepreneurial excellence. They are an example of continuous business model improvement and have managed to effectively scale their Growth Engine and Execution Engine, in a very tough market. Food is personal and they’re in the process of eating an industry. In this post, I’ll bring their story to life using two frameworks I’ve previously published, as well as a strategy classic. It’s a long post, but a worthy read for any entrepreneur who cares about scaling their vision in a meaningful way.
Scaling the Unscalable
Munchery has set out to scale the unscalable – freshly cooked food, delivered to you. And they’re doing it. They have just raised a $28 million Series B, the largest ever for a food startup, taking their total funding to just over $32 million.
As of April this year, Munchery was serving over 5,000 meals per day across 1,500 deliveries. On a meals per day basis, this makes Munchery amongst the biggest restaurants in the world, if not the biggest.
Yes, that’s right. Munchery is a restaurant. Each day, they produce a menu and their chefs cook meals using fresh ingredients in company-owned or rented kitchens. Customers order through a web or mobile app, and the food is delivered to a location of your choice. On the face of it, that’s just the same as ordering delivery from the local Italian place around the corner.
But Munchery is transformationally different. They were the first amongst a breed of delivery-focused food startups, and when you look closely at what the founders have done over the past few years – particularly the key decisions they’ve made to evolve the business model – you get a case-study in entrepreneurial excellence. It’s a story which is relevant to any entrepreneur interested in scaling their company.
Even more impressively, the ‘product’ is food: perishable, fragile and intended for human consumption. We’re not talking about scaling 1’s and 0’s, books or widgets. We’re talking about food. In the words of Co-Founder Conrad Chu, “Our food is fresh and has no shelf life. Food has notoriously slim margins. Consumers are used to paying little and getting a lot. Making food is operationally intensive and requires a lot of manual labor (even though it’s really our chefs who have to do this). People eat and live fine today without us.”
Yet, they have managed to scale to two cities and serve over a million meals. That’s what makes this story great, and the lessons can translate to most other businesses which arguably have a better foundation for scalability than a food business does.
In this post I’ll bring the Munchery story to life through two frameworks I have published in previous posts – the Company DNA board and Scalability Matrix – and add extra flavor with the Blue Ocean canvas, a strategy-classic. All my source information is publicly available from their blog and press coverage.
Munchery’s DNA
What makes Munchery different is the design of it’s business model. I have done a Company DNA board to bring the model to life, as it stands today. (Click to enlarge)
Optimizing the Fuel/Friction Balance
I’ve analyzed all Munchery’s blog posts and media coverage over the past 4 years. Their story is exemplary of a top-notch team approaching the scaling process in an almost perfect way. They didn’t arrive at their current business model overnight; it is the result of a sequence of iterative changes to upgrade the Growth Engine and Execution Engine, piece by piece.
Here’s a breakdown of the key decisions they’ve made (and publicized) in the past 3 years that got them to 1 million meals:
| MONTH | DECISION | CATEGORY | CONTEXT |
|---|---|---|---|
| Mar 2011 | Launch Private Beta. | Ext. Fuel | Get the product into the market to start testing. |
| Mar 2011 | Empower the Chef. | Int. Fuel | Munchery gives maximum flexibility to their chefs. They can set their own menu, choose their own kitchen, source their own ingredients, and build a personal brand. |
| Mar 2011 | Focus on the chef. | Ext. Fuel | Food is personal. Early on, Munchery emphasized the personalized relationship with their chefs. Created differentiation from the local restaurants, and built customer loyalty among early adopters. |
| Apr 2011 | Emphasize health. | Ext. Fuel | Health is part of the companyês core purpose. It was emphasized early through blog posts on healthy eating and buying produce at the farmers market. |
| Aug 2011 | Launch invite-only VIP program. | Int. Fuel | This program focused on the best customers and rewarded frequent orders and engagement with the chefs with an automatic 10% discount. Created leverage of the most committed part of the customer base, and increase lifetime value of customers to bring in more revenue from already acquired customers. |
| Dec 2011 | Secure a company-owned kitchen. | Int. Friction Ext. Friction | Renting kitchen space, while scalable, is expensive. Munchery invested in its own kitchen to give the chefs a home, reduce cost, and pass on savings to customers. |
| Jan 2012 | Change pricing structure. Separate delivery fees from meals. | Ext. Friction | Price was perceived as an important competitive differentiator. Munchery reduced meal costs by $3, and introduced a $2.95 delivery charge. Reduced ticket price of meals to appear more competitive. |
| Feb 2012 | Reduce meal prices to $12-$14. | Ext. Friction | Price was important! They reduced meal prices across the board, without changing ingredients, because of new economies of scale they passed onto customers. |
| Feb 2012 | Offer referral awards. | Ext. Fuel | Encouraged social sharing with a two-way 20% referral discount for customers and friends. |
| Feb 2012 | Focus on families. | Int. Fuel | Why sell one meal when you can sell 5. Adjusting the customer focus towards families (from the early adopter, busy single professionals) increased revenue per sale. |
| Mar 2012 | Streamline driver-tipping. | Ext. Fuel | Munchery introduced a blind online tipping approach, where all tips were encouraged through the online platform. This removed the awkwardness of tipping a driver to improve the overall experience for customers. |
| Mar 2012 | Extend VIP program to all customers. | Ext. Fuel | Opened the 10% discount VIP program to all customers for free. Clearly an experiment to see if loyalty would lead to higher overall profitability and revenue growth. |
| Apr 2012 | Offer Small Teams a deal. | Ext. Fuel | Offer 5 free meals for startup teams. Spread the word through the early adopter community. |
| May 2012 | Launch iPhone app. | Ext. Friction | Ordering through the website was sub-optimal. The iPhone app sped the process up. Ordering was reduced to a few clicks from a mobile. |
| May 2012 | Encourage orders by 10am. | Int. Friction | 20% discount offered for orders before 10am. Would have streamlined the operations and been able to spread kitchen capacity out over the full day. |
| Jul 2012 | Extend delivery coverage to more neighborhoods. | Ext. Fuel | Broadened the potential customer base by adding new geographies (Marin, Peninsula). |
| Jul 2012 | Recruit celebrity chefs, and celebrate the chefs! | Int.Fuel Ext. Fuel | Had a duel effect of giving amazing chefs a great new place to work; while creating a differentiating factor in the market with customers. |
| Aug 2012 | Introduce baby food. | Ext. Fuel | Give parents even more reason to order for the whole family. |
| Sep 2012 | Introduce driver GPS tracking. | Ext. Friction | Took away the wonder of where is my delivery? |
| Sep 2012 | Add fresh bread to menu. | Ext. Fuel | Added a baker to the team. Fresh bread now available for order. |
| Sep 2012 | Enable curbside pickup. | Ext. Friction | Gave customers an option to pick up food from Munchery HQ instead of delivery. |
| Nov 2012 | Remove the marketplace fee (another pricing overhaul). | Ext. Fuel | This was a big change. Munchery dropped the marketplace fee (essentially Muncheryês cut of the proceeds) to offer a single all inclusive meal price, and changed their internal economics to achieve a 15-25% price reduction across the board. Then they adjusted the delivery charge to match the costs of different neighborhoods. |
| Nov 2012 | Create custom logistics system. | Int. Friction | By this stage, the company was growing in complexity. The team saw the challenge coming and built a custom logistics system to optimize their delivery routes, reduce cost/time etc. This let them reduce the delivery window from 3 hours to 2 hours. |
| Nov 2012 | Support local food banks. | Int. Fuel | Munchery is genuinely mission-driven. Itês a crucial part of their culture and brand. They put their money where their mouth is and donated 10% of their holiday season profits to the Marin Food Bank. |
| Oct 2013 | Launch Munchery 2.0 | Multiple | The company went quiet on its blog for 6 months, then announced Munchery 2.0 ã a collection of small changes, amounting to a major overhaul of the offering to customers. The changes included refreshed website and mobile apps; carbon neutrality; and upgraded packaging. |
| Oct 2013 | Create branded packaging. | Int. Friction Ext. Fuel | Taking a page out of Appleês book, new packaging gave Munchery the ability to ensure food arrived to customers in top condition and improve the experience, while building its brand and stepping closer towards its mission of acting sustainably. |
| Mar 2014 | Crowd source recruitment. | Int. Friction | Finding tech talent is hard. Munchery activated its customer base to help them find candidates. Recruiters can charge 10-25% of a new hires salary (a big number). Munchery offered a year of free food instead. |
| Apr 2014 | Raise capital ($28 million round). | Int. Fuel | This was the largest ever investment round for a food startup, and filled the war chest to expand into new markets. Seattle next. |
| May 2014 | Create flat delivery fee, everywhere. | Ext. Fuel | Again, a price reduction. More importantly, this change made it simpler for customers. Sometimes subtracting is better than adding. |
| May 2014 | Launch Munchery Plus. | Ext. Fuel | Created a subscription for unlimited delivery for $39/year. For any customer ordering 14 times or more, this is a no-brainer. It front-loads revenue for the company, locks in a behavioral change amongst customers, and encourages more orders. |
| Jul 2014 | Transition to on-demand delivery. | Ext. Fuel | This is another major change, made possible by all the improvements Munchery made to its Execution Engine. Cannot be underestimated. Customers no longer need to order their dinner in the morning. Delivery time was reduce to 20-40 minutes, from 1-3 hours a year before. |
| Jul 2014 | Expand to a second city (Seattle). | Ext. Fuel | First entry into another city, theoretically doubling Muncheryês addressable market. As a promotion, they offered the first entr_e free for all new customers. |
| Jul 2014 | Create partnership with Jawbone. | Ext. Fuel | Ever tried to link your exercise with your calorie count? Itês a nightmare. By linking with Jawbone, Munchery took another step towards its mission of healthy living for families. |
We can learn a few important things from their journey.
Firstly, Munchery has clearly found product market fit. It’s hard to know exactly when, but it was most likely in mid-2012, about the time the company began investing in infrastructure (company-owned kitchen, logistics system) and began expanding to new neighborhoods in the San Francisco region. Their $4 million Series A investment came shortly afterwards (November 2012).
Secondly, Munchery has secret sauce in its internal logistics system. The transition to on-demand delivery in July 2014 was a massive change to the model, with a shortened delivery window of 20-40 minutes. Obviously, they’re not going to talk publicly about exactly how they do this – so in the sequence of decisions above, we can’t see the ones that deal with Internal Frictions, i.e. the ways Munchery has optimized its operations. Yet, reading between the lines, this is possibly their greatest achievement. You can see Conrad Chu comment on the logistics system in this article with FastCompany. The system is comprehensive, covering everything from a unique barcoding system, to inventory, warehouse, quality assurance, payments, fraud detection and route optimization. The scope and magnitude of this capability should not be underestimated as an achievement, and a competitive advantage.
Thirdly, they constantly celebrate their chefs. There were many blog posts over the years announcing new chefs to the team, showcasing their experience, and introducing their meals. For a chef used to long hours slaving away in a closed kitchen, Munchery is a completely refreshing alternative. Not only do they have an improved work environment, but each chef can build their brand. And the customer keeps the chefs accountable with continuous feedback: if a meal doesn’t work, they hear about it immediately through Munchery’s review system. This very real customer-chef relationship creates a personal bond with the customers, and motivates the chefs to perform at their best. This is a form of supercharged Internal Fuel that leverages personal relationships to continuously deliver excellence. Food is personal, and Munchery is too.
Lastly, the upgrade to Munchery 2.0 in October 2013 was a non-trivial refresh of the business. Acting on the market knowledge it had gathered, the team made upgrades across the platform which demonstrated their capacity for continuous innovation and improvement. This is a lesson to every company: refreshment and reinvention is crucial to stay relevant in the market place. In the age of mobile apps, customers are used to seeing constant updates. Even regular companies need to act this way. Munchery does.
This is How They’re Winning
Yesterday, I had a friend tell me that he thinks strategy is bullshit (you know who you are)! But ultimately, strategy is simply an answer to the question: “How are you going to win?“. If you can answer that in a sentence or three, you have a strategy. With a strategy in hand, you just have to focus 100% of your execution energy the things that fit the strategy, and say no to everything that doesn’t.
For Munchery, I can summarize their whole approach with this image:
Swimming in a Blue Ocean
With $28 million in the bank and a growth rate of 20-25% month-on-month, Munchery is primed to scale aggressively.
This is possible because Munchery has created a “Blue Ocean” opportunity. Traditionally, people are used to only two options when it comes to food: 1) cook it themselves, and 2) purchase it from a local restaurant. Munchery gives a 3rd option: get it from a local professional chef. The food-delivery model makes existing restaurants less relevant for feeding families, and relegates traditional restaurants to “entertainment only” (i.e. the pure experience of dining out). As such, food-delivery represent a disruptive alternative to both cooking at home, and ordering takeout, and has the potential to capture a significant amount of wallet-share as people substitute dollars away from their traditional two options.
Blue ocean opportunities change the competitive playing field. They can be demonstrated using the following graphic, which captures four actions that affect the business model: Eliminating, Reducing, Raising, Creating. Applied to Munchery, the blue ocean looks like this:
It’s Now a Race to Market Share
Since Munchery was founded in 2010, many competitors have moved into the market, notably Sprig, Plated, Blue Apron, SpoonRocket, Chefler, PlateJoy and very recently, UberFresh.
These food delivery companies are now competing on a new playing field, with the battles defined by total user experience, menu, price, technology, menu, delivery time, food quality, order lead time, and geographical reach.
As I write this, each company is maturing to some extent in separate geographic markets: there are very few head-to-head battles. But to win the war, a company needs to get a solid foothold across the major cities in the US, then roll out the market entry globally. Co-founder Tri Tran says as much in this article.
A secondary race will be mind-share when there are two companies in the same geographical region. Each company will need to make sure their offering is well differentiated, more attractive than the competition, and communicated with crystal clear messaging if they want to prevent their customers’ minds from wandering to other companies.
The Invasion of Normandy (ie New York)
Launching in New York has been a long-time goal for the Munchery team. They first mention the idea of expanding to New York in November 2012. To me, New York is the defining battle; the metaphorical battle of Normandy which could turn the war.
New York is a tough market. It’s the largest city in the US with a solid culture of ordering-in. The city is also bike friendly making it easy for local restaurants to deliver within a 20 block radius. Seamless/Grubhub is the (infinitely scalable) transaction platform which powers purchasing behavior for the mobile device. I know as a resident of New York that I love the 3 clicks it takes me to order my favorite meal from a shortlist of my favorite restaurants.
Here’s the money question: how does Munchery, or any other food-delivery business for that matter, compete in this market? New York is the litmus test of the food-delivery model. I think there’s a way, but it will be a brutal, cut-throat race won by the first company that can execute properly and capture market share. Here are some thoughts that struck me as I was preparing this case-study.
Guarantee 20 minute delivery – Today, I can get food delivered in 20 minutes from local restaurants. But sometimes I don’t. Seamless has an ordering window, for some restaurants, over an hour. Munchery can fundamentally disrupt this behavior. By creating distrubition points across the city, almost everyone in Manhattan could be reached in a 20 minute window. It’s a logistical challenge to match the best of them, but even now, Munchery is offering 20-40 minutes in SF. Guarantee 20 minutes or say a 30% discount, and Munchery would be the go-to point for delivery. [Internal Friction]
Create an unparalleled Price/Value ratio – We pay a minimum of $20/meal for delivered food in NYC. Achieve a price point of $16-$18, for high-quality healthy food, and the market would flock to the service. Restaurants can’t compete at those prices without dropping food quality. And if all I have to do is heat up the food, then so be it, it’s a pretty easy sacrifice to make. [External Friction]
Steal some crazy-good chefs – One way to get early press and buzz happening in this relatively tight-knit community, would be to create some anticipation and steal some chefs. Think of this: a top-notch chef at an established restaurant creates a one-page website saying “I’m leaving [restaurant] for bigger things. I have something special coming up. Stay tuned” … with an email field to subscribe for more info. If the best chefs can be recruited, Munchery could create buzz before they launch and build a list in the process. [Internal Fuel]
Tap into the foodie crowd – The early adopter community in SF is tech-oriented. In New York, it will be the foodie crowd. Get them talking, and the word would spread like wildfire. Munchery has a track record of running clever promotions, this time the target should be the foodies. [External Fuel]
Go on a behavioral-change campaign – Without checking the stats, I assume the target market in New York is more likely the busy professional set, rather than families. They’re busy, really busy. An afternoon email campaign, say at 4pm, with 3 personally recommended meals and a 1 click “order” button could beat Seamless to the punch for dinner orders. A quick “delivery now” button would perfect the timing because not everyone knows when they’re going to leave work. [External Friction]
Harness the social element – New Yorkers are social, independent, competitive creatures. Critical mass for a service like Munchery is important, early. One thought is to create a natural competition, where the first 50 groups to order 5 meals or more (a general assumption about the size of a friendship group) get’s a free bottle of wine or champagne. [External Fuel]
Takeaways
Achieving scalability like this is possible for any business … IF … the founding team is willing to think this way. Munchery proves it’s possible to disrupt even the most basic part of our lives, even something as normal as ordering dinner. There was nothing to stop an existing restauranteur from doing what Munchery has done; nothing except the confines of established thinking.
All it takes to break out of unscalable business models is an understanding of the Fuel/Friction balance – and then a sequence of progressive, small adjustments to shift towards a more scalable model. It’s like climbing a mountain, one step at a time. Improving the scalability of a company simply requires a sequence of small steps – micro-innovations – that put the company on a trajectory of rapid growth.
Let me know what you think. Leave a comment or connect with me on Twitter.
