Minneapolis-based restaurant delivery service Bite Squad, founded in 2012, is being sold to Lake Charles, Louisiana-based Waitr Holdings Inc. for approximately $321.3 million in a combination of cash and stock. The deal, announced Wednesday morning, is expected to close by the end of January.
The move will bring Bite Squad’s business to Wall Street: Waitr Holdings is publicly traded.
Bite Squad, which now has a presence in 20 states across the U.S., has been building its business in recent years by acquiring approximately 40 other companies in smaller markets. Waitr’s food delivery markets are concentrated in the southeast U.S.
Prior to the announcement of the sale, Twin Cities Business reported a feature story about Bite Squad and its strong growth for our January 2019 issue, which has not yet been published. Bite Squad does not disclose its revenue, but co-founder and CEO Kian Salehi told TCB that the company’s sales were into “nine figures,” putting it above $100 million.
Bite Squad’s third quarter 2018 revenues were up 98 percent from the same period a year ago.
“We are thrilled to join forces with the Waitr team,” said Salehi in a statement.
Houston Rockets owner Tilman Fertitta created a blank check company, Landcadia Holdings Inc., which went public in 2016. Blank check companies have no business operations, but are created to complete mergers or acquisitions. Landcadia announced a deal to acquire Waitr, founded in 2013, in May. Landcadia just completed the $308 million deal for Waitr on November 15. After the closing, Landcadia changed its name to Waitr Holdings Inc.
Fertitta is no stranger to the food business. Fertitta also owns Houston-based Landry’s Inc., which operates more than 600 restaurants over a number of brand names including Morton’s, McCormick & Schmick’s and Rainforest Café, which was founded in Minnesota.
In New York City, food delivery has been a staple of urban life because so many of its residents lack cars. But in the rest of America, pizza was all you could get brought to your home for decades. That’s changing as millennial culture works to optimize all aspects of domestic life into a delivery economy and major urban centers all over America become home to carless young adults. And so the market for delivered food has broadened.
Minneapolis-based Bite Squad has proven that a privately held upstart can dominate national players in a market like ours. But can it compete with them nationally while keeping the loyalty of customers and a restaurant industry where it cuts into profitability while it builds volume?
Bite Squad started small in 2012, with five drivers and 17 restaurants in Minneapolis, delivering orders locally a few years before national players like DoorDash, Uber Eats, Amazon Restaurants, and Postmates joined the fray in the Twin Cities. Seven years later, the company is delivering food in about 65 markets across the U.S., with nearly 10,000 drivers and more than 10,000 restaurant partners. In late November the company entered Illinois -- Bite Squad’s 20th state.
The privately held Bite Squad does not disclose revenue. “It’s into nine figures,” says co-founder and CEO Kian Salehi, which puts the company’s sales north of $100 million. He says that from October 2017 to October 2018, order counts rose more than 100 percent. Bite Squad makes money on both sides of the deal: charging a delivery fee to customers and taking a commission from the restaurant. Bite Squad declines to disclose its restaurant fees, but the industry standard is for delivery companies to take 25 to 30 percent of the sales in commission.
Perhaps the most telling detail about Bite Squad’s business is that Wall Street has noticed. The name Bregal Sagemount might not be well known in Minneapolis, but the New York-based private equity firm, with $1.7 billion in assets under management, led a 2017 financing round for Bite Squad. Salehi declines to disclose the proceeds, but the investment is likely substantial. Bregal’s website says the firm looks to back “market-leading companies in high-growth sectors.” The company’s typical deals range from $25 million to $150 million for equity investments or $8 million to $30 million for credit/debt.
If you look at our size right now … we’re in a position where we can certainly go public, and we’ve charted that route out and we’ve done all of our homework and made the necessary changes to have that option available to us. At some point we’re going to have to have that conversation: What do we want to do? And that will be probably something that we’ll address in 2019. We’re just focused on growth right now and that’s it.
—Kian Salehi, CEO, Bite Squad
Some have called food delivery companies part of the “on-demand economy,” propelled by the desire to exert minimal effort for instant (or near-instant) gratification.
“It’s largely driven by millennials,” says Ryan McConnell, senior vice president with Kantar Consulting, a global retail research and consulting firm with U.S. headquarters in Boston. “All the expectations that they’ve been raised on, there is this desire for immediacy. It primarily is technologically driven.”
Bite Squad has expanded into new markets over the last two years by buying up local players—so many that Salehi doesn’t even have a precise count; he estimates 40 purchases financed via debt/investment and cash flow. Bite Squad remains focused on opening and building operations in new cities and expanding its presence in existing markets.
“There certainly is a lot of competition to face, but, contrary to what most people think, we strongly feel that this is not a winner-take-all business model,” he says. “Our strategy is we typically don’t enter markets where we don’t feel we can be a market leader. And that’s why you don’t see us in San Francisco, Los Angeles ... you look at New York, you look at Chicago, you look at D.C., you don’t see us in any of those markets.” Nevertheless, Bite Squad is keeping its foot on the gas.
“Any good growth plan should feel a little uncomfortable because it’s aggressive,” says Kyle Hale, Bite Squad’s chief operating officer. “Our growth plan is very aggressive.”
In a single day in mid-November, Hale says, “we launched two markets today before I had a cup of coffee.”
The delivery charge ranges from $1.99 to $4.99.
Customers have the option of tipping drivers.
Commission charged to the restaurant
Industry standards are 25 to 30 percent of sales to the delivery company.
Bite Squad’s offices are easy to miss. The operation sits in an unremarkable two-story office building amid brownstone apartments at the eastern edge of downtown Minneapolis, not far from Hennepin County Medical Center. There’s little indication that it’s home to a company expanding across the U.S. at a strong clip.
Bite Squad’s headquarters includes a command-center operation of people with headsets at computers. Some have three screens in front of them; others have six. There is an element of military precision to the operation that handles customer service, dispatching, and the company’s “catering” business for larger corporate orders. Bite Squad now has a second support office in Mexico City. (Bite Squad does not offer delivery in any markets outside the U.S.)
Salehi grew up in the delivery business. Born in Iran, he arrived in Minnesota in 1985 when he was 3 years old. His father had an engineering degree, but in the U.S. he could only find work he was wildly overqualified for—as a delivery driver for Domino’s Pizza, which boasts of having “pioneered the pizza delivery business.” Salehi’s father parlayed his experience into buying a franchise, operating a handful of Domino’s locations. Salehi was working in the business as a boy and started working as a manager when he was 14 years old.
Bite Squad was not his first business idea. He and partner Arash Allaei established holding company Kasa Capital in 2008 with a plan to get into e-commerce. In 2010, they created CrowdCut.com, following in the footsteps of Groupon. “We executed the exact same business model overnight,” says Salehi. “We were very successful in that.” They sold CrowdCut in 2014.
Restaurants were popular on the daily deal site. Salehi notes that his business partner is a foodie but was unimpressed when ordering from delivery operations at the time. A company called Restaurant Connection was operating in Minneapolis; orders were sent to restaurants via fax. “It was just very poor tech,” recalls Salehi.
Kasa’s developers spent six months building the technology to create Bite Squad. Salehi was living in Los Angeles at the time but flew back to Minneapolis on a one-way ticket expecting a short stay. Instead he was here for 18 months building Bite Squad. Then he moved to Seattle to launch operations there; after that he relocated to Las Vegas to bring Bite Squad to the city.
The company’s Priuses decked out with the green Bite Squad logo became ubiquitous around town. Dining out, it soon became common to see green-clad Bite Squad drivers zip into restaurants to pick up orders. Even if you never used Bite Squad, it was hard not to be aware of it.
The company recently phased out the distinctive vehicles after finding it increasingly difficult to insure a fleet of cars; drivers now the portion of drivers who used company vehicles use their own. But Bite Squad is still likely the first delivery company that comes to mind for Twin Cities diners.
“In our business, approximately 90 percent of our revenues are derived from leadership positions,” says Salehi. “And that would be a market like Minneapolis. ... We’re still head and shoulders above our competition,” he asserts.
U.S. restaurant sales for 2017 totaled $799 billion, according to the National Restaurant Association. A 2017 study by Morgan Stanley estimated that 6 percent of restaurant receipts were delivery sales. Based on those two estimates, that would make delivery a $48 billion industry and growing. Morgan Stanley estimated that deliveries would account for 11 percent of sales by 2022, up from just 2 percent in 2010.
But where does Bite Squad fit in? Most national surveys of the industry don’t mention the company at all. Bite Squad has no presence in the largest U.S. cities like New York, Chicago, or L.A.
Chicago-based Technomic, a food-focused research and consulting firm, calculated gross sales for third-party delivery at $7.1 billion. But those statistics only counted six companies: Caviar, DoorDash, Postmates, UberEats, Grubhub, and EAT24, which was acquired in 2017 by Grubhub. Its statistics don’t include Bite Squad, Amazon Restaurants, or other smaller players.
One of the first 17 restaurants to sign on with Bite Squad in 2012 was Ginger Hop, an Asian spot in northeast Minneapolis that remains a customer.
“It just seemed like a very good model,” says Katey Leitch, one of Ginger Hop’s four owners. “Lots of people call for delivery, but to offer delivery yourself you have to have a driver all the time who can go all over, and there’s the liability of insurance.”
Leitch estimates that Bite Squad delivery orders account for 5 percent of her restaurant’s overall revenue.
“Of all of the delivery services, I still think they’re the best,” says Leitch. “They’re timely. There’s great communication if there’s an issue. ... They still have that technology and that follow-through that the others don’t have.” And if delivery orders start interfering with on-site business, restaurants can notify Bite Squad to stop taking orders at that time. Bite Squad’s website lists estimated delivery times for each restaurant; customers can also select specific times for delivery. If restaurants are getting backed up, they can alert Bite Squad dispatchers via tablet.
“If it’s impinging on your full-priced diners, then it’s not worth it,” says Leitch. “I think it needs to be managed. It’s worth it as a delivery option if you manage the use of it.”
Bite Squad’s system is designed to time the driver’s arrival at the restaurant just as the food is coming out of the kitchen. They know which drivers are where and how long particular dishes take to cook. “That’s the goal, and it’s pretty accurate,” says Leitch.
But Leitch says Bite Squad’s financial arrangements with restaurants are expensive for operators. Hell’s Kitchen in downtown Minneapolis stopped using Bite Squad in 2017 after doing an in-depth financial analysis to keep the business afloat.
“In fall 2017 we were just hanging by a thread. ... That’s when we realized Bite Squad didn’t work for us,” says co-owner Cynthia Gerdes. “We had to add [staff] to handle the Bite Squad business that we did.” Gerdes says Bite Squad orders could sometimes create bottlenecks in the restaurant that slowed service for dine-in customers. Gerdes estimates that Hell’s Kitchen was seeing about $330,000 per year in sales from Bite Squad, or about 4 percent of its overall revenue.
But even after cutting its relationship with the delivery service, Gerdes still has high praise for Bite Squad. “They run a really excellent business. I order from Bite Squad,” says Gerdes. “Bite Squad was by far the best company to work with. ... They did quality work.”
There is no shortage of companies competing to deliver restaurant food in the Twin Cities. Several players— DoorDash, Uber Eats, and Amazon Restaurants —are relatively recent entrants to the local market compared to Bite Squad. Delivery companies generally don’t require exclusive arrangements from restaurants, which may use more than one delivery service.
Foodsby is a subscription-based office lunch delivery service. Like Bite Squad, it started in 2012 and is based in Minneapolis. The company has raised $21 million in financing and is now in 15 U.S. markets.
Launched in Minneapolis in 2016, it says it offers delivery from hundreds of restaurants.
Launched in the Twin Cities in 2016. Per the company: “We work with hundreds of restaurant partners to bring customers whatever they’re craving at ultrafast speeds, and we’re always looking to add more.”
Started in Minneapolis/St. Paul in 2011 with more than 500 restaurant partners here. DoorDash Launched in the Minneapolis area in 2015.
Debuted locally in 2015. Billed as a “personal delivery service,” it will deliver “anything from any store.”
Chicago-based Grubhub Inc. is the largest “pure play” restaurant delivery company in the industry. While Uber and Amazon are both in the game, it’s not the central focus for either.
In 2017, the publicly traded Grubhub reported revenue of $683 million, up 398 percent from 2013. The company’s 2018 third-quarter sales were up 52 percent from the previous year and it’s on pace to hit $1 billion in revenue for the year. Grubhub has a big appetite for growth and has acquired a number of smaller players. At the end of September, it offered delivery in more than 180 markets across the U.S.
San Francisco-based DoorDash Inc. landed $785 million in two 2018 financing rounds; plans include international expansion. A Wall Street Journal article in October reported that bankers estimated the valuation of Uber Eats at $20 billion—one-sixth of its total valuation of $120 billion.
Salehi isn’t rattled by the big players and numbers.
“It’s not a national play, it’s a winner-take-most at the market level,” says Salehi. “It’s a land grab: who can go into markets quickest and establish themselves as the market leader.”
In many cases that means Bite Squad is zeroing in on smaller cities like Fargo, North Dakota; Sioux Falls, South Dakota; Cedar Rapids, Iowa; and Eau Claire, Wisconsin. (The company’s co-founders are in different time zones. Salehi lives in Las Vegas, while Allaei is in Miami.)
Startup companies are often built with one of two goals: to sell the company to a larger industry player or go to the stock market. Investors eventually want an exit strategy—which can also include buying out backers to stay independent. Salehi says they have discussed options, but for now he sees a lot more potential on the horizon.
“If you look at our size right now ... we’re in a position where we can certainly go public, and we’ve charted that route out and we’ve done all of our homework and made the necessary changes to have that option available to us,” says Salehi. “At some point we’re going to have to have that conversation: What do we want to do? And that will be probably something that we’ll address in 2019. We’re just focused on growth right now, and that’s it.”
Burl Gilyard is TCB’s senior writer.