Favor Seeks More Financing While Finding Role in Delivery Service Boom
Four years ago, when many New Yorkers felt left in the cold by a slow snowstorm response from Mayor Mike Bloomberg, Saturday Night Live roasted the bureaucrat by having his caricature casually suggest those trapped at home should pick up a phone to call a local restaurant for delivery.
Pick up a phone? Call a restaurant? How times have changed.
While Internet-based delivery companies such as Seamless and GrubHub have been around for years, app-focused ordering services from Favor to Instacart to Drizly are popping up, and expanding rapidly. My colleague Michael Davidson reported on how Drizly, a startup that delivers booze of all kinds, had a big day Monday as Bostonians stockpiled for another expected storm. Grocery delivery service Instacart benefited, too, just weeks after it landed a $2 billion valuation from a huge fundraising round. The company now has brought its delivery app to 15 cities since it was founded in 2012.
Favor, which relocated to Austin, TX, in 2013 after being launched earlier that year in California, is hoping to be the next big name in delivery. It pays “runners” to deliver food or groceries from any store or restaurant inside its service zone at the whim of the app’s user.
Favor is in the process of raising a new round of funding, to follow its $2 million of seed financing in September, according to cofounder Zac Maurais. The company expanded its offerings to Houston last week, after it added Dallas in November and Boston last summer.
Completing that next fundraising round will let Favor tack on more cities in 2015, said Maurais, the company’s chief marketing officer. He is keeping quiet on exact targets, though the number of delivery runners—the contractors Favor hires to pick up and bring you whatever you desire—will increase to “several thousand” this year from about 700 currently, Maurais said.
“For every stage of the startup journey, you’re always like holding on, saying to yourself, ‘Oh crap, we’re growing so fast,’” he said. “Then you get to the next stage and say, ‘Wait, that was nothing.’”
Where Favor differs from other apps is that its essence is framed around impulse buys. Instacart allows you to virtually stroll the aisles of a grocery store, and grab items you might want delivered as you see them, as Xconomy’s Curt Woodward experienced firsthand. Favor, meanwhile, lets you name the food or grocery item you might be craving, as well as the store you might want it from. Its runners then seek it out and deliver it. They stay in touch via text message, too, in case something isn’t available.
Favor charges a fee for the delivery of $5 to $6, plus a percentage of the total order. Instacart also charges fees of about $4 to $6, and it marks up the price of the items listed on its website compared with what’s in the store. And there’s also the tip for your delivery person.
The quite notable T-shirts Favor delivery runners wear, a light blue with the image of a tuxedo on the front, are a common sight in Austin.
As it expands, Favor is changing the way it presents food options, Maurais said. While searching for a specific item has historically been the primary method, the company is now presenting certain restaurants on the app. Favor takes a percentage of the sales that the company drives to the restaurant because of the app, Maurais said, similar to what Seamless or GrubHub do.
“It’s kind of a traditional thing that Seamless does, but with Seamless you can only get things from Seamless menus,” he said. With Favor, you can get any item you want as long as the store or restaurant is in the delivery zone—excluding alcohol, which the company doesn’t deliver to avoid dealing with state regulations, Maurais said. Favor is also adding more photos to the app because items with photos attached had 80 percent more traffic, he said.
GrubHub Inc. (NYSE: GRUB), which owns Seamless and GrubHub, has Maurais feeling comfortable that the delivery boom isn’t a bubble. The company estimated that Americans spent $67 billion on takeout in 2012 and 2013; GrubHub Inc.’s sales totaled $1.3 billion for the nine months that ended Sept. 30, 2014, according to a regulatory filing.
“With them only doing $2 billion out of $70, that’s a huge opportunity in the food delivery market,” Maurais said. “Outside of the domestic market, eventually we’ll want to become a player internationally.”
The potential size of the market means there’s room for Favor’s competitors, too. At least, Maurais doesn’t seem concerned about losing business to Instacart. He admires the company for the way it built up the app itself, as well as its presence in so many cities.
“I use Instacart myself,” Maurais said. “Mostly on the weekend.”