Building a Better Food Delivery — Founding and Shutting Down a Startup
By: Kevin Wang
Tags: Technology, Failure, Food Delivery, Startup, Storytelling

Building a Better Food Delivery

Validation and Research

Melon’s approach to food delivery was inspired by problems I, a frugal student, personally faced as a user like cost, reliability, and simplicity. Existing companies were trying to reduce costs by combining orders to shorten the number of trips, but only one to two drop offs at a time. What logistics changes could enable food delivery with 20+ items dropped off together? Would there be consumer demand of more people like me for such a product given the additional constraints that would arise?

In March 2020, our MVP was as simple as it gets: a group chat where we would broadcast a menu of 2–3 items from a popular restaurant, with specific drop off times and locations. Our target market was students at dense locations on campus. We spammed a existing group chats and added friends to find users.

The goal of this was to answer a few questions: did people have similar problems with food delivery as I had? Does a cheaper price make the limited selection and drop offs worth it? Will the routing times actually pan out accurately to be more profitable then existing services? What simple gamification scenarios might work (ex. Order even earlier for a discount. Have product scarcity to encourage quick decisions).

We found relative success with this, notably 17 items dropped off within 45 minutes, a desire to share the experience with friends by adding them to the chat, and overall engagement with what we were doing. Our solution to their pain-points was immediately recognized. We even made just a bit of money through ordering catered prices and selling at menu price, despite no delivery fee.

This only went on for one week, then COVID hit, and all students were sent home off campus. But we took this validation, and prepared for a real product launch. We had to shift away from campus and downtown to apartments instead. We launched a website to sign up and subscribe to menus, which consisted of automated daily text messages.

First Launch and Obstacles

We didn’t gain the traction we wanted during this new launch, which happened in June. We again used Reddit, group chats, and experimented with Facebook and Google ads. Our previous target customer, students, were not around, so we tried to focus on acquiring customers at apartment buildings by approaching apartment office leadership.

Growth was slow, and towards the end of the summer, we had 75 subscribed customers, and while we were able to achieve occasional bulk drop-offs and successful trips, it was clearly not sustainable. I still believed that with the return of students, we would find greater demand, so instead of trying to accelerate growth over the summer, we spent time learning the logistics, some customer behavior, and built an online ordering + tracking system.

Increased Demand, Profits, Next Steps

With students returning in August, we relaunched with a streamlined website ordering and checkout process, as well as implemented card payments. It was (almost) like a real food delivery product! During this, our customer base rapidly grew, so we started to expand restaurant selections, utilize route optimization, and experimented with different features and pricing strategies. We wanted to validate that our service could be profitable down the line, so we maintained a balance between trying to obtain margins on deliveries, acquiring, and retaining customers.

Cars loaded up for the evening’s trip!

One extraordinary benefit of this model is that as orders increase for one trip, the average time between stops decreases, as they are more likely to either be at the same location or closer to each other. For example, within a 1 mile radius, dropping 10 items off might take 25 minutes over 5 stops, but dropping 20 items off could take 35 minutes over 8 stops- double the items but only 1.5x the effort.

We continued to expand the number of restaurants we had official deals with, allowing commissions between 5%-25%. As profit was not our number one goal, we would still often deliver restaurants without a deal to continue to provide variety to users.

Our growth was mostly organic. We had a focus to provide excellent service and obsession with ensuring that our customers would receive the best product of food quality and variety. We made it clear that we’re doing our best to support small businesses.

An additional behavior we did not expect was the desire for shared experiences, especially during the pandemic. We were uniquely positioned to offer high quality meals to friends apart from each other, enjoyed right at the same time. This was a key to having our service appreciated by users and shared with friends. And when nearby friends ordered together, this further improved our drop off efficiency.

Shared takeout apart, delivered in the same trip with Melon!

Other opportunities included expanding beyond restaurants to deliver local crafts and other small businesses, allowing us to keep non-perishables with fewer time constraints. This allows more flexibility for drop-offs and potentially higher margins on certain items. However, I don’t think there was necessarily a market intersection between those who wanted these items and those who we ended up delivering to.

Notable achievements

$10k MRR at time of shut down

500 users

Over 15 items per trip on average

Less than 30 minute average drop off time

Best quantity: 47 items for one meal

Best profit: $420 payed by customers for a $350 meal at bulk price, over a 45 minute drop off time

Thousands in fees saved from customers, in additional payout to restaurants, and driven miles reduced as compared to if the orders were fulfilled on-demand

Accomplished largely from August 2020 to October 2020, doing our own driving, and just 2 meals/drop off times for weekdays!

Hacks

Very first payment was only from Venmo/PayPal. We would send payment requests after dropping off. Fortunately, and miraculously, nobody ghosted us!

We initially created routes manually and sent our Twilio texts manually (from a basic web app) like a dispatcher for order updates. We had routing and estimation implemented just before this became too overwhelming

To roll out website ordering with limited front-end experience, we leverged Webflow to create our UI. Their e-Commerce did not meet the functionality we needed, and they only had a back-end API, but we still used some of their item creation and display, so we glued together DOM manipulations as well as our backend API to create our ordering and checkout process.

One of Melon’s weekly menus. Yum! Posting this to Facebook and Reddit was our most effective way to gain new customers

Shutting Down

Due to the competition, a questionable path forward, and a lack of industry expertise, we decided to discontinue Melon.

Changes in Projections

The logistics, process, and hypothesized benefits of our service realized new metrics that were off base from what we initially predicted. At the core of what we wanted to accomplish was a business model that could be successful at the smaller scale without need for heavy investments and subsidized orders.

With more users, our consistency and reliability decreased, so efficiencies were not as prominent as forecasted. The wages required for the drivers was also higher than initially planned, since the work was harder and more involved than delivering 1–2 orders at a time. Rapid stops, managing food, and constant communication involves more effort.

We were also rolling out features and experiments slower, with more time spent managing the existing service. Our path to profitability at scale was looking similar to those of existing on demand food delivery companies. It was necessary to find a fundamental shift or strategy in what we were doing.

Competition and Experience

Pooling orders is not a unique concept. All the companies are trying approaches, and there are many promising startups as well, like Peach, Foodsby, and GoodUncle. UberEats tested out a concept of picking up many orders at once and distributing them over time, but discontinued that. Postmates Party has picked up traction and improved. Moreover, many ideas to further separate ourselves were being rolled out, like focusing on even more local businesses and grocers.

Side question: do you think Instacart or goPuff will be acquired to expedite all-commerce delivery?

And I can’t avoid saying that lack of experience was a major factor. We had to spend so much time learning technologies, the industry, and we were not quick enough to iterate with new concepts.

Sure there was still a sliver of chance of slower but healthy growth or that new niche, but we did not set out to create just “another” food delivery startup. I still believe this was the right choice- I just don’t think we would have been able to continue to outcompete if we expanded more.

Regrets and what I would do differently

Start with an even smaller target market and specific niche. We tried to do too much at once, instead of isolating concepts and fully learning about the implications. This resulted in us touching upon a lot of interesting concepts, but without any real knowledge or conclusions, including but not limited to the following:

How much value does reduced time in pre-ordering offer, and how many will plan ahead? If orders are in 1 day vs 6 hours vs 1 hour early, what does that mean for the user and restaurant?

Can we further limit drop off locations? What threshold resembles the best balance between market size and trip efficiency?

How many extra, unordered meals can we carry? What are the indicators to predict how many people might order if we say “I’m at location X with sandwich Y, want it”?

Would a subscription like MealPal work for these kinds of deliveries?

How might a loss leader come into play? For example, if we offered a popular sandwich at a loss, would people add on a pricier desert?

Okay.. is “local” really that important?

Form more intimate relationships with restaurants, and have a restaurant expert on our team. I felt like a salesman much of the time. We should have pursued a journey along with them, rather than just have them as a product. Seek out failure, that’s when you know you’re pushing a boundary and will learn the most. Doing what’s safe and enjoyed by many will just keep you comfortable in a local optimum. I wish more kitchens turned me away, so I could have found what fewer owners absolutely LOVE, and commit to, then grow concentrically from there. That goes for users too.

Target more specific ethnic cuisines, groups, locations, and restaurants. A good foothold on a section of international students would have enabled us to have more sustained demand for a cuisine further away that is not as accessible to them. In terms of preparing food, much of Asian cuisine shines under bulk preparation as it can made together, and its quality holds after time. However, something like sandwiches is not as effective, because the preparation effort scales linearly.

Have diverse team expertise. While I absolutely loved working with my team, we didn’t necessarily complement each other’s weaknesses or strengths. While we were all smart, and hardworking, most time was spent learning frameworks instead of focusing on the customer product.

Insights

The Paradox of Choice is very real in food delivery. This is apparent in the UI/UX as well as the search functionality in apps. Overall, this is a net negative for smaller kitchens that need to pay for exposure.

is very real in food delivery. This is apparent in the UI/UX as well as the search functionality in apps. Overall, this is a net negative for smaller kitchens that need to pay for exposure. Restaurant sales are absolutely huge at near $1 trillion annually in the US. Just being a tiny sliver of that is a billion dollar company . Everybody eats and there will always be opportunity with changing habits.

. Everybody eats and there will always be opportunity with changing habits. Many restaurants are in need of more reliable and consistent business. Staffing and perishable foods are variable expenses can help be helped from optimization in many different ways, including but not limited to food delivery

Restaurant meal-kits rose in popularity during COVID. Would people be interested in buying an item, then trying to recreate it with the ingredients, all dropped off together? Might be a cute pic.

Can we combine local grocers, crafts, and restaurant delivery in a creative way for a single trip? These last differently in a car and have varied margins, but packing more in a trip can improve margins. Might people who order sandwich A also like grocery store steak B?

in a creative way for a single trip? These last differently in a car and have varied margins, but packing more in a trip can improve margins. Might people who order sandwich A also like grocery store steak B? Customer acquisition is expensive . Try to create food delivery that people WANT to share with each other, besides just using coupons. People love talking about and sharing the unique experiences they have. But no, simply combining Instagram + food delivery won’t work.

. Try to create food delivery that people WANT to share with each other, besides just using coupons. People love talking about and sharing the unique experiences they have. But no, simply combining Instagram + food delivery won’t work. There is a strategy with pooling orders that will make it big. Maybe it hasn’t been constructed yet. There are many problems from routing logistics, customer behavior, and restaurant preferences that need to be solved and married together in a solution.

Thanks for taking the time to read our story and experience. If you have any questions, please feel free to reach out on here or LinkedIn: https://www.linkedin.com/in/kevin-wang-3487b3ab/