Now profitable, Chewse raises $7 million and heads (back) to Los Angeles
There’s been no shortage of stories lately about companies shutting down after pursuing a strategy of “growth at all costs.” So why not publish one about a company that didn’t expand too quickly, that figured out its unit economics before entering new markets, and after five years is finally ready to take the next step?
Chewse is that rare example of a company that has flown under the radar while building a sustainable business, and finally believes it’s ready to take its service into other markets.
To do so, the company has raised a $7.3 million Series B round of financing led by Foundry Group, with participation from Telegraph Hill Capital, Rocketship VC and Galvanize. Altogether Chewse has raised $15 million, with previous investors including 500 Startups, Chris Sacca and Seamless co-founder Andy Appelbaum.
To put things into perspective: I wrote my first story about Chewse more than four years ago. Since then, an entire industry around food delivery has grown and collapsed under the weight of its own largess (and VC dollars).
While consumer-facing food delivery startups like Sprig and Maple have shut down, Chewse has been quietly growing its base of customers, increasing sales and increasing its gross margins on the way to profitability.
Over the last 16 months — roughly since raising its Series A round, also from Foundry — the company has tripled sales and increased its margins by 50 percent, all while operating just in San Francisco.
After spending several years refining its playbook, the company re-launched service in Los Angeles yesterday. It’s the city founder and CEO Tracy Lawrence first launched the business from back in 2012, but Chewse retrenched in September 2015 as it raised money and got back to fundamentals. But now that it’s figured out a sustainable business model, Chewse is ready to prove itself in this new (old) market.
That runs counter to a number of venture-backed food service companies, many of whom sought to quickly expand into new markets and build out huge operations before figuring out their economics.
While focusing entirely on the San Francisco operations, Chewse refined the way it did business. Rather than relying on the restaurants it partnered with to deliver food to customers, Chewse decided to take care of all the last-mile logistics of food pickup, delivery and presentation.
Since it has a predictable number of customers and a curated group of restaurants that it works with, Chewse has been able to reduce the margins while driving more volume and business to its partners.
It’s not just that Chewse has found a way to profitably serve both restaurants and business customers — it’s also that the company has found a way to do so while also treating its delivery people and servers as hourly employees. That’s another way Chewse is bucking a trend adopted by much of the rest of the market, which relies on 1099 employees for last-mile delivery of their food.
Chewse delivery drivers and servers are paid hourly, but they get benefits like paid sick leave which are not standard in the industry. Those workers also share meals and do happy hours with the rest of the staff, and have advancement opportunities within the Chewse operations team.
On the one hand, treating their customer-facing workers as employees is a way to lower churn, increase retention, and overall reduce costs related to recruitment. But also, servers are part of the overall product, and keeping them happy means a better experience for Chewse customers.
“Because we want to retain people and keep them happy… We delight them so they can delight you,” Lawrence told me. “We are approaching this from a product perspective. How can we improve the product through all of our server interactions?”
Since most customers receive meals multiple times a week, Chewse servers often develop a relationship with office managers and other employees within a customer’s office.
For Foundry Group managing director Ryan McIntyre, it was partly that relentless focus on the customer experience and treating hourly workers as part of the company that prompted the firm to follow up its Series A financing with another round.
“Chewse employees operate hand-in-hand with the company’s brand of caring and showing love through food,” McIntyre said. “That’s very much part of the culture of the company, since it’s Chewse employees who are ambassadors and who are representing the company to customers.”
At the end of the day, though, it was all about the economics. After proving it could profitably serve the Bay Area and attract larger and larger customers, Foundry became comfortable with doubling down on its initial investment.
“We re-upped based on the progress they had made in terms of getting the SF market to be profitable and [doing so] consistently ahead of plan,” McIntyre said. “We also felt like, before doing a much larger financing, it was important to prove out multiple markets. This financing is about proving out positive unit economics in the L.A. market while continuing to scale out and grow the Bay Area.”
Opening up in a new city might seem like a small step in the context of hyper-growth we’re used to reading about in Silicon Valley, but for a business like Chewse, it’s a huge commitment. As an example of how seriously the company is taking it, Chewse is flying potential employees up to San Francisco to interview them and introduce them to company culture.
That kind of investment will be difficult to scale as it moves into new markets and continues to expand its employee and customer base, but for now it’s the best way Lawrence can think of to ensure that its next market has the same commitment to quality and culture of the company.