Iconic Tour

A start-up taking a bite out of the food delivery business

By Anne Field, special to CNBC.com

When Adam Price moved to New York City from San Diego close to three years ago, he didn't expect to see hordes of bicycle delivery folks transporting restaurant orders to customers.

Price, a former aerospace engineer on the lookout for a start-up idea, realized he'd hit pay dirt. Why not launch a business with a tech platform allowing busy Manhattan restaurants to outsource that complicated task seamlessly to a trained staff of delivery personnel?

After talking to dozens of restaurant owners and employees, he launched Homer Logistics to do just that in 2014.

Price's answer was to create a centralized logistics system which takes orders from multiple, participating restaurants and then assigns them to Homer's own deliverers, who communicate with headquarters via an app; it also tracks their location and other information. "We aggregate demand by sharing deliveries across different restaurants," he said. "Restaurants are not logistics specialists, but we are."

We're developing a better way to distribute packages in a large urban environment.
Adam Price
Founder and CEO, Homer Logistics
Adam Price, Homer Logistics
Source: Homer Logistics

What's more, using UPS as its model, Homer controls the entire process through its software platform — from consolidating online and mobile restaurant orders to hiring, training and outfitting its own delivery fleet. According to Price, while costs are 20 percent to 30 percent higher than they might be otherwise, those expenses are made up for in increased efficiency. Homer charges restaurants an undisclosed percentage of the total order, plus a flat-fee for each delivery.

Now, the company has around 200 employees, most of them delivery staffers making about 25,000 drop-offs a month. Revenue, which was around $500,000 to $1 million last year, is on track to increase to anywhere from $2 million to $10 million in 2016, according to Price. "We've figured out the best way to optimize the delivery process," he said.

Homer aims to solve a big problem faced by restaurant owners in highly dense metropolitan areas, especially New York City. Manhattan restaurants deliver more than 200,000 orders a day, according to Price's estimates. But it's expensive and inefficient for those eateries, which generally pay for their own employees to make deliveries. For one thing, the return trip is wasted, since delivery people come back empty-handed. Plus, restaurant owners have to hire and manage their own fleet, a time-consuming chore.

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As it happened, Price homed in on a lucrative niche that is about to explode. U.S. consumers spent about $3.5 billion on delivery food from independent restaurants, according to Guggenheim Securities, a New York investment advisory firm, a number that could increase to $12.5 billion by 2019 as more consumers opt for the convenience of ordering out.

But it's also an increasingly competitive market. At around the same time Price started ramping up, so did a number of other players. For example, last year, GrubHub, which has a platform for ordering meals online and via mobile phones available in more than 1,000 U.S. cities and London, introduced a delivery service for restaurants on its site, now in about 50 markets in the U.S. Grubhub's business model, however, is different. It makes its money by taking a commission from restaurants that list on its site — typically 10 percent to 14 percent or more for ordering and an additional amount for delivery — according to the company.

Then there's Y Combinator-backed DoorDash in San Francisco, a start-up that has raised about $60 million in funding since its launch in 2013. DoorDash's service is now being tested by Yum Brands' Kentucky Fried Chicken in California.

Unlike Homer, rivals focus on the consumer making the order, instead of the restaurant that cooks the food. Take DoorDash. Customers go to the company's web site or use its app, find an eatery, and place their order. It's relayed to a DoorDash driver, an independent contractor, who picks up the food and delivers it.

"This is a market that's getting over-crowded," said Marcelo Ballve, research director of CB Insights. "You can't have more than three or four companies in any one metropolitan area doing this successfully."

Brand building

Tiny Homer plans to stay ahead of the pack through a slow and steady expansion, conquering one highly local, ultra-dense, urban market at a time. Manhattan is the first stop, but eventually Price plans to expand to such areas as The Loop in Chicago and Philadelphia's Center City.

Homer 's investors and customers also point to a number of the company's advantages. First, there's the basic business model of working behind-the-scenes with restaurants, instead of focusing on the consumer. "They're not driven by reaching a lot of individuals," said Jeffrey Silverman, managing director of Laconia Capital Group, a New York City-based venture capital firm focusing on pre-Series A-stage startups that is considering investing in Homer. "It's much more efficient to do this from the restaurant perspective."

Perhaps most important is the company's staff of delivery people, who get a full roster of benefits. To keep turnover at a level of less than 10 percent, employees receive a guaranteed salary starting at $10 an hour, including tips, plus bonuses; average pay is around $15 an hour. They're also outfitted with important accessories, wind guards that fit over the handle bars and face masks.

And they attend monthly meetings held in a rented theater, where they're free to raise questions and make suggestions, which are frequently followed up on. For example, last April, in response to employee complaints, Price changed the delivery bag to an insulated backpack, according to Carmelo Rodriguez, a trainer who started as a delivery person a year ago.

"Delivery is now an extension of our brand," said Josh Morgan, operating partner of Aurify Brands, a New York City-based restaurant group that started using Homer for two of its 28 locations nine months ago, which are located primarily in Manhattan and Washington, D.C. Plus, delivery time has decreased from about 45 minutes to 20 minutes, increasing the number of orders the restaurant can fill. While Morgan hasn't tracked the numbers so far, "As we provide more consistent and reliable service, our delivery business is going to increase a lot," he said.

An accidental entrepreneur

Price moved to New York City after working six years for a San Diego engineering firm, determined to become a tech entrepreneur. While working from a co-working space in the Zahn Innovation Center at The City College of New York, he noticed how many different restaurants were using their own people to deliver orders. "It seemed horribly inefficient," he said. After polling restaurant owners, Price found he'd hit a sore spot: They loathed the process of hiring and managing a delivery staff, but had to keep up with consumers' increasing demand for take-out and delivery.

To launch the company and develop the software, Price entered and won $10,000 in a Zahn business plan competition. After ironing out some wrinkles, he convinced a couple of restaurants to try out the service, making many of the deliveries himself. He then raised a total of $2 million in convertible notes in two pre-seed rounds from a mix of restaurants and venture capital firms, including Two Sigma Ventures and Brooklyn Bridge Ventures.

Homer's next step could be branching out to other products, like pharmaceuticals. Said Price: "We're developing a better way to distribute packages in a large urban environment."

—By Anne Field, special to CNBC.com