Marc Lore

According to a report this week in the Wall Street Journal, food delivery startup Wonder is laying off employees and will begin to phase out its signature food delivery trucks in the hopes of creating a lower-cost operating model.

This is a massive shift for a company that became the talk of the food delivery business for a high-touch approach built around its delivery vehicles. Wonder not only brought the food to a customer’s home, but it cooked it curbside in vans that had become ubiquitous over the past year and a half in the North Jersey market in which it operates.

According to the Journal, the company will pivot to a more conventional ghost kitchen model, operating ten kitchens around New Jersey and New York. In addition to delivery, Wonder will offer in-location dining and pickup at locations.

Tightening venture capital markets have cast a pall over the startup world over the past 12 months, and today’s news suggests that even superstar fundraisers like Wonder founder Marc Lore aren’t immune to investors’ darkening moods. It had always been an open question whether Lore could continue to raise enough money for an operating model that looked incredibly expensive from the outside, and now it looks like we have our answer.

Lore told the Journal he believed the current model would require another $1 billion in investment over the next two years to expand its mobile truck fleet. Lore now hopes to raise $350 million over the same time period.

In some ways, Wonder’s pivot is reminiscent of Zume, another high-flying startup that used custom-made delivery trucks and raised hundreds of millions of dollars. Zume, which made pizzas using robotic technology in central locations, used its customized delivery trucks with built-in pizza ovens to cook food on the way to customers. By early 2020, the company had run into financial problems and started pivoting away from its food trucks. It wasn’t long before Zume gave up on pizzas altogether, and today the company is a compostable food packaging company.

Now, the question for Wonder going forward is whether it will be able to maintain its momentum with customers in its current markets without the part of its business that most sets it apart from traditional delivery. Wonder has been extremely popular in the market it operates in, in large part due to the high quality and white-glove service enabled by its trucks.

Without that, will Wonder become just another – albeit very expensive – ghost kitchen startup? Only time will tell.

You’ve probably heard about Wonder by now. The high-profile company founded by Marc Lore has people buzzing with its nearly billion in funding and a model that includes chef-designed meals and a network of vans that cook up the food curbside.

Last month I wrote that Wonder has the opportunity to either reinvent the food delivery business or become a case study like others who have tried and failed to build out fully integrated delivery models.

What I didn’t write about is how much Wonder’s customers seem to love the product. After hearing from people I’ve talked to and reviews I’ve read about it online, it seems the service has an almost fanatical user base.

One person I spoke to told me his family uses Wonder multiple times a week, ordering meals that can range well above a hundred dollars with alcohol included to more affordable middle-of-the-week family meals.

Another wrote via Linkedin, “I live in that one metro market that Wonder delivers to, and it is wildly popular in my town. Last week I couldn’t decide between two Wonder “restaurants” Di Fara from Brooklyn or Mozza from LA. Both pizza spots impossible to get into but not when the Wonder truck pull up to your house and cooks it for you on the spot!”

The responses via Apple’s app store are even more gushing:

“The food was wonderful, and I cannot wait to order again. What a fabulous concept. It really works. Telling everyone that I know about the fabulous Wonder trucks.“

“Impressive how quickly you can be eating a fine restaurant quality meal from the comfort of your own home. Hoping Wonder continues to thrive, and that they keep the bar raised high for their commitment in delivering fine ingredient quality meals.“

Here are a few observations about why Wonder seems to be developing an infatuated following:

Users love the quality of the food. In review after review, people say the food is really good. Almost everyone says the food is as good or better than they could get in a restaurant.

The service is white glove. While some users have said Wonder has a kink or two to work out, it doesn’t seem to matter because the customer service is so strong. When Wonder makes a mistake, someone is there to make it right. People also love the chefs who show up at their door in a white coat and Wonder hat to deliver their meals.

People love access to chef-designed meal concepts. Getting quick access to food that could have been made in far-away and popular restaurants like Di Fara Pizza or J Bird from Jonathan Waxman is something that resonates with reviewers.

Word of mouth and omnipresent delivery vans are reinforcing success. Everyone in the New Jersey metro area Wonder serves seems to know about the service. Word of mouth is extremely strong and people are seeing the Wonder vans buzzing up and down the street.

While I can’t verify how many of the app’s reviews are from Wonder employees or Wonder-friendly people, there are too many positive ones (over three thousand at this point) for the early buzz to be contrived. The strong reviews also seem to reinforce what anectodally appears to be a higher than industry average frequency of usage by Wonder customers. I also imagine strong customer metrics are one of the big reasons the company has continued to raise money in an environment much tougher than it was just 6 months ago.

If you’re lucky enough to live in Wonder’s delivery area, drop us a line and let us know your thoughts. I am still unsure how the model scales nationwide, but there’s no doubt that early results show Marc Lore and his team may be creating something special with Wonder.

Imagine you wanted to build a complete-from-scratch meal delivery company.

Not just the delivery part like Doordash. I’m talking about building a company that is essentially an entire restaurant and food delivery industry in a box, one that works with big-name chefs to develop new restaurant concepts, builds centralized food production facilities, creates a network of mini-kitchen hubs around a large metro area, and owns the delivery network to get the food to people’s doors.

In other words, everything. If that sounds like a big vision, it is, and it’s exactly what Marc Lore is building with Wonder. The founder of Jet.com and Diapers.com described the concept in a Linkedin post last December:

Our innovative, vertically-integrated approach begins with exclusive menus from the country’s best chefs and restaurants. A central commissary sources high-quality, fresh ingredients and serves as the start of each meal’s journey. Orders are then fired, finished, and plated in our mobile kitchens just steps away from your door, and served as soon as they’re ready — allowing you to experience the food the way it’s meant to be enjoyed. 

Lore is no stranger to big industry-shifting ideas. He created Diapers.com, one of the early pioneers in online baby products (acquired by Amazon) and Jet.com, a discount-pricing based online retailer acquired by Walmart in 2016. He also has plans to build a Utopian city in the American west.

Wonder’s business model is essentially built around a three-layer logistics network, one where the company owns centralized production, a distributed network of mini-kitchens in various neighborhoods, and the final delivery network that drops the food off at the consumer’s doorstep.

If it sounds reminiscent of Zume, it’s because the two ideas are kinda similar. Zume created a vertically integrated food delivery business complete with a robot-powered pizza-making ghost kitchen, mobile food trucks with ovens built-in and a fleet of scooters to deliver pizza to the customer. Zume also raised a bunch of capital – $423 million – before the company ended up laying off 80% of its employees and exiting the food delivery business to focus on sustainable packaging.

Despite the similarity between the two concepts, Zume’s troubles haven’t dissuaded investors from investing in Wonder. Lore has raised $900 for Wonder so far, including a $350 million Series B announced this month.

In fact, if one thing is clear, it’s that Lore is good at raising money. He raised over $800 million for Jet before he sold it to Walmart, and he’s also started an investment company with Alex Rodriguez with plans to raise $500 million. He also is raising $25 billion for the first phase of construction of utopian city called Telosa, with eventual plans to raise $400 billion.

But even for someone as talented as raising money as Lore, you still have to wonder how long investors will stay patient as his company builds out its food delivery business and scales it to other cities. After raising close to a billion dollars, the company is serving one metro market so far, a cluster of neighborhoods in the New Jersey area. While it’s clear that standing up its first metro market will probably be more capital intensive than its second and third market – the restaurant concepts, recipe development and core technology development built now can be leveraged for each new market expansion – the company will still need to build out a three-layer delivery network for each new metro is expands into.

Who knows, maybe Lore and Wonder can generate enough cash flow with its New Jersey business and can cost-control its burn rate to extend the $900 million out for a couple of years to fund another market build-out or two. Still, no matter how frugal the company remains, it’s going to have to go back to investors at some point, and with things getting tougher in a global macroeconomic environment filled with increasing uncertainty, nothing – including the future availability of multi-hundred million funding rounds – is a certainty at this point.

And it’s not just the economy, but an extremely competitive, fast-changing restaurant and food delivery business. I’d argue the restaurant and food delivery business is even more competitive and market-saturated than baby products or discount e-commerce offerings. Wonder is competing not only with well-capitalized competitors in Amazon, UberEats, and DoorDash, but also facing off against a local mom-and-pop restaurant on every street corner that is increasingly relying on digital business models to survive as we emerge from the pandemic.

All that considered, Lore has an amazing track record that would be foolish to ignore. He’s achieved successful exits for his previous companies, selling both Jet and Diapers.com to big entrenched players (though both companies have been subsequently shut down by their new owners). So maybe investors are looking at those two previous exits and are comfortable Lore can pull yet another rabbit out of a hat.

For his sake and theirs, let’s hope he can do it once again, because if he can’t, I suspect we’ll be studying the case of Wonder years from now as another cautionary tale of audacious visions and spent venture capital.