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Meal-Delivery Company Sprig Goes Lean; Investors forked out $609 million on food startups in the first
quarter, less than half of last year’s tally
By Georgia Wells
1,004 words
7 June 2016
05:47
The Wall Street Journal Online
WSJO
English
Copyright 2016 Dow Jones & Company, Inc. All Rights Reserved.
Last year, meal startup Sprig Inc. had too many cooks in the kitchen.

During the company's first two years of making and delivering meals around San Francisco, each of its cooks
prepared a recipe from start to finish. But quality suffered and Sprig, like the entire segment of meal startups, was
under financial pressure.

Six months ago, it brought in an airline chef and a cafeteria executive to run its kitchen like a factory. Sprig now
makes its 5,000 meals a day with 20% fewer chefs.

Sprig's reorganization shows how startups that are trying to change the way people get their food are having to
rewrite their business recipes as intense competition and tightening funding challenge the sector.

From shipping boxes of ingredients to mailing meals and delivering hot meals on-demand, these companies are
betting consumers are willing to pay for convenient alternatives to grocery stores and restaurants, but ingredients,
preparation and delivery costs yield tight margins.

Many are sidelining famous chefs and artisanal recipes in favor of more efficient techniques borrowed from the
mass-food industry. Customers want predictable quality more than gourmet meals, they have found.

Sprig, which has raised more than $50 million, has taken this model to the extreme, and promises hot food,
on-demand.

“Our goal is to show that big food can be good food," says Sprig chief executive Gagan Biyani.

DineInFresh Inc.'s Plated, which sells ingredients for recipes customers cook at home, formerly had celebrity
chefs. But their creations involved too many ingredients and steps. Plated now relies on former cooking
instructors.

Blue Apron Inc., which also sells boxes of ingredients customers can cook at home and was valued at $2 billion
last year, has shortened the list of ingredients in its recipes to make them simpler for home chefs. Rather than list
three or four spices in a recipe, for example, the startup combines them into one bag.

Freshly Inc., which mails boxes of refrigerated pre-made meals, recruited a prepared-food executive to advise the
startup's chefs on how to prepare meals with a longer shelf life.

Venture capital's appetite for meal startups has shrunk, putting pressure on the startups to become more lean. In
the first quarter, firms forked over $609 million in funding for food startups—including on-demand meals and
grocery delivery—less than half of the $1.42 billion they invested in the same period last year, according to
venture-capital research firm CB Insights.

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Venture capital is drying up for startups across the board. For on-demand food startups, the concern is whether
their food and delivery will appeal to enough customers to make it profitable.

“There are lots of assembly-line food services," said Ted Schadler, industry analyst at Forrester Research. “Can a
company like Sprig do it better than Chipotle? Can they dramatically improve the experience?"

In April, Sprig stopped delivering in Palo Alto, Calif., to retrench in its hometown of San Francisco and Chicago,
which it added last year. Mr. Biyani declined to say if Sprig turns a profit on each meal.

Others have folded: SpoonRocket Inc. shut down in March. Mr. Schadler said he expects more on-demand food
startups to merge or close.

Meals-on-demand are an expensive business; most startups lose money on each order. New assembly line
production has helped Munchery Inc., Sprig's main competitor, bring the cost of making a meal down to $10 from
$25 when it first launched, said CEO Tri Tran.

Yet it is still pinching pennies to try to reach more customers. It recently eliminated an extra pat of butter and a
serving of sauce for its Korean chicken-barbecue family meal, allowing it to lower the price on its meal by $1.50 to
$32.95.

When Sprig launched three years ago, the company promised hot gourmet meals such as pork tenderloin for
$12, plus a $3 delivery fee. Sprig functions via an app that displays vibrant images of the meals, along with the
mostly-organic ingredients, the specific farm they come from, and nutritional information.

Mr. Biyani, who helped lead growth at on-demand ride companyLyft Inc. before launching Sprig, tapped
epicurean experts who had trained with chefs including Gordon Ramsay, and worked at gourmet restaurants such
as Fat Duck in the U.K.

By last year, however, ratings on their most popular meals had started to decline. Mr. Biyani says high-end chefs
can only make 100 meals at a time without sacrificing consistency—a threshold that Sprig had passed.

Mr. Biyani started searching for experts from industrial kitchens. He poached Clifton Lyles, who oversaw the
preparation of 70,000 airline meals a day as head executive chef at Emirates Airline, and Renee Guilbault,
Sprig's new head of food, who came from Compass Foods Inc., a food-services giant that runs cafeterias.

To make the food more consistent and bring costs down, they organized the kitchen—a former Chevys
restaurant—into an assembly line. For example, the eight steps in making a meatball marinara—including cutting
vegetables, mixing ingredients and cooking the meatballs—were broken up among eight different cooks.

Customers have noticed the changes. Jeffrey Wear, a software engineer, says when he started ordering Sprig a
year ago, the food had what he called the “Sprig aftertaste"—mushy and warm. Recently the food has tasted “a
lot better" and he now orders two to three meals a week.

Since Mr. Lyles and Ms. Guilbault came on board, Sprig has reduced the cost of preparing a box of food by 22%,
according to Mr. Biyani.

By taking these processes further, Mr. Biyani hopes he can serve up profitability. “Everything gets better when
you make a lot of food at once," he says.

Write to Georgia Wells at Georgia.Wells@wsj.com

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