Meal Kit Mania and Instacart Insanity: When will the food delivery bubble burst?

By Meredith Slater

Good Eggs investors have to be scratching their heads.

The food and grocery delivery industry is booming. Companies like Plated, Blue Apron and their host of competitors sell ready-to-cook meal kits, where customers pay as much as they would to eat at a restaurant to have ingredients — that they then prepare into a meal — delivered to their house. On the restaurant side, startups like Seamless and Favor are becoming household names.

Image by Mark Warner. Creative Commons. 

Image by Mark Warner. Creative Commons. 

It’s possible that ready-to-cook meal kits and on-demand food delivery are just a fad, with over-zealous investors making it seem like a much more popular trend than it will actually turn out to be. Yet food delivery and meal kit startups are raking in investment dollars. Plated raised an additional $35 million in July, and earlier this summer, Blue Apron announced that it had raised a total of $193 million since 2012.

The market has grown so quickly that companies like Uber, Google and Amazon are stepping up their game to compete. Uber recently launched UberEATS, which delivers restaurant meals in ten minutes or less with the tap of an app. Expanding on its already incredibly successful Prime delivery model, Amazon gives Instacart and Peapod a run for their money with AmazonFresh and PrimeNow, which both offer same-day groceries delivery. Even Google is getting on the bandwagon, enabling users to order food from the search results page on their mobile device.

With so much boom, it came as a surprise this summer when Good Eggs, one of the leading grocery delivery services in the Bay Area, announced that it was suspending operations in Los Angeles, New York and New Orleans. The company had raised $56 million since 2011, but its CEO said they expanded too quickly, “before fully figuring out the challenges of building an entirely new food supply chain.”

Many of these companies do seem to be reinventing the food distribution wheel. At companies like Plated, employees are both personal grocery shoppers and sous chefs. The kits they assemble are packaged with dry ice or ice packs to keep food fresh, and the large boxes are delivered by FedEx or local couriers to doorsteps across the country.

Good Eggs, based in San Francisco, recently closed locations in its other cities. 

Good Eggs, based in San Francisco, recently closed locations in its other cities. 

UberEats is built on the assumption that a customer will sacrifice choice for convenience. Each driver only carries a few options from a select restaurant, but with so many drivers on the road, the company can guarantee delivery in less time than it would take to get to the restaurant and place the order yourself.

It’s hard to predict what the failure of Good Eggs might mean for, say, Instacart, the food delivery company with perhaps the most momentum at the moment. Instacart has partnered with a number of retailers, including Whole Foods Market and one of Texas’ largest grocers, H-E-B, to assign personal shoppers to each customer's order and set up designated Instacart areas in certain stores. This model increases efficiency and encourages customers to use the service, which promises to deliver groceries within an hour of an order being placed, instead of doing the shopping themselves.

Some investors in these startups might have their hopes up for an acquisition from a company higher up in the food chain, but some might predict that the industry will remain decentralized, with several different companies competing side by side or by region.

Yet the real nail-biter, as always, is about profit: Despite all their success, many of these companies are not yet in the black, even as they expand into new markets and spend millions on customer acquisition.  

We also can’t forget about the logistical and environmental issues that come up as these delivery companies grow. Eater recently explained how Good Eggs’ logistical needs were so different than the needs of the farmers, who, ironically enough, are such an important component of the company’s marketing campaign. Because individual farmers and food artisans were receiving orders from Good Eggs that were often just for a handful of products, the delivery process to the Good Eggs distribution center was often an inefficient system.

Other questions remain: What would congestion in LA be like if UberEATS became as common as Uber rides? Where will companies put their distribution centers if every big city suddenly requires one? Will the growing trend of individual, personalized deliveries consume more packaging and generate more waste and carbon emissions than if each person or household shopped for  themselves?

By Prayitno from Los Angeles, USA  [CC BY 2.0]

By Prayitno from Los Angeles, USA  [CC BY 2.0]

Greenling has an answer to part of that last question. The Austin-based grocery delivery company that serves Central Texas and Houston has crunched the numbers to calculate that its model of using a truck to deliver to homes and offices uses 86 percent less fuel than if each customer were to travel to the grocery store themselves.

Investment dollars are still flowing into food delivery companies, but it’s too early to say at what point investors will start to get their money back. In the meantime, it’s a golden age to be a cook or foodie who, in a moment of laziness or perhaps sheer curiosity, is willing to take a risk on a new company.

We’d love to hear your thoughts about the best food delivery companies out there. What companies seem to be thriving where you are? Are you willing to pay the premium for this kind of convenience? What do you love or hate about the services you’ve tried?