The SpoonRocket lesson – US success shouldn’t be copied without critical thought

The wires have recently been awash with news that US food delivery service SpoonRocket is shutting down. That’s a real shame, largely for their employees and investors (who put in $13.5m), but also because the product promise was amazing – sub $10 meals delivered in under ten minutes.

That product promise is so amazing that the tech press wrote a lot about SpoonRocket even before they graduated from YC. That got people thinking over here, and by the time they raised their $11m round the UK was awash with copycats, including Rocket Internet backed EatFirst. We looked at investing in three that I can remember, and I’m sure there were more. I won’t name them because we passed and I don’t want to hurt the companies – but EatFirst has pivoted and I haven’t heard subsequently that any of the others are doing well.

The consensus post mortem on SpoonRocket says they couldn’t provide a quality service at their promised price point. In other words, the fundamentals didn’t add up – after the cost of ingredients, preparation and delivery there wasn’t enough left to cover customer acquisition costs. There’s a strong suggestion that they cut the ingredients budget to try and make the numbers work, but quality suffered and customers turned away.

These are similar reasons to why we didn’t invest in any of the copycats and they could have been predicted much earlier, possibly at the outset.

In the office this morning we were discussing why businesses like SpoonRocket get cloned. Entrepreneurs should and do look everywhere for inspiration about their next startup, and headline friendly ideas from the US naturally catch attention, particularly when they’re backed by YC or get big Series A investments. However, the interesting question is why ideas like SpoonRocket seem to get uncritically copied. We think it’s because the founders are thinking more about whether they will be able to raise money than whether the idea is going to work over the medium to long term. There’s an assumption, possibly valid, that the hype and momentum around the US equivalent will be enough to carry a financing without anyone poking too much at the model.

The takeaway here is obvious: potential for long term success is far more important than ease of short term fundraising. This approach might mean harder work at the beginning, but as SpoonRocket has shown, it pays dividends in the end.

Note that SpoonRocket’s demise doesn’t mean that on-demand food doesn’t work as a category. Sprig, for example, looks like it is succeeding with a higher price point and slower delivery.

  • Max Power

    Just a quick sid enote: EatFirst pivoted to a pre-order (actually the day before) and cook at home model and recently closed down operations in Germany.

  • http://www.theequitykicker.com brisbourne

    Thanks Max. Will update the post.

  • Rmicals

    This is a poorly researched and wrongly self-congratulatory post. I feel it shows a poor understanding of this sector in general ie foodtech.

    The issue is the post is thin on detail and seems to bunch all these businesses as ‘on demand food apps’. The devil is in the detail – there are some key operational differences e.g spoonrocket fitted every car with a heater and had to estimate how much food was going out in a particular day before the customer ordered. This is cash intensive and the waste eats in to margins. Sprig used localised hubs that had ovens and microwaves where the driver collected the food from the hub manager, slightly better but still costly. Munchery have preorders with a cutoff time and no heating (customer heats) which greatly reduced waste and costs.

    However, spoonrocket was despite what you read in techcrunch, as of mid 2015 doing twice the volume of Sprig and has 1800 reviews at 4*on yelp vs Sprigs 300 or so at 4*. It also finished 2015 with 8million in revenues and was making money on top of delivery+ingredient costs. The food quality complaints have been mentioned in both apps. The key fact is Munchery and Sprig raised huge rounds earlier in the year of $85M and $45m whereas spoonrocket left it late and was caught in the funding crunch.

    Also eatfirst is similar to Munchery not Spoonrocket at a much higher price point. The other apps in London are higher price brackets as well ie similar to Sprig and Munchery not Spoonrocket. Also to seed a business like this is cash heavy and an equivalent seed in the Uk would be £1.5MN so Forwards 300k seed deal would be inadequate.

    So the barriers in food are high but the market is in the multiple billions and so far no one is doing it properly in UK but the potential of a centralised mass delivery service is real. Read Sherpa Ventures post on why Munchery is their biggest bet since Uber – https://medium.com/@shervin/how-munchery-is-literally-eating-the-world-218c6520dc99#.22z4dz3o9.

  • Lynn

    Hi Nic, very good point, China has the same situation, thanks for your sharing!