Lately I’ve been thinking a lot about tech sectors that are well established, but still see new entries keep piling in. Why are all these latecomer startups so hopeful as they launch, for example, another digital marketing idea or cloud collaboration toolset?
Are there some sectors that can still reward clever newbies in a crowded field, and others where the chances drop much faster over time? I wonder.
That’s why I was interested when San Francisco-based Handpick, which operates a growing recipe recommendation app, told me it was also about to launch a packaged meal kit delivery service called “Smart Groceries” in California this week.
I didn’t have to rattle off the names of all the similar services already operating in San Francisco alone. Handpick co-founder and CEO Payman Nejati did it for me, counting seven: Blue Apron, Hello Fresh, Plated, Green Chef, Din, Gobble, and Sun Basket.
Nejati also anticipated the question I was about to ask him. “Why would you build an eighth one, especially since the first two are so well-funded?” as he phrased it.
According to Nejati, customer demand was the initial impetus. Handpick, founded in October of 2013, claims 250,000 active users of its mobile app, where home cooks find popular recipes that will use up the ingredients they have on hand or plan to try. Nejati says users of the recipe search feature started asking for a way to buy the ingredients through the app as well.
So the Handpick team began sizing up existing meal kit outfits, which deliver everything necessary to make certain dishes at home. The team found a number of toeholds for a new contender, Nejati says.
“Coming in later makes you think, ‘Is there a better way to do this?’ ‘’ Nejati says.
The established services do an admirable job for affluent consumers who want to learn to cook like high-end chefs or discover unusual ingredients and flavors, Nejati says. The kits arrive beautifully packaged, with precisely measured ingredients in separate containers, he says.
But for ordinary folks, the prices can be daunting, the Handpick team concluded. At Plated, for instance, a single meal serving starts at $12, depending on the recipe, according to Plated’s website. Some services charge significantly more, Nejati says.
Handpick decided to design meal kits for the 99 percent—people who also want to save time on meal planning and food shopping, but need to keep costs down, and don’t mind using a cup measure.
Like Ikea, the Swedish retailer of affordable furniture, Handpick set a modest price target for its product, and then designed the product to fit the price.
The recipes used for Handpick’s “Smart Groceries” service are quicker, simpler, and more kid-friendly than competitors‘ fare, Nejati maintains. One typical dish is chicken with tomatoes and garlic mashed potatoes.
A Smart Groceries food bundle of 10 to 15 ingredients, in a box that looks like a mini-fridge, starts at $40, including shipping and handling. The box provides the components for two servings each of three different meals. Depending on the recipe, the cost of a single Handpick meal serving ranges from $5.50 to $8.50. (A sample Handpick meal is pictured above.)
Each bundle includes some perishable foods, such as vegetables, but the recipes are designed to use them all up. That eliminates a lot of slimy science experiments from the backs of customers’ refrigerators, Nejati says. It also fulfills one of Handpick’s core missions—reducing global food waste, he says.
Nejati maintains that a Smart Groceries box contains more food than competing meal kits, because the Handpick service doesn’t measure out and re-package the exact amounts of non-perishable ingredients, such as dry noodles, that are specified in each recipe. Instead, a Smart Groceries kit would include an intact package of noodles or cheese, or an unopened jar of peanut butter, just as those products come from a grocery store shelf. That method may leave a surplus of the non-perishable ingredients after the meals are cooked. Customers can use Handpick’s recipe recommendation engine to find recipes that use those extra amounts.
Handpick’s business design avoids the substantial costs incurred by other meal kit companies that operate big fulfillment centers where workers split food packets up into smaller containers, Nejati says. Those costs include labor, temperature control, spoilage, and all those little containers.
In spite of those costs, plenty of investor money is flowing into that pre-measured model. New York-based Plated said this month it had raised a $35 million Series B financing round, bringing its fundraising total to $50 million, Crains New York reported. The three-year-old company has 400 employees and four distribution centers. Also this month, Denver-based Green Chef raised $15.1 million from New Enterprise Associates.
Even so, Nejati says, that distribution model is so costly that it’s unlikely to deliver affordable meals for people of modest means.
Handpick not only operates no fulfillment center, but also relies on a partner, OnTrac, to deliver its Smart Groceries boxes to customers’ homes. The Handpick team looked for other ways to simplify the logistics of food delivery, and thus reduce the price per meal, Nejati says.
All Smart Groceries recipes are based on ingredients that can be found in a single store. That avoids multiple deliveries from several different sources to supply all the components for three different recipes. Handpick is currently launching the service with only one food retailer, Safeway. But Nejati says he hopes to bring in other grocery chain partners over time. In partnerships with discount chains such as … Next Page »