Future Food: Food Delivery and Logistics

Instacart recently announced a $44mm fundraising round to help scale grocery delivery. A16z, who led the round, had an interesting podcast about the round and the space. They emphasized the role of cloud-based logistics in helping the company scale (ie, algorithms optimizing a distributed delivery force; this workforce already has cars and smartphones) vs. other models like Peapod or Amazon Fresh that rely on brick-and-mortar distribution systems (ie, algorithms optimizing warehouses, trucks, hired drivers). 

Beyond 'unpacking grocery', as a16z put it, these logistical systems are starting to unpack food as a whole. The current distribution model for food across restaurants and grocery is broken in some fundamental ways, and distributed delivery systems have the potential to fundamentally change the way people purchase and consume food. Broadly, I think these trends will drive us toward a greater proportion of food purchases being for pre-made meals vs. grocery.

There are a bunch of companies focused on how to best get food to people, and they cover a broad variety of use cases. But I see 4 main 'value levers' that are helpful to understand the diversity: speed of getting the food, variety and choice for the consumer, price, and healthfulness. If you could create a meal that's delivered to me almost instantly, gives me a lot of variety meal-to-meal, is price competitive to my other options, and is good for me, you would capture nearly all of my food spending. I'm leaving out things like eating with friends in restaurants, or enjoying a tasting menu, or cooking for pleasure, which collectively make up less than 10% of what I spend on food. 

Companies like Spoon Rocket, Sprig, and Munchery get close to delivering on this proposition using pre-made meals. The key insight is to maximize speed, healthfulness, and reduced price, because the importance of variety only matters from the perspective of an individual consumer. The offering can be standardized across an entire customer base as long as my individual consumer experience is varied and gives me choice. 

The moat around grocery exists because buying groceries for food is by far the cheapest way to eat in a minimally pleasurable and healthy way. But there is an enormous intractable inefficiency in grocery stores: lots and lots of perishable inventory exists to preserve the variety of choice needed to fulfill the centralized distribution model. Some grocery stores challenge this traditional model (like Trader Joe's) by carrying far fewer SKUs and focusing on single 'good' pieces. For example, you may not have 10 choices of raisins in different brands and sizes, but you do have one good bag of raisins at a decent price. As more grocery players more online (like Amazon Fresh) the centralized distribution inefficiencies will improve. But the preservation of vast, splintered choice is the root cause of this disadvantage. 

What's interesting is what would happen if the price wall were suddenly scaled, so pre-made meals became price competitive to grocery shopping. Spoon Rocket is currently around $8 a meal (up from $6). If they were at far larger scale, could that go to $4? If it could, it would start competing not with ordering out from a restaurant, but with grocery stores and Instacart. None of the players are there yet - Spoon Rocket is at ~$8, Munchery is around ~$12, Spring is ~$10 - prices that are basically on par with 'fast casual' restaurants. And when Spoon Rocket increased their prices some customers noticed.

Could pre-made meals ever get cheap enough to scale the price wall? I think they could. As food becomes more standardized in a large area, it would allow for economies of scale that aren't otherwise possible. As technology scales and the distributed delivery and logistics systems grow in sophistication, it will start driving down prices for distribution. And if it drives it low enough, we would see major changes in consumer behavior toward pre-made meals making up a larger part of overall food spending relative to grocery shopping. 

And what would happen if we got there? Well, for starters I'd probably convert my kitchen to something else.