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Michelle Rial / BuzzFeed News

The Inside Story Of How A Food Startup Cracked

For all of Good Eggs' noble intentions, big money, and tech bells and whistles, reinventing the grocery store turned out to be much harder than anticipated. What does its stumble mean for the future of ordering food online?

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Mark Stambler had just put a batch of bread in the oven when he got the news. It was August, and Good Eggs — the startup that’d been delivering his award-winning, organic loaves throughout Los Angeles for more than two years — was shutting down service in the region, effective the next delivery day, the email informed him. It would also pull out of Brooklyn and New Orleans and lay off nearly 140 employees, out of a workforce that was once more than 300. It had grown too fast, the company admitted, and was making mistakes.

Stambler’s operation, Pagnol Boulanger, is just him and a part-time assistant working out of Stambler’s Los Feliz home. He even stone-grinds the flour for his traditional French sourdoughs himself. He is, in other words, exactly the kind of producer the delivery startup wanted on its roster: homespun, high-quality, authentic, small. And Good Eggs, the 62-year-old baker said, “frankly seemed like a godsend. There’s no way I could have distributed my bread to all the people who live in the greater Los Angeles area.” Customers could go online and order groceries from a number of local producers, and four times a week, Stambler would drop off his signature loaves, still warm, at Good Eggs’ warehouse in the morning, to be delivered by company employees that day. No longer.

Good Eggs was founded in July 2011 in San Francisco. The two software developers behind it wanted to build an efficient way for small farmers and producers to reach consumers who were interested in fresh, beautiful ingredients but didn’t necessarily have the time to hunt them down at a farmers market or a grocery store (which probably wouldn’t carry them to begin with). It was a promising idea, well-positioned at the white-hot Venn-diagram center of some of the biggest themes in tech right now: tech-enabled on-demand delivery, food, eye-popping funding rounds. Good Eggs started operating on a limited basis in the Bay Area in 2012, and by the end of the following year, it had expanded to full service there, opened three additional hubs around the country, and was on its way to hiring hundreds of employees. To date, it has raised almost $53 million in venture capital.

But by Good Eggs’ own admission — and as Stambler’s sudden email indicated — building the business was immensely, unexpectedly difficult. On-demand delivery, perishable inventory, strict regulations, fluctuating prices, and city-specific quirks added up to a host of logistical challenges that can’t always be neatly predicted or solved by software. At the same time, Good Eggs is up against a slew of rivals: Ingredient- and grocery-delivery startups like Blue Apron, Plated, Instacart, HelloFresh, Gobble, and FreshDirect; precooked meal services such as Seamless, Caviar, and Sprig; and behemoths like Amazon, Google, and Uber, which are getting into food delivery with a massive infrastructural head start. In other words, the company was seeking to enter an enormous industry with a uniquely convoluted supply chain and a history that’s literally as old as farming itself — and it was hoping to do so rapidly, in the face of heavy competition.

Good Eggs, for its part, says it’s committed to sticking around and eventually expanding again, having recently introduced original recipes and faster delivery. This month, it replaced its co-founder and CEO, Rob Spiro, with Bentley Hall, who’s been working in the food industry for about a decade. The company may well survive.

But its August stumble is illustrative, not just for the Blue Aprons and AmazonFreshes of the world, but for any company hoping to make big changes in the physical world. The business of disrupting food, as Spiro and Stambler and Hall all surely now know, is hard but the truth is, the business of disrupting anything is hard. Tech utopianism and Silicon Valley success stories like those of Uber and Airbnb have taught a generation of would-be entrepreneurs that turning an entire entrenched industry on its head is as easy as combining a smart idea, good intentions, seed money, market research, and elbow grease. But Uber and Airbnb are the exceptions rather than the rule, and Good Eggs’ tumultuous history to date is an object lesson for the entire on-demand tech economy, a reminder of what can go wrong when a startup tries to grow too big, too quickly. Move fast and break things is as good a mantra as any for a software company, but maybe not when moving fast means upheaving a centuries-old system nearly overnight, and when those breakable things aren’t zeroes and ones but potatoes and eggs.

Before Good Eggs existed, Spiro spent a year after Yale University harvesting heirloom tomatoes and eggs from pastured chickens on a family friend’s farm in the lower Hudson Valley. He still speaks of the experience in the devotional language of a convert.

“When you see that firsthand on a farm, you realize very viscerally how transformative it is for your health, for the land, for people eating it, for the community that builds around it,” Spiro told me in early November, when he was still the CEO. We were on the top floor of Good Eggs’ 56,000-square-foot warehouse, which is physically part of, though not affiliated with, a produce distribution center in San Francisco’s blue-collar Bayview neighborhood. Below us were walk-in coolers full of cauliflower and squash, shelves of pasta and crackers, and employees driving off with the day’s final deliveries, packed in Good Eggs’ signature brown grocery bags.

“It’s just, like, plain and simple better for everybody, better for the world, and the food tastes a lot better,” Spiro added. “Once you realize that, and have that aha moment about where good food comes from and how it’s grown and made, it’s very hard to go back. And if you want to eat that way and you’re living in the Bay Area, it’s relatively easier than it is in other places, but you still have to hustle to get the best kind of food.”

A few years would pass before Spiro returned to agriculture. In 2007, he co-founded Aardvark, a social search site that was acquired by Google for a reported $50 million in 2010. Spiro worked as a product manager on Google+ for a year before leaving to start Good Eggs along with Alon Salant, who’d helped found the web and mobile development firm Carbon Five.

Food is a massive industry, one that generated $643 billion in sales in the U.S. alone in 2013; that estimate doesn’t include restaurants and bars, which contributed an additional $543 billion. Salant and Spiro sensed that customers wanted more convenient ways of getting it. Although e-commerce has traditionally made up a small slice of grocery sales, a recent Nielsen survey of 30,000 people worldwide found that one-quarter were ordering groceries online, and more than half were willing to do it. The duo also saw that consumers were becoming ever more health-conscious and placing more value on unprocessed foods. Between 2004 and 2014, the number of farmers markets nationwide skyrocketed from 3,700 to 8,300, according to the U.S. Department of Agriculture.

Good Eggs is right at the nexus of those trends, a clear product of the Bay Area's food culture and tech ethos. What further sets it apart is an emphasis on customer choice. Instead of physically visiting a single farmers market, or accepting whatever happens to be available in a community-supported agriculture (CSA) box, Good Eggs shoppers select from a cornucopia of goods from a variety of producers: gluten-free bread, grass-fed beef, raw milk, wild sea scallops, pies, organic cranberries and kale, all showcased in lust-inducing photos on Good Eggs' website. “Our intent is to replace your trip to the supermarket,” Spiro said.

After months of research, Spiro and Salant held their pilot launch party in July 2012, on the streets of an open-air farmers market in San Francisco’s Mission District. It expanded delivery to the entire Bay Area in February 2013, then opened shop in New Orleans and Los Angeles in June, and Brooklyn in November. In 2014 alone, the company’s producers tripled from 300 to almost 1,000.

Good Eggs designed its business to ease the burden of billing, delivery, and marketing for producers. Its software compiles orders and customer information for food-makers, and, internally, the company uses data-driven algorithms to predict how much of a product will be needed on a certain day. (Until recently, Good Eggs delivered orders two days after they were placed.)

Spiro said this system is “10 times more capital-efficient” than that of a typical grocer, mostly because it dramatically cuts down on the problem of “shrink,” the industry term for produce that’s delivered to supermarkets but ultimately isn’t sold. One study estimates that 12 billion pounds of fresh fruit and vegetables annually go to waste this way in the U.S.

One of Good Eggs’ first L.A. producers was Stambler, who’s been baking bread at home in Southern California since 1977. In early 2013, before the L.A. hub was even up and running, the general manager invited him to bring some loaves to her home. As they discussed the concept over mouthfuls of fluffy sourdough, he was sold. “When they told me … they were going to market my bread, and get it out to customers, and collect payment from them, and deposit it in my bank account with no effort on my part, I was just in heaven,” he said.

The praise came almost as quickly as the growth. The New York Times’ Jenna Wortham raved, “There’s just one word for the food from Good Eggs that successfully made its way into my kitchen: phenomenal!” Wired declared that Good Eggs “is here to provide the much-needed tech and software support to the local food movement,” and famed Bay Area chef and “slow food” movement pioneer Alice Waters endorsed it. Forbes put Spiro on its “30 Under 30” list in food and wine in 2014. USA Today nominated the company for Entrepreneur of the Year.

Time and again, Good Eggs’ leaders cast it as an agent in a broader movement. Consumption, they said, was not just financial and physical, but emotional — political, even, in that it said something about your values. “I love that, the concept of being empowered by what you consume,” Max Kanter, a community manager who helped launch the L.A. hub, told the culinary magazine Life & Thyme. “It’s really easy to go into a grocery store and be bombarded by marketing to feel empowered, but the products you’re buying are coming from all over the country. With Good Eggs, you can come to events and meet people, you can e-mail the farmers. We provide a connection you don’t get when you go to the grocery store.”

Along the way, Good Eggs sold investors like Index Ventures, Baseline Ventures, and Sequoia Capital on its vision and raised $52.5 million, according to the company. And Stambler was pleased with the company, which generated a steady and increasing percentage of his monthly income — 20% by the end, or about $240 for 60 loaves. He so enjoyed hanging out with the rapidly growing staff that he routinely baked them an extra loaf. He’d unload his deliveries at a 9,000-square-foot facility in a former Hostess bakery by the L.A. River; as large as it was, the staff was planning to move into a space more than twice that size — 20,000 square feet — within the same building. In a room that once churned out processed sweets, there were now young people lounging at desks and couches, working on their MacBooks by lamplight, and chatting about local food all day, Stambler recalled. This was a group who loved what they were doing.

In L.A., the trouble began, as it so often does, with traffic. The city’s perpetually clogged highways are a secret to no one, including Meg Glasser, who in the spring of 2013 was the first employee at the hub, and, eventually, its general manager. Still, she didn’t grasp just how bad the congestion was, or what it would mean for simple decisions like which day to do Good Eggs’ initially once-a-week deliveries on: Wednesday.

That was the day of the popular Santa Monica Farmers Market. Good Eggs would take orders online on Sunday and Monday, pick up produce at the market Wednesday morning, and bring it to customers that day, so it was as fresh as possible.

As it turns out, Wednesday mornings are among the worst times to drive in L.A. (although Friday is technically the all-around worst), according to an analysis by traffic data firm INRIX. Glasser’s team quickly discovered how hard it was to traverse the sprawling region to make a delivery window of a few hours. Good Eggs eventually stopped picking up food from the Santa Monica market, but “even two years later, Wednesday was always our biggest day because our original customers came on Wednesday,” Glasser said. “It created future challenges for us that we could have never anticipated.”

Why didn’t someone at headquarters better research traffic patterns before L.A. took the plunge? Glasser appreciates that she and her staff had freedom to experiment with new ideas, like delivering to the downtown area by bike. But “there probably should have been more guidance early on,” she acknowledged. “The model really should probably be honed in — I wouldn’t say perfected, but honed — before you expand to other cities.”

Other hubs had their own region-specific challenges — like climate. “California can grow lettuce more or less all year long; their climate’s much milder,” said John Bartlett of Bartlett Farm, a flower, produce, and egg farm north of New Orleans. But the South’s more extreme temperatures mean farmers there have relatively short windows to produce a lot of quality food.

Unpredictable day-to-day weather also complicates life for growers like the Lancaster Farm Fresh Cooperative, whose produce was on Good Eggs before it actually came out of the fields. “From the time they order it until it’s harvested, there could be a rainstorm,” said Nick Tyrrell, the former New York City sales representative for the Pennsylvania collective. “Even an inch of rain can really affect the harvest for the next day.” When farmers couldn’t provide the promised goods, Good Eggs would have to quickly track down substitutes or refund customers. “Whenever companies come into this sort of model and don’t already have a background in it,” Tyrrell said, “they don’t really grasp how often things like that can happen.” (Good Eggs spokesperson Ally Khantzis said that when it became clear that not all food could be locally sourced year-round in New York and Louisiana, those operations would use produce from other hubs in the off-seasons.)

And then there's the other, bigger, more existential question about Good Eggs: In a place like Brooklyn, is there a real need for it? “There’s already a food culture there and there’s so many other outlets to get stuff in people’s neighborhoods," Tyrrell said. "There’s not really any reason to have it delivered to your house."

Then again, New Orleans may have struggled with the opposite problem. “If you walked down the street and asked people where they get their food from and how they want it, a lot of people down here just don’t care,” Bartlett said. Some people, he added, also can’t afford to care. The average annual household income in New Orleans is $37,150, versus $75,600 in San Francisco.

Spiro said that Good Eggs’ prices are on par with Whole Foods’. Current offerings include Fuji apples at $2.99 a pound, a dozen large pasture-raised eggs for $8.29, and a $7.89 gallon of 1% milk, all organic.

And if forces as strong as weather and economics weren’t already positioned to hit Good Eggs, regulation was. Pam Warner — who sells pasta, chicken pot pie, and other hearty dishes as the operator of Tessier Gourmet, near New Orleans — didn’t realize at first that under federal law she needed to be licensed to sell anything with more than 2% cooked meat. But Good Eggs staff didn’t either, she said, until regulators saw her tamales and lasagna online and told her to pull them. (Khantzis said that Louisiana has its own meat inspection department with its own interpretation of federal statutes, which led to “conflicting information.” “As always, we acted with complete transparency and provided our Louisiana producers with the information they needed from the local regulatory agencies as soon as possible,” she wrote in an email to BuzzFeed News.)

This spring, the L.A. operation discovered that its building’s permits weren’t up-to-date and closed for about two months to make upgrades, like marking all the exits and adding drainage and sprinkler heads, according to Glasser. “It wasn’t that we were trying to break any rules,” she said. “We were all new at this and maybe didn’t know the right questions to ask.”

Khantzis said that the L.A., Brooklyn, and New Orleans hubs were ultimately meant to be experiments, “less about rapid growth than they were about testing our model in different markets, each with their own set of complexities.” That “testing” philosophy also led Good Eggs to reconsider offering a combination of goods that are made or harvested to order, ordered ahead of time, or bought in bulk, depending on their level of perishability. Over time, Khantzis said, the company has shifted more toward buying set quantities of produce in advance to better fit farmers’ schedules.

From the start, Good Eggs was supposed to be a seamless merger of technology and food, and its office operations reflect a certain Silicon Valley ethos: During its daily lunch hour, for example, employees from tech (software, marketing, design) and operations (managing, packing, delivering) are encouraged to enjoy a meal cooked in-house with ingredients from suppliers.

In February, Good Eggs announced that it had been certified as a benefit corporation: a for-profit dedicated to having a positive societal and environmental impact and treating workers well. “We’ve always been committed to providing quality food jobs — especially in an industry that’s notorious for egregious labor practices — and our B Corp. certification is a testament to that,” Khantzis wrote. “This means excellent entry-level wages, health insurance and paid time off for all employees, including folks who work in operations and make deliveries.”

But bringing together white- and blue-collar workers can be difficult, and some former workers said the two worlds were in fact deeply divided.

Said a female former Good Eggs employee who worked on the tech side in San Francisco, “I felt like I was very disconnected from their world and how things worked for them. I don’t feel like I had as much insight into where things weren’t working or what they dealt with day in and day out.”

Danielle Mitchell, a former pack lead and driver for Good Eggs in San Francisco, said the two sides sat separately and rarely interacted. She described operations as chaotic and the company’s environment as one in which her team didn’t feel valued equally and saw their roles restructured without explanation. All employees were required to occasionally help pack and deliver in order to learn how that process worked, but, she said, operations staff weren’t invited to shadow engineers in return. (Khantzis said the “operations team provide critical input to these processes so that we can iterate quickly and execute on the technology.”) Mitchell said that her app often assigned her delivery routes that backtracked all over the region, or significantly underestimated the time it took to park, find a customer’s home, and get back on the road. “It was a serious lack of appreciation for the physical working man.” (Khantzis said that external software generates the delivery routes, which Good Eggs’ delivery managers then verify and adjust.)

In November 2014, Good Eggs raised $21 million in a Series C funding round. A month later, it signed off on plans to move out of its second office. Come January, 15% of employees were laid off as part of a restructuring on the operations side. Over April and May, the staff moved into the bigger, 56,000-square-foot warehouse where they are now. And on Aug. 5 came the 140 layoffs. A head count that had peaked at about 350 was now 125.

“When building a software business, hard lessons are learned in code and quickly corrected,” Spiro wrote in announcing the changes. “When building a food and logistics business, hard lessons involve people, and partners, and are very hard to correct.”

The business of on-demand food is not a new one. Restaurants have long brought ready-to-eat Chinese and pizza to your door. More recently, Seamless, Caviar, Sprig, GrubHub, and the like have respun the concept with attractive interfaces and Web 3.0 gloss. And at the same time, a new breed of food startup is delivering pre-proportioned, sometimes even pre-marinated, ingredients to cooks’ doors with easy-to-follow recipes. The vegan service Purple Carrot promises a meal in under 45 minutes; Blue Apron, 35; Plated and HelloFresh, 30; Gobble, a scant 10. Even Munchery, which started out delivering precooked meals, recently introduced a meal-kit option (15 minutes).

Good Eggs is different. All the aforementioned services, with the exception of Munchery, require users to subscribe to once-a-week deliveries, which in turn lets the companies plan more in advance. While Good Eggs customers can have certain items delivered on a set day every week, that’s not the focus of the business. Blue Apron CEO Matt Salzberg said, “We know the demand ahead of time, which allows us not to hold perishable inventory in other ways that Good Eggs or Whole Foods have to do.” The regularity also frees up companies to ship nationwide through a service like FedEx, instead of relying on employees to live in the same place they’re driving and delivering.

Another challenge for Good Eggs was that two-day delivery began to look slow compared to rivals like Instacart, which guarantees groceries within the hour. Good Eggs has always banked on the promise that the quality of its food is worth the wait, but convenience is attractive, too. Glasser, the ex-L.A. manager, went on to help launch yet another venture-backed farmers market–delivery service, GrubMarket. In early November, she was optimistic that it wouldn’t repeat Good Eggs’ missteps and would instead space out deliveries, stock things besides groceries, keep prices relatively low, and grow slowly.

Soon after, Glasser left GrubMarket for reasons she declined to discuss. “I think that there’s clearly a market for food being delivered,” she said. “But the margins are so slim and there’s just a bunch of logistical challenges to get through that really make it very challenging to be successful. They’re not at all unique to Good Eggs.”

Good Eggs acknowledges that it needs to get faster at giving customers what they want. Since August, it’s introduced next-day delivery and an iOS app to speed up ordering. It’s also developed recipes for dishes like potato rosti and maple carrots with baked ricotta. It is still hiring software engineers and operations employees alike. The focus now is on becoming more efficient and, for example, getting next-day delivery right the first time. “It was a really brutal decision to say, ‘We’re going to move a lot faster and ultimately be more successful, with a more innovative model, if we just focus on one city and then expand later,’” Spiro said. “We didn’t want to wait until we were so slow and running out of money.”

Spiro announced this month that he was stepping down as CEO while remaining board chair. His replacement is Bentley Hall, who previously spent seven years as an executive at Plum Organics, an organic food maker for babies and children, and also used to work at Clif Bar. Hall was unavailable to comment for this story.

Good Eggs believes that there is still widespread consumer demand for its service, based on the disappointed comments that came pouring in when its hubs closed. And the company still has several hundred producers in and around the Bay Area. Mark Kline, program and account manager at The Pasta Shop, a two-store chain of gourmet grocers in the East Bay, said Good Eggs sales have nearly tripled in volume since it joined two years ago. “It makes it much easier for customers to get our products.” Jack Rudolph, manager of Stepladder Ranch, sells avocados at $5 a pound and says he makes back $3.50 on Good Eggs, compared to $1.30 on the wholesale market. The site now accounts for a quarter of the farm’s monthly income. “It’s nice to take the super primo stuff and make more money off it,” he said.

As the food distribution industry evolves in fits and starts, Good Eggs’ ex-producers are doing their best to make do without the extra business the company brought them. The additional revenue allowed New Orleans chef and pasta maker Daniel Esses to hire a full-time employee, but Esses said it was a struggle to keep him when the money dried up. Nate Siemens, an almond farmer in the San Joaquin Valley, said the closure partially inspired him to cut his own staff by 75% and their number of farmers markets from 20 to 3. “If they can’t make it work, we need to be really careful about acting as if we can make it work easily, too,” he said. “There’s a lot of money in the field and interest in it, but that doesn’t necessarily equate to a sound business model or operations.”

Good Eggs turned Luisa Alberto, the owner of Sow Juice in San Francisco, bearish on the instant-gratification economy. She pulled out before next-day delivery kicked in, knowing that she and her two employees couldn’t handle getting orders at 10 p.m. and making fresh juices by 4 a.m. “It’s really still very difficult to get very high-quality food to people in a convenient, on-demand sort of way, and maybe that’s OK,” she said. “Maybe that food just stays special and people have to get off their ass and go somewhere.”

Stambler, for his part, has since teamed up with two smaller, local produce-delivery services, Out of the Box Collective and FarmBox. Publicity and distribution remain his biggest struggles, so he remains cautiously optimistic about the future of food delivery. Even as a professional chef, he says he’d happily pay someone to show up with dinner at the end of a long day.

But Good Eggs provided a bewildering glimpse inside a boom-and-bust world where an enterprise with honorable intentions, and more resources than a one-man shop could ever dream of, can perish overnight. “If they couldn’t figure out how to make it work for $50 million —” Stambler stopped, caught himself, started again.

“I thought you could make any business work for $50 million.”

Stephanie Lee is a senior technology reporter for BuzzFeed News and is based in San Francisco.

Contact Stephanie M. Lee at stephanie.lee@buzzfeed.com.

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