Why do they fail? 10 cases of Food Tech startups and lessons learned
The extremely competitive market of food delivery turned out to be a death valley for many startups. Even though a lot of them received a decent funding, it turned out not to be the key for success.We went through the stories of the most outstanding food startups around the world to discover the reasons why they have failed. Here are the most significant ones:
Experts admit that it’s almost impossible for startups to compete with such heavily funded services as Deliveroo, UberEATs, HelloFresh and Delivery Hero’s Foodora, Foodpanda, Lieferheld. This was considered the reason why, despite announcing its 1 millionth order and 30% growth in the latest year having increased its restaurant partnerships from 450 to 3,200 and its customer base from 30,000 to 350,000, Take Eat Easy was turned down by 116 VC funds and had to cease trading in July 2016.
Maple, a food delivery service backed by celebrity chef David Chang, became cult favorite for New Yorkers’ office lunches during 2 years of operation since 2015. Despite that, the company was losing money on each meal in average and announced its shut down in May 2017. Analysts assume the competition to be the main reason of failure and mention New York-based startup Plated and Berlin-based HelloFresh as its most significant rivals.
Lack of demand
New York-based startup Kitchensurfing, which was founded in 2012 and received more than $20 million funding, had to shut down in April 2016 because of the lack of demand for its services – a tool for booking chefs to cook private dinners at the clients’ homes.
Jinn offered its UK customers a 30-mintues on-demand deliveries from any local shop or restaurant long before Deliveroo or UberEATS. Competing with these better funded services left Jinn a disadvantage, since they could easily outspend the startup on marketing activities as well as on salaries for the couriers. The last problem became fatal for the startup – lack of money forced it to first cut, and later completely revoke the payments to its employees that led to multiple strikes. In December 2017 the service was purchased by a London-based luxury delivery service Henchman.
Din founded in 2014 ran home delivery of the ingredients for the recipes taken from the local restaurants of Los Angeles. It achieved a profitable growth, however didn’t manage to cover the costs of the operational overhead of its team. Din ceased its operations in 2016.
Having achieved a healthy margin on each meal produced and delivered, Bento’s total margin dollars were still low because of the research and development and management team costs. Growing further became difficult for the company because of operational and logistical challenges.
Business model failure
Sprig raised $45 millions and became the biggest player in the farm-to-door area. The company was handling all the processes from farming, over production, to delivery. This business model turned out to be too costly for the company, and the startup had to shut down in May 2017.
Not establishing a clear USP can sometimes be fatal, as it happened to SpoonRocket closed its operations in May 2016. The idea of fast and cheap food turned out to be not attractive for their clients jaded with a huge variety of food delivery services. The startup with its poor-quality food found itself not to be competitive against the ones focusing on delivering of a better tasting experience. Even though the lower costs of cooking were a financial advantage, SpoonRocket didn’t survive in the market. On the other hand, a startup that tried to provide cheap good-quality food, Eazymeals (operating in India), failed to make a necessary margin per order.
In this highly competitive market, there is never a 100% guarantee that your startup will not fail. But if you are on a seed-stage you can reduce the risks and increase your execution by joining Venture Camp Program for Food Tech entrepreneurs powered by Nestim.