Everand Logo

Welcome to Everand!

  • Discover millions of ebooks, audiobooks, and so much more with a free trial

    Only $11.99/month after trial. Cancel anytime.

    Milkman 2.0 The $6 Billion Opportunity in Food Delivery
    Milkman 2.0 The $6 Billion Opportunity in Food Delivery
    Milkman 2.0 The $6 Billion Opportunity in Food Delivery
    Ebook233 pages2 hours

    Milkman 2.0 The $6 Billion Opportunity in Food Delivery

    By Robert Emerson

    ()

    Read preview

    About this ebook

    The book details a highly profitable detailed solution to the vexing challenge of providing free home delivery of affordable restaurant quality food that satisfies America's increasing preference for dining at home. Even before the pandemic, home food delivery was poised to increase from $49 billion in sales to $365 billion within the next decade. The problem is that, until now, no business model existed that allowed delivery providers or restaurants or supermarkets to address the opportunity profitably. The new model, which combines freshly prepared meals created by Culinary Institute trained chefs with a novel delivery system recently developed by a Dutch technology company called "Picnic" provides a range of advantages to consumers.
    These include a wide variety of locally prepared menu selections offered at prices 20-30% below those charged by Quick
    Service Restaurants, coupled with the ease of free home delivery or access to conveniently located small specialty stores. The concept has been validated by the success of more than a dozen existing facilities throughout the Northeast.
    The new concept not only provides advantages to consumers: it also offers returns on capital to investors more than double those from existing fast casual restaurants. Further, it allows both front of house and back of house staff to work from 9 to 5 daily, a vast improvement in their quality of life when compared with the demands of the traditional restaurant business. Finally, it offers delivery drivers to earn reliable salaries, in contrast to the current unpredictability of the "gig economy."

    LanguageEnglish
    PublisherRobert Emerson
    Release dateJun 5, 2020
    ISBN9780463312292
    Milkman 2.0 The $6 Billion Opportunity in Food Delivery

    Related to Milkman 2.0 The $6 Billion Opportunity in Food Delivery

    Related ebooks

    Industries For You

    View More
    View More

    Related podcast episodes

    Related articles

    • Article

      Wawa All the Way

      May 23, 2018

      Wawa All the Way
      13 min read

    • Article

      Aligning Values

      Mar 30, 2022

      Aligning Values
      9 min read

    • Article

      8 Things To do This Month

      Jan 27, 2022

      The Rhubarb Triangle in Yorkshire first began ‘forcing’ this delightful crop towards the end of the 19th century. That means growing the rhubarb in dark, heated sheds, encouraging it to grow quickly and find light. The result is a much softer and swe

      3 min read

    • Article

      Hitting Peak Stuff – Is This The End Of Traditional Consumerism?

      Oct 14, 2018

      When IKEA’s head of sustainability suggested the world had reached ‘peak stuff’, there was a collective intake of breath from marketers around the world. ‘But… isn’t IKEA one of the main producers of… stuff?’ (For anyone that’s wandered around IKEA

      3 min read

    • Article

      Chain's Like Chili's Trying to Dish up Growth Again

      Sep 21, 2017

      Chili's Grill & Bar is going on a diet to fatten its sales - just one of the strategies casual-dining chains are using to reverse a slowdown in growth. Chili's is slashing the number of items on its menu by 40 percent, to 75 from 125, to focus on its

      4 min read

    • Article

      7 Food Trends for 2017

      Dec 21, 2016

      7 Food Trends for 2017
      5 min read

    • Article

      Boxed Out

      Apr 24, 2016

      Boxed Out
      3 min read

    • Article

      Dine Out on Restaurant Stocks

      Oct 3, 2019

      Forget the kitchen. We're eating out tonight. That is the message from the Census Bureau, which reports that Americans spent more this past June in "restaurants and other eating places" than they did in "supermarkets and other grocery stores." The Na

      4 min read

    • Article

      Customer-Driven Disruption

      Jan 31, 2020

      Customer-Driven Disruption
      9 min read

    • Article

      How Food Banks Went Global

      Oct 15, 2020

      How Food Banks Went Global
      8 min read

    • Article

      2020 May Have Permanently Altered How And What We Eat

      Dec 29, 2020

      There were moments, early in the pandemic, when Joseph Musillami wasn’t sure how the family business would make it. Purely Meat Co., a commercial butcher in Chicago’s West Humboldt Park neighborhood that supplies mostly high-end restaurants, saw sale

      5 min read

    Related categories

    Reviews for Milkman 2.0 The $6 Billion Opportunity in Food Delivery

    0 ratings

    0 ratings0 reviews

    What did you think?

    Tap to rate

    Review must be at least 10 words

      Book preview

      Milkman 2.0 The $6 Billion Opportunity in Food Delivery - Robert Emerson

      ACKNOWLEDGEMENTS

      The alumni of the Stanford Graduate School of Business are a close-knit and supportive community. Eight alumni and faculty members have made invaluable contributions to this book, either through conversations with the author or interviews with the press.

      Evan Moore, Co-Founder of DoorDash and currently a partner at VC firm Khosla Ventures, provided insight into the early formation of DoorDash in Palo Alto and its growing pains while the founders were still attending classes.

      David R. Bell, who was an early investor in Bonobos, Warby Parker, Diapers.com and Harry’s Razors, among many others, and who now serves as founder of venture capital firm Idea Farm Ventures, was the author of the ground-breaking book on the importance of brick and mortar in the online world, Location Is [Still] Everything. His lecture at the Yale School of Management in May 2015 on the applicability of data analysis in site selection provided the original inspiration for my research on the Online to Offline model of prepared food delivery.

      Daniel Gebler, who is the Chief Technical Officer of Dutch grocery delivery company Picnic, shared his insights about attracting early investors for the firm and developing strategies for generating initial trial for the new delivery concept that provides the title of this book.

      Peter Relan, who was the Chief Technical Officer for the pioneering, even if ultimately unsuccessful, grocery delivery company WebVan, provided candid post-mortem analysis of the mistakes that company made during the dot.com bubble of the late 1990s.

      Pete Flint, who created Trulia and served as its CEO until it was sold to Zillow in 2014 for $3.5 billion, provided insight into DoorDash’s need to access the public marketplace in early 2020.

      Raymond Debbane’s private equity firm Invus, which is probably best-known for its successes in Blue Buffalo Pet Foods and Keebler, provided counsel on the need to develop additional proof of concept prototypes of the prepared food model before launching a nationwide expansion.

      Sucharita Kodali at Forrester Research is a leading expert on the economics of last-mile delivery and steered me toward a clear understanding of the economics of grocery delivery.

      Daria Gonzalez, co-founder of branding agency Wunderdogs, provided insight on the most effective means of creating pre-opening excitement surrounding new concepts.

      Tom Ryder, the retired Chief Executive Officer of Reader’s Digest and currently the lead outside Director at Amazon, and I met on three occasions during the summer of 2017 shortly after he engineered the acquisition of Whole Foods. Tom resides in Old Saybrook, Connecticut, and his insights into the business model of Pasta Vita were illuminating. His perspicacious observation into the need of finding contract packers as a first step toward launching national distribution was instrumental in developing a plan for introducing prepared entrees on a national scale.

      The Investor Relations team at GrubHub, particularly Ryan Domyancic and Adam Patnaude, do an excellent job of keeping the investment community informed of the fast-changing economic climate and competitive landscape in the restaurant delivery market and their clarification of the economics of their business model was illuminating.

      Ron Ruggless of Nation’s Restaurant News and Heather Haddon of The Wall Street Journal have been on the cutting edge of weekly reporting and updates of the impact of the coronavirus on the restaurant industry. Bill Bishop, co-founder of Brick Meets Click, consistently provides insightful analysis on the ways in which online ordering interacts with the more traditional forms of retailing.

      Brittain Ladd, who served for years as the Director of Last-Mile Delivery at Amazon, is a leading expert on the economics of home food delivery. He proposed that Amazon should attempt to purchase San Antonio, Texas based grocer H.E.B. Amazon chose to purchase Whole Foods instead. His insights on the strategies that allowed HelloFresh to succeed in meal kit delivery while others failed were invaluable.

      Tim Powell is a Managing Principal at Foodservice IP, a strategic advisory firm that provides counsel to a wide array of packaged food manufacturers, contract packers and restaurant chains. He was particularly helpful in shedding light on the competitive position of convenience stores, an often-overlooked element in the foodservice industry.

      While all the aforementioned individuals provided wisdom and guidance, I will say that any errors or omissions are solely my own. Moreover, not all my conclusions necessarily square with their own strategies for addressing the problem of enabling profitable food delivery. This book was written during a tumultuous period as the nation reckoned with the coronavirus pandemic, and the landscape is changing daily. It is my hope that the strategies put forward in this book will prove helpful as the restaurant and grocery industries seek to rebuild from the unprecedented challenges produced by the shutdown of the nation’s economy.

      Essex, Connecticut

      May 11, 2020

      INTRODUCTION:

      HOPE IS NOT A STRATEGY

      The coronavirus, and its economic and social fallout, is a time machine to the future. Changes that many of us predicted would happen over decades are instead taking place in the span of weeks.

      Anne-Marie Slaughter

      CEO, New America

      The New York Times

      March 22, 2020

      Consumers love food delivery. Restaurants and grocers hate it. Fresh food sellers can’t afford to ignore the consumer demand, even though most orders lose money. Food delivery is proving to be a thorny, expensive and crucial puzzle for restaurants, grocers and investors. Billions of dollars have been spent in a quest to build services that reliably move fresh food from one place to another, yet many in the business wonder if they will ever get the economics right. Most delivery orders remain unprofitable.[1]

      Worldwide home food delivery was a $49 billion business that was growing 16% per year even before the coronavirus pandemic and was on track to become a $365 billion business by 2030.[2] Yet, as the opening paragraph from The Wall Street Journal above succinctly summarizes, few have figured out how to do it profitably. The goal of this book is to explore in depth a relatively new but proven method to satisfy consumers’ newfound preference for eating dinner at home rather than at restaurants, and to reveal the enormous potential profitability of this new model.

      The attractions of the new free home delivery system to consumers include the following:

      • Quality, as delicious prepared meals ready to pop in the oven or microwave are prepared by chefs trained at either Culinary Institute of America or Johnson & Wales using proven recipes. The entrees feature locally grown produce and can be modified to suit individual preferences, including gluten-free, paleo, vegan or low-sodium items.

      • Freshness, with meals prepared locally every day.

      • Variety, as a rotating assortment of more than 100 comfort food offerings are always available.

      • Value, with nutritious meals selling at a 20-30% discount to quick service restaurants. Take a moment and read that sentence again, please. The money-saving feature is even more pronounced when compared with the cost of meal kits, which are typically priced 40-50% higher, and of course require the consumer to spend 45 minutes on preparation.

      • Convenience, with the ability to offer to consumers their choice of either free same-day home delivery, drive-through pick up or in-store carry-out selection in accessible locations with ample parking. The free delivery capability renders the value proposition even more compelling. Prepared entrees can be provided at less than half the cost of ordering home delivery of restaurant meals after factoring in the expense of the third-party delivery providers.

      But the advantages of this new system do not accrue solely to customers. The attractions extend to both business owners and employees as well:

      • Investors achieve immediate cash-on-cash returns superior to any of the existing franchised fast casual or quick serve restaurant models. The template for the new model is a 600 square foot prepared food store in southern New England that enjoys annual sales of more than $9 million with profit margins of over 30%. It is unlikely that this unusually high level of sales and profitability can be widely replicated. However, we shall see that, even if sales of less than one-third that of the original store can be achieved, the investment opportunity is remarkable. In cloning this model, which has a track record of more than 25 years of uninterrupted sales and profit growth, a $10 million investment phased in over two years can create a debt-free entity with revenue of more than $150 million, EBITDA approaching $40 million, and a conservative valuation in excess of $400 million within less than six years. The after-tax returns of this model are significantly enhanced by the 2017 Tax Reform Act, which allows immediate expensing of the equipment required for the project. The metrics for this investment are detailed in Chapter 11.

      • Staff in both front of the house and back of the house positions have jobs that involve work schedules from 10:00 am until 6:00 pm during the week, with shorter hours on weekends. Chefs, servers, cooks, managers, delivery drivers and dishwashers no longer need to work until midnight on Friday and Saturday nights for the rest of their working lives.

      • Delivery drivers have stable, dependable jobs that pay more than 50% more than what many of the beleaguered gig workers currently earn at the third-party delivery services. They, too, can enjoy jobs that do not require endless evening shifts, and enjoy health insurance and paid vacations to boot.

      Even prior to the disruptive effects of the shutdown of American business in March 2020 the entire food industry was in disarray:

      • Food delivery companies like GrubHub, Instacart, Peapod, Uber Eats and DoorDash are unprofitable and are likely to remain so. Making them larger either by hiring more drivers or by merger does not make them more profitable. As DoorDash cofounder Tony Xu drily observed, Combining with competitors to become more profitable is not that insightful of an observation.[3] GrubHub founder and CEO Matt Maloney agrees: Everyone is kind of at the same level of efficiency. And so, even if we quadrupled our delivery scale, it’s not going to have a dramatic or even material change to that expense.[4]

      • Delivery drivers are sometimes paid less than minimum wage when the cost of their vehicles is factored in. They face uncertain scheduling and are litigious and increasingly prone to work stoppages. Further, legislation is evolving that may render current delivery models with their categorization of drivers as contractors untenable.[5] On May 5, 2020 California’s attorney general Xavier Becerra and a coalition of state attorneys sued Uber and Lyft in San Francisco County Superior Court, charging that both companies illegally classified their drivers as independent contractors in clear violation of a recently passed state law that determines that they are, in fact, employees. Today the so-called gig companies present themselves as the innovative future of tomorrow, a future where companies don’t pay Social Security or Medicare, said California State Senator Maria Elena Durazo, a Democrat. Let’s be clear: there is nothing innovative about underpaying someone for their labor. The model that we explore in this book actually allows delivery drivers to hold down salaried jobs paying more than $40,000 per year with work schedules from 10:00 am to 6:00 pm daily, a substantial improvement in their economic well-being as well as their lifestyles.

      • Most restaurants, apart from pizza delivery chains like Domino’s, Papa John’s and Pizza Hut, lose money on delivery. Even the pizza companies earn much of their profit from takeout, where the consumer incurs the cost of pickup.

      • Franchisees of most of the major restaurant chains are required to offer delivery: the franchisor enjoys the royalty on the higher sales that delivery can generate, but the franchisee suffers lower profits. The situation is ultimately untenable, and some franchisees are mutinous.

      • Grocers lose money on free delivery and cannibalize profitable in-house sales even when they charge a delivery fee. At the same time, they are under severe price competition from newcomers such as Aldi, Lidl and Grocery Outlet.

      • Venture capitalists and private equity firms continue to throw money at unprofitable delivery systems and have lost hundreds of millions on meal kit start-ups. The pioneering German meal kit company HelloFresh, which has been wildly successful, has spawned dozens of imitators in the U.S. To date, none have been profitable.

      Even before the pandemic, it was becoming clear that most Americans would prefer to eat dinner at home rather than to go to a restaurant. Restaurant visits for the average American peaked at 216 occasions in 2000 and fell to 185 by the year 2018.[6]

      The solution for the restaurant industry seems obvious enough: they need to offer home delivery. But as H. L. Mencken observed, There is always a well-known solution to every human problem—neat, plausible and wrong.[7]

      The problem is that restaurants typically need to deliver in narrow time slots, either at lunch or dinner or during sporting events. People want their restaurant meals delivered hot. The resulting peak demand for delivery crew for two-hour shifts is a clear-cut operational headache. You can’t profitably hire drivers for four hour shifts if they are only going to be delivering for two hours. On November 12, 2019 DoorDash boasted that under its new pay model its drivers (which it calls Dashers) would see an increase from $17.24 to $18.54 per active hour. They do not boast about the hours spent waiting for the phone to ring between orders. A study conducted in November and December 2019 by a workers’ rights organization in Seattle found that only 11% of DoorDash jobs actually exceeded the Federal minimum wage standard of $7.25 per hour when costs of the drivers’

      Enjoying the preview?
      Page 1 of 1