Food Delivery Startups Give Subscriptions a Try
In the hyper-competitive food-delivery business, startups are hoping to hook customers with subscription memberships and keep them from jumping to competitors that peddle discounts.
The latest to offer a subscription plan is Munchery, a startup that delivers refrigerated meals prepared by its chefs. The San Francisco company introduced a subscription service on Tuesday that allows diners to pay $8.95 per month, or $85 per year, to get a 15 percent to 20 percent discount on entrees.
Tri Tran, Munchery's chief executive officer, said he hopes the program will encourage more frequent orders among the company's most loyal customers. "If Munchery wants to be that dinner solution for people every night, then it has to be a very approachable price point," Tran said. "Then, hopefully, you order more."
Munchery isn't alone in betting on subscriptions. Last month, on-demand delivery startup Postmates began charging customers $10 a month to bypass delivery fees on orders of $30 or more from partner restaurants. Sprig, which delivers meals from its kitchens, started last year letting patrons pay $10 a month to avoid delivery fees. Grocery deliverer Instacart upped its annual membership to $149 last year, from $99, and Google said last month it would add groceries to its delivery service. Amazon.com also offers groceries, as well as free delivery for Prime members from local restaurants in cities such as Los Angeles and Seattle.
Food delivery and other on-demand startups are facing increased scrutiny for having built largely unprofitable businesses that rely on venture capital to survive. SpoonRocket, a venture-backed delivery startup in Berkeley, Calif., closed last month after getting squeezed out by competitors and failing to raise additional funding. In India, more than 400 food-delivery companies have sprung up in the last three years, yet many are struggling to displace 19th century bicycle couriers that locals are accustomed to using.
"The field is getting crowded, and those working on slim margins and financial support are not likely to survive," said Bonnie Riggs, a restaurant industry analyst at research firm NPD Group. "The only way you're going to drive traffic is through building loyalty."
Several U.S. startups are hoping subscriptions are the answer. While offering discounts on each order to subscribers creates even tighter margins, those customers are usually more loyal and therefore more valuable, Riggs said. Plus, investors like the recurring revenue that subscriptions provide.
Because Munchery's plan gives a discount on menu items, rather than on delivery fees, Tran said costs are more predictable because delivery fees can vary, depending on the size of the order. Even before the membership program shows much effect, Tran said, Munchery's financial outlook is promising. He said that in some of Munchery's most mature markets, including the San Francisco Bay Area, the business is contribution-margin positive, meaning Munchery brings in more revenue than what the company is spending on local operations, food, real estate, and delivery costs.