Munchery’s struggles show how hard the food delivery business is

Munchery, a San Francisco startup that cooks and delivers meals to hundreds of thousands of customers in a handful of cities, has begged its cooks to bring down the cost of the ingredients, according to current and former employees. Nathaniel Faggioli, the company’s chief operating officer and a former Goldman Sachs banker, has pushed employees to find ways to improve its margins as it tries to attract another round of financing, according to the people. [...] line cooks in San Francisco, its flagship market, stayed up until 2 a.m. assembling Vietnamese caramel chicken, roasted half game hen and beef pho, said the current and former employees. From September 2014 to July 2016, the San Francisco area kitchen (now in South San Francisco) made about 653,400 dishes (an entree or a side) that never got sold, according to an internal financial document and interviews with ex-employees, who asked to remain anonymous out of fear of reprisal. Most restaurants waste 4 to 10 percent, said Dana Gunders, a senior scientist at the Natural Resources Defense Council who studies food waste. Since it started making deliveries in 2010, Munchery promised to upend the industry. A lot of companies have tried and failed to grind out a profit delivering food, but Munchery executives had something novel to offer. Unlike GrubHub or DoorDash, it wasn’t delivering food from restaurants, and unlike Blue Apron or Plated, it wasn’t mailing customers a box of ingredients and a recipe. In addition to food waste, the company has lost money in other ways, particularly through aggressive marketing campaigns. The challenges it has faced illustrate how eager venture capitalists have been to find a company that can make and deliver food profitably — but how hard it is to do that. Executives knew they were producing a lot of meals that would go to waste, but told their staff to cook substantially more food than the company anticipated it would sell, according to current and former employees. Pascal Rigo, Munchery’s former chief customer experience officer who left in April, said costly marketing and a lack of transparency around customer turnover troubled him. Munchery’s internal financial document highlights the way the company has relied on marketing to boost revenue, but bringing in consumers through steep discounts doesn’t always make for a sustainable customer base. According to Simon, “Marketing budget decisions have nothing to do with the timing of fundraising rounds.”