Historically, the milkman used to be just another fact of life like the Internet is for us today. In the 1800s, a milkman would arrive horseback every morning with milk tins and dippers, sometimes delivering eggs and other groceries as well. By the 1960s, however, the milkman unofficially died as social and industrial changes caused consumption to shift towards the self-service supermarket. Things are starting to shift back...in a sense. While we won't be seeing Mr. Milkman anytime soon, we are seeing a promising set of food start-ups that are bringing consumers more choice, convenience and flexibility. It’s not hard to see why – the addressable markets here are massive and digitally under-penetrated. Grocery is a $650B industry in the US and the combined market cap of major publicly-traded grocery companies is over $60B. Meanwhile, the restaurant industry is a $700B market served by over 600,000 restaurants.
Let's look at some of the main categories to really understand the innovations and potential value in some of these emerging services:
Typical grocery stores have thin margins due to food spoilage and heavy infrastructure costs. Amazon as well as smaller start-ups like Good Eggs are dis-intermediating the supermarket by shortening the supply chain in order to gain margin and maintain product freshness. The end result is that consumers can order farm fresh food straight to their door with ease.
Takeaway / Online Ordering
The takeaway market is a $70B market served by 350k independent restaurants. Restaurant aggregators such as Just-Eat and GrubHub demonstrate just how valuable businesses serving the restaurant space can be (both recently became public companies).
Companies in this space enable consumers to discover nearby restaurants that offer their own pick-up and delivery services. Customers can easily place orders and get some level of customer service. Restaurants get more orders with higher basket sizes, new customers they would have never reached previously and an online and mobile presence.
Not all restaurants deliver, particularly high quality restaurants that instead focus on the dine-in experience. In fact, many types of establishments including grocery stores don’t do delivery. On-demand delivery start-ups are focusing all of their efforts on the delivery piece of the equation so that merchants can focus on what they do best – creating great food (or groceries in Instacart’s case).
Mobile has enabled consumers to order goods in just a couple clicks. On-demand delivery companies leverage trained couriers to deliver products to consumers in as fast as 30 minutes to an hour.
Branded Meal Delivery
Taking on-demand delivery one step further, branded meal delivery companies have taken on not only the delivery piece of the equation, but the food production as well. By centralizing kitchen operations and routing food efficiently, consumers are able to receive food when they want it, either in a specific drop-off window or on-demand within 10-20 minutes of ordering. The end result is digitally distributed restaurants where the consumer get speed, simplicity and convenience. By taking control of both cooking and delivery, start-ups are able to offer consumers much lower prices (no mark-up from a restaurant) and provide a feeling of instant gratification.
Subscription Meal Kits
Finding a recipe, figuring out what ingredients you need and then scouring the grocery store only to spend way more than you intended (i.e. buying a $15 bottle of spice when you only need a pinch) is the current state of meal preparation for many people. Enter subscription meal kit start-ups. A business model that was originally pioneered in Sweden years ago (Linas Matkasse), the subscription meal kit phenomenon has spread throughout Europe and now to the US. Companies like Blue Apron curate recipes for the consumer and then send a weekly box with fresh, pre-measured ingredients along with simple instructions.
The Bottom Line
Start-ups are applying technology to the food industry and bringing convenience to consumers in a variety of different ways. Whether its speed, simplicity, price or healthier choices, start-ups are finding unique pockets of demand and "delivering the answer" straight to the doorsteps of consumers. In some sense, a new milk man has appeared – but this time he might be wearing a start-up t-shirt.