That First Move Can Be a Doozy: Why Peach Expanded to San Diego
Seattle-based Peach makes its debut in San Diego today, and therein lies a tale.
The question, “Where do we expand first?” can be one of the hardest decisions confronting an early stage tech company looking to rapidly scale its business beyond the hometown market.
Peach, founded in early 2014 by three ex-Amazon software engineers, began in the crowded food tech sector by taking a slightly different approach to creating technology that handles orders for take-out food delivery.
Instead of creating a comprehensive Web and mobile app platform for online orders like many of their competitors, the Peach team focused solely on processing weekday lunch orders, using an SMS/text-based ordering system that is simplicity itself. The company partners with restaurants that provide workplace lunch deliveries under a revenue-sharing agreement.
Peach keeps the process pretty basic. Users indicate a preference for vegetarian, light, or meaty fare when they register. Every weekday, Peach sends a text message at 9:30 am to its users that offers a single lunch offering, with a message that says, “Reply YES to order.” A restaurant partner fulfills the order and delivers the featured lunch. To vary the menu, Peach rotates the restaurants among its users each week.
There are no delivery fees, but to optimize costs, Peach currently arranges deliveries only to corporate offices or office buildings that have at least 50 Peach-registered users. So far in San Diego, Peach has struck deals with such restaurants as The Taco Stand in La Jolla, Deli Llama in Hillcrest, and Sushi Hana in Rancho Penasquitos.
As Peach marketing chief and San Diego advance man Andrew Bleiman explained to me, “Our whole value proposition to restaurants is they’re going to do the food delivery, but we’re going to guarantee at least 20 meals a day they can deliver to different places for over three months.”
In other words, Peach provides restaurants with takeout order processing and food logistics services. The startup’s analytics technology also enables Peach to predict the volume of orders for its restaurant partners three weeks in advance.
Bleiman said Peach has grown rapidly in Seattle, and the team spent the past year or so refining their business model. The decision to expand became a priority at the end of 2014, and Peach selected San Diego earlier this year.
“We chose San Diego because of the concentration of medium-to-large tech firms in Sorrento Valley and surrounding areas [that] weren’t within easy striking distance of great lunch options,” Bleiman said.
While the Peach team considered bigger cities, such as Los Angeles, San Francisco, and Chicago, Bleiman said a variety of factors played into their decision, including local geography and the prevalent local industries in each prospective market.
San Diego and other West Coast cities gained an advantage over Chicago and other cities to the East, because Peach’s customer service operations would be in the same time zone, Bleiman said. “People don’t take kindly to lunch being late, or being cold, or missing,” he said. “They react viscerally.”
Peach also looked at the mix of local industries and their employees’ median salary. That often meant identifying big employers in technology, healthcare, and life sciences, where employees are more willing to try innovative offerings. Median salaries also were important because well-paid employees typically buy their own meals at work, instead of packing a lunch from home.
But Bleiman said the key factor was a shortage of good lunch options in close proximity to big employers. For the Peach team, the scarcity of diverse lunch spots around Qualcomm, UC San Diego, and the biomedical research institutes on Torrey Pines Mesa helped tip the scales in favor of San Diego. That sort of thinking proved well-founded, as 1,000 Qualcomm employees signed up for the service during the first three days the Peach team was in town, Bleiman told me.
As it turns out, there is a lot of competition among tech startups in the food delivery business—and some rivals have raised a lot of money.
Chicago-based GrubHub has raised over $84 million. In San Francisco, Postmates raised $58 million and Munchery got $40 million. Palo Alto, CA-based DoorDash got almost $60 million through four investment rounds, including $40 million in March. Other startups in the mix are Lish, Caviar, Bite Squad, Sprig, Forkable, SpoonRocket, LuckyBolt, EatStreet, Favor, Chef Nightly, and Eat24 (acquired in February by Yelp for $134 million).
Some rivals already have pushed into San Diego, including Postmates, GrubHub, SpoonRocket, Eat24, LuckyBolt, Aliso Viejo, CA-based Restaurants on the Run (acquired by GrubHub in February) and San Diego-based Swingby.
Competition, however, was not a big factor for Peach, Bleiman said. Because Peach is narrowly focused on big employers and certain business clusters with deep pools of employees, Bleiman says the corporate cafeteria is usually their biggest competitor.
In an e-mail, Peach co-founder and CEO Nishant Singh wrote, “The biggest risk or the challenge that we see in expansion to a new city is the ‘discovery.’ How can we tell people about Peach?”
As Bleiman tells the story, Singh got into the lunch order processing business because he excelled at ordering takeout food for his software development team at Amazon—to the point where other Amazon teams asked to join his daily lunch order.
By the time Singh and co-founders Chenyu Wang and Denis Bellavance left Amazon early last year to start Peach, Bleiman says they were confident they would get enough signups from their former Amazon co-workers to get Peach established in Seattle. In July, Peach raised $2.7 million in seed funding (from Seattle’s Maveron, Madrona Venture Group, and Vulcan Capital), and today the company has 85 restaurant partners in Seattle, and 33,000 registered users.
“In our home market (Seattle), all of our initial user acquisition came from our Amazon friends whom we asked to spread the word out about Peach,” Singh wrote. “This worked only for a while and did help Peach gain momentum [with] Amazon, but we faced a big hurdle when we wanted to launch [at] Microsoft, where we knew no one.
“We decided that if we want Peach to succeed, we have to think about outside our personal network. We had to launch strategies beyond [our] personal networks, and we did. We did cold walk-ins to offices and would ask the office manager that we will give your entire office $5 lunches for one whole week if they [would] tell their employees about us.
“We launched many other strategies, but the above were the ones that were successful for us,” Singh added. “At this point of time, customer referrals are our biggest source of new users.”
Did Peach make the right choice by expanding first in San Diego?
The die is already cast, and it’s impossible to know if the company would have done better if it had expanded somewhere else first. In the meantime, Peach is focusing on executing its core business strategy. As Bleiman put it, “It’s Peach’s simplicity that keep repeat orders high and unsubscribes very low.”