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Food startups are cookin’: Munchery raises $28 million for meal delivery

April 10, 2014, 9:00 PM UTC

Food has been very, shall we say, hot among venture capitalists lately. In 2013, VCs poured $2.8 billion into food-related startups. The category picked up momentum again earlier this week when Fortune reported that Blue Apron, a meal kit delivery startup based in New York, is in the process of raising $40 million to $50 million, valuing the company at $500 million.

Today, a cross-country competitor called Munchery announced it has raised $28 million in venture backing, bringing its total funds raised to $32.21 million. The round was led by Sherpa Ventures, with participation from existing investors and Menlo Ventures. Munchery also snagged two celebrity backers: Chef Roy Choi, founder of the Kogi BBQ taco truck, and the actor and director Jon Favreau.

Munchery offers delivery of prepared gourmet meals, and so is different from meal kit delivery startups such as Blue Apron, Plated, Fresh Dish, PlateJoy and SpoonRocket. These companies send kits of ingredients with recipes, which customers then cook on their own. Munchery meals can be heated up in 10 minutes.

The advantage of Munchery’s approach is convenience for users. They don’t have to cook, and for a flat $3 delivery fee they can schedule a meal ($8 to $12 each) to come during a time slot of their choosing, anywhere from a few days in advance to a few hours. The entire site, which has 70 to 80 menu items per day, often sells out by 5 p.m.

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A downside to the Munchery model is the company has many more logistical problems to solve. It has its own delivery network of 100 part-time drivers who make up to $28 per hour, according to co-founder Tri Tran. It has its own operations team, photographers, a kitchen with 40 to 45 staffers, and 23 additional partner chefs. Earlier this year, the company decided it would make more sense to bring chefs in-house rather than have them act as independent contractors.

In this way, Munchery competes with GrubHub and restaurants offering regular old take-out. But it’s better, Tran argues, because GrubHub and its peers rely on restaurants. GrubHub is an aggregator that adds a convenience layer, he says: “But at the end of the day, it’s still the same food from the same places nearby, and it still relies on the inconsistent and completely inflexible delivery system those restaurants provide.”

The in-house business model also means Munchery is regional. To grow, it has to enter new cities, build up new delivery fleets, hire new chefs, and attract new customers. (Its growth strategy is not unlike that of on-demand transportation service Uber, the most well-known investment of Munchery’s newest board member, Shervin Peshivar.)

To be sure, Munchery has done pretty well in San Francisco, its first city. The company has sold more than 580,000 meals since its inception, averaging up to 5,100 meals per day and growing by 20% each month. Customers order an average of three to four times per month.

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Alongside news of its funding round, Munchery also announced it is expanding to Seattle. The company has a goal of being in 15 to 20 cities within the next few years. It will focus on local tastes and preferences, hiring local chefs with each new market.

“We’re not trying to be like Blue Apron, where we ship the same recipes all across the country,” says Conrad Chu, a Munchery co-founder. Chu emphasized that the city-by-city rollout is not a hindrance to growth.

“Unlike a company like Airbnb, which is travel-based and really needs to be everywhere, we don’t need to be everywhere for the business to work,” he said. “We can roll out city by city, and there are a great number of huge cities in this country, in Europe and in other parts of the world.” Chu noted that San Francisco is ranked 15th in the country in terms of money spent on dining.

Rounding out the food-tech trend, Kitchensurfing, an online marketplace for booking private chefs, raised $15 million last week from Tiger Global Management at a valuation of at least $40 million. And the GrubHub IPO? Investors ate that up.

Correction, April 10, 2014: An earlier version of this story misstated the amount of capital raised by Munchery as $20 million. The correct amount is $28 million.