Chefus — The Farm to Fork Solution

Chefus.com is a Chinese Cloud Kitchen + Food Delivery Start-up in Bay Area started in March 2020. As one of their early users, and now investor + team member, I’ll spend this article on why I think Chefus is the future of food.

March 2020 was both a very bad and very lucky month in my 2020.

Bad because, I was trying to write my PhD thesis while COVID hit. Already swamped, I had no time to cook, but Stanford dining hall sucks, and food delivery was expensive.

Lucky because, that’s also when I got to know Chefus, a Chinese food delivery + cloud kitchen start-up in Bay Area, which solved my food problem once and for all — it’s as good as restaurants in China, as cheap as Stanford dining halls, and as convenient as food delivery apps.

How’s that possible? After becoming their internal test user + attending their investment pitch + finally becoming part of the team, I finally realized: Chefus pushed economy of scale to the limit.

What Chefus does

Chefus operates 2 large cloud kitchens — one in SF, one in San Jose, and partners with professional chefs to prepare tasty, healthy and freshly cooked Chinese food delivered to Bay Area customers twice a day: lunch (between 11am and 1pm) and dinner (between 5 and 7pm).

Customers can pre-order dishes on the website up to 1 week in advance. They can also order on the same day: up until 9am for lunch, and up until 2pm for dinner. Menus are different for different kitchens (SF vs SJC) and different dates.

A Chefus delivery personnel will deliver your food to your doorstep during the pre-specified time window. Once they are en-route, you’ll receive a text message and you can track their location and contact them.

At Chefus, chefs are partners instead of employees — they get a share of the revenue on the dishes they cooked while Chefus gets the rest and take care of rent, utility, delivery personnel, customer service, marketing, etc.

Innovation on the Kitchen side

In a traditional restaurant, a chef is an employee. As a result, he or she does not directly benefit from the fact that she is good — even if her dishes sell well, the wage doesn’t change immediately.

The only way for her/him to profit directly is to open up her own restaurant — but not all great chefs are great businessmen or managers! To run a restaurant, you need the space, logistics, marketing, customer service… Even if you’re great at cooking, you might fail because of the other steps.

Chefus, however, takes care of everything else so that chefs can focus on their core competency. We provide centralized cloud kitchen, utility, equipment, marketing, delivery, and our supply chain network for chefs to get high quality ingredients at low cost. Chef only needs to focus on cooking the best dishes.

With our Revenue Sharing model, chefs can directly benefit from their skills: if a chef’s dish sells well, he gets more! Chefs earn 50–100% more with Chefus than what they used at restaurants. As a result, chefs at Chefus are fully incentivized to produce their best dish + listen to customers’ feedback.

And the chefs do hear from our customers directly: Chefus operates a few large WeChat groups, where all the customers chat everyday about which dishes they liked/disliked and why, which, our customer service personnel directly passes on to the chef.

(Customer avatar and name mosaiced)

One day, we hope we will be part of a chef’s career: after her culinary training, they can come to Chefus to work as a partner, build up his own fan base, iterate on the menu, while earning an income higher than an employee at a restaurant. When the chef is ready, she can leave and open up her own restaurant, but at that time she would have already had a group of fans + a great menu, which will lower the risk by a lot.

Innovation on the Customer side

One of the largest demographic changes in the past 20 years in the US is the delay in marriage and resulted rise in single population + dual career household. In tech term: the rise of ‘Yuppies’ (young, urban, professional).

They are a group of people who (1) care about both the taste and healthiness of food a lot and (2) are too busy to cook but (3) have the money to afford some delivery food and also (4) care about convenience a lot because their time is too valuable.

Does Doordash and other delivery apps solve the problem? Not quite:

• Restaurants on Doordash needs to earn money, and the platforms themselves also need to earn money, and there is delivery cost and fee and tax and tips. As a result, the cost passed onto the customer is enormous — e.g. to get a $9.75 burrito bowl, I need to pay $22.58 in total!

• Restaurant food is often either too salty or oily or both — they were designed in a time when most households eat out once in a while, so strong flavors were actually a plus. But are they good to eat everyday? Probably not.

How does Chefus solve the problem?

• Chefus owns all the steps — from purchasing ingredients to delivery. As a result, we cut out all the middleman — from restaurants to delivery platforms, and pass the cost-saving to you — our dishes are ~20% cheaper than on other platforms

(I used to order these combos all the time — it’s enough for me for 3 meals)

• We use batch delivery to save on delivery cost: for Doordash, a driver delivers on average 1 order per hour; at Chefus, because we group all the lunch orders and all the dinner orders, 1 driver delivers 6 orders per hour. As a result, our delivery cost is near non-existent: it’s free delivery on orders $25 and above (which most orders satisfy), and $2.99 otherwise.
• Because our chefs control the dishes, they can produce dishes that are both tasty and healthy — with the revenue sharing model, chefs are fully incentivized to listen to the customers and rapidly iterate on their dishes to produce the best dishes customers want

If people don’t build their own house and make their own clothes, why do they have to cook their own food? What we do for foodies is what Uber do to transportation — we separate cooking as a leisure and cooking as a chore. People have the freedom to not cook when they don’t want to, while still being able to consume tasty, healthy, and affordable food catered to their taste and delivered to their doorstep.

Market, Driver, Barrier

There are some things all VCs will ask about in an investment pitch:

Market

Food away from home:

• Americans spend 4.6% of disposable income on ‘food away from home’ according to USDA ERA
• In US, disposable income per capita is $45,284 a year, according to OECD Better Life Index
• 4.6% * $45k * 300 million (US population) = $600 billion total available market size!

Cloud kitchen:

• The global cloud kitchen market size was valued at $43.1 billion in 2019, and is estimated to reach $71.4 billion by 2027 with a CAGR of 12.0% from 2021 to 2027.

You might say, ‘but you’re just serving Chinese food in the Bay Area’. In fact:

• We are expanding into other cuisines: in the first quarter of 2021, we’ll introduce typical American dishes and Southeast Asian cuisines
• We are planning to expand to other cities, e.g. Seattle, Austin, Chicago, New York…

But why start from Chinese food in the Bay Area?

• Chinese food is a great niche market as an entry point because (1) Chinese people have very inelastic demand for Chinese food and (2) it’s very hard/takes a long time/requires a lot of training to make
• And Bay Area is a place with one of the highest Chinese population concentration. Chinese, among many other groups of immigrants, are also a high-income group

Driver

You might say ‘it’s because of COVID + WFH that you’re doing well’. In fact:

• As mentioned before, the fundamental driver is the change in demographic structure — over the past 20 years, the share of single population in the US rose from 1/4 to 1/3
• Also, a large part of our customer base are dual career households with young kids who just don’t have time to cook — this part of demand won’t change after WFH ends
• Even if WFH ends, young professionals still need dinner — how many people would stay at their firm until 6pm to get dinner?
• Plus, not all firms provide lunches: SF government doesn’t allow firms whose headquarters are in SF downtown to operate their own kitchen (in order to promote local businesses)
• Even for those with kitchens, it sometimes sucks as much as Stanford dining halls — I haven’t even started my job at Google, but I’ve already heard a lot of complaints about how bad the MTV office’s food is… — We can partner with tech firms, either to serve lunches via food trucks, or provide meals via group orders

In other words, the world might change, but the fundamental demand for convenient, tasty, healthy Chinese food won’t change, and Chefus will also adapt to the changing world with new formats of operations

Barrier

I’ll be honest with you — when I first heard about Chefus’ business model, I was so excited that I thought about doing it myself ( I’m a food enthusiast and am thinking about doing a start-up).

But it turns out it’s not the type of business that a smart Stanford fresh grad can do — it requires a combination of knowledge in the food industry, logistics/operations, and marketing:

• The founder and CEO Allen Shi, holds a BA in marketing, worked as Bay Area general manager for Panda Express, opened 4 different restaurant from 2006–2017, including the famous China Lounge in Pleasanton, and then co-founded Nextdish in 2016, the first Chinese cloud kitchen business in Bay Area
• The co-founder Xintao She, after 5 years of PhD in biochemistry at Texas A&M, founded his first start-up PetQuest which received funding from Chinese tech giant Tencent, then came back to the US and joined Chihuo as COO. Chihuo is hands down the most influential Chinese media platform on food in the US among Chinese speaking community

As a result, they have all the skills you need for a business like Chefus:

• The whole operations + delivery system is one that’s been iterated and perfected during Allen’s Nextdish time (The other founder wanted to become a platform only, and as a result, Allen departed, and created Chefus)
• Xintao has the connection + the experience and intuition running marketing campaigns targeted at the Chinese community and beyond

Volume is the key: the more customers/orders, the cheaper we can get the ingredients, and the shorter distance each driver has to cover, and as a result, the cheaper and faster customers get their meals. This means that there is a natural snowballing effect — the longer Chefus has been around and the larger Chefus is, the harder it is for other players to enter. And whenever our cloud kitchen hits its capacity — around 20 chefs, we open up a new location. And because we have an already developed logistics system, it’s very easy for us to boot it to a new kitchen location.

You might say, ‘Saying that your own existence is the barrier is so fluffy’. But think about it — do you think Uber/Lyft has ‘barriers to entry’? Anyone can create an app, and start pairing drivers and riders. The tech isn’t hard. And in fact, in the early stage, that’s also the case — there were initially 7–8 players in the ridesharing space! Why Uber/Lyft won is a good question, but indeed, now that they have won, and established the brand recognition + user base + a good matching algorithm, it’s hard for new players to take over. (When driverless cars come along, it will be another story :)

Competitors

The first reaction to anyone in a food related business is ‘Isn’t that super competitive?’

Yes the food industry itself is, but we’re the only one (at least right now in the US) with such a business model:

• PopMeals (used to be called Dahmakan) in Malaysia and FreshMenu in India, are two notable players with our business model, operating in markets outside the US.
• Shef lets people cook at home and sell dishes on their platform, but it’s precisely because of that they won’t have the same economy of scale Chefus has: (1) instead of starting from the same location, delivery drivers need to go to each different chef’s home to pick up, as a result they won’t have the same amount of saving on delivery cost Chefus has (2) what Shef saves is ‘rent and utility’, which they say is 1/3 of a traditional restaurant’s cost, but in fact, it’s only 8% of revenue at Chefus, because traditional restaurant locates at popular locations (because they have to attract customers), while Chefus locates in industrial zones (because we deliver!)
• CloudKitchens (Travis Kalanick, previous Uber CEO’s latest investment) may sound like Chefus but it’s fundamentally very different: CloudKitchens only takes care of the kitchen space — chefs still need to distribute their food via Doordash/UberEats, market their brand names themselves, do the purchasing themselves… but as I mentioned above, the rent and utility (8%) for a cloud kitchen really is the smallest part of the cost. At some level, CloudKitchens is a real estate business, instead of a food/restaurant business: what it does is just transforming long-term lease into short-term leases, i.e. WeWork for chefs.
• Nextdish to some extent is Chefus’ predecessor — it’s the first Chinese food cloud kitchen + food delivery start-up in the US/Bay Area. But since Allen’s departure, Nextdish has moved to a completely different business model: they only serve as the platform between Bay Area Chinese restaurants and customers now, and does not cook their own dishes.
• There are more players in the ‘Doordash for Chinese food’ space: Chowbus, Ricepo, HungryPanda, Fantuan, Banban delivery… If you’re talking competitive, this is where the real competition is. But they have all the cost Doordash and the alike still have: they pass on restaurants’ cost/charges to consumers, and also need to charge their own fees. They also are merely serving the restaurants’ dish, which tend to be oily or salty or both, not suited to be eaten every day and every meal.
• Doordash/GrubHub/Uber Eats: again, have all the middlemen cost that makes a $9.75 burrito cost $22.58 in total. Plus — the ethnic food selection, especially Chinese food, really isn’t great.
• BlueApron/HelloFresh/HomeChef: you just can’t make many Chinese dishes into a cooking kit that can be done in 30 min. Let’s take 红烧肉 as an example, one of the most common daily dishes in Chinese cuisine that any Chinese would have had at some point. It takes at least an hour and 4+ major steps and 6+ ingredients, and if you want to cook it well it’ll be either pressure pot 1 hour or normal pot 2+ hours

All in all, there’s just no good substitute for Chefus, and I can well testify this — ever since getting to know Chefus, I haven’t ordered anything else ever since, and it’s in fact been a big factor why I haven’t left SF Bay Area yet :)

We’re raising seed round!

After 8 months of organic growth, Chefus is finally raising its seed round. In the past month, we’ve already raised a decent amount just from our customers — we’re excited to see that our loyal customers have moved beyond contributing ideas on which dishes to serve to investing!

80% of our 4000 registered users are acquired organically through word of mouth, and that’s at a time when we did not even have the referral bonus yet. The 7-month life-time-value (LTV) of a customer in terms of revenue is $433, but our acquisition cost is below $20. This means that we can and should spend more on user acquisition in order to increase our volume, which is at the heart of Chefus’ business model.

The key to our success is 1) high quality food at great price and 2) customer engagement, and that’s what we are raising the seed round for. With 200 orders per day, having validated our model, we’re ready to scale with a seed round. With the funding, we can partner with more chefs, provide better variety dishes to our customers, shorten the delivery time frame, improve our website and the customer experience, and truly free our customers from kitchen chores and empower our chefs to thrive in their careers.

Contact

If you’re interested, please reach out to me, Scarlet Chen scarlet@chefus.com. We at Chefus are excited to hear from you!