SAN FRANCISCO (03/10/2000) - In a rarity for Internet investments, a covey of mainstream food and media companies, including McDonald's, Kraft Foods and TV Guide, are pouring $80 million into Food.com, the company announced Thursday.
The financing will help Food tackle its ambitious quest to branch beyond a Web-based delivery service to a portal of sorts for all-things dining. The latest round of financing, which brings the privately held firm's valuation to just more than $400 million, comes from seven firms. The media companies participating include: Clear Channel, the largest owner of radio stations in the country; Liberty Digital, a division of Liberty Media which develops and invests in firms which develop interactive TV technology; TV Guide; and Blockbuster. New York-based Red Coat Capital plus McDonald's and Kraft, both of which are making their first Net investments, round out the group.
Food CEO Rich Frank says the financing probably will be the last before the firm files for an IPO. It has raised over $120 million to date. The funding will allow Food to boost its content offering, add new restaurants to its network (for instance, McDonald's owns pizza and Mexican-food chains and is finalizing its buyout of Boston Market) and put its ordering service on a variety of new media devices, Frank said. "With very little add-on," Frank says, "We can become the dining guide of the Internet. And if we really do this right, we can be the food portal of the Internet."
In essence, Frank is shoring up against a highly competitive market - the "last-mile business" that firms such as Kozmo and Webvan are tackling in which a host of firms will deliver virtually anything you order to your door. Food has a specific entry point in that it serves the restaurant market. Frank said the company is exploring further partnerships in this area. Food launched in 1996 as Cybermeals.com, an online food-ordering service that started small with pizza parlors and Chinese restaurants.
Except for recruiting former Coca-Cola marketing whiz Sergio Zyman to its board, Cybermeals sputtered as a Web company. Things changed in 1998, when the firm received its first VC funding - a $10 million injection from Accel Partners. Accel brought in new management and recruited former Walt Disney exec Rich Frank. The company relaunched in March 1999, with an online takeout and delivery service. It also makes money by charging restaurants a $79 fee to build and maintain their Web site. The company takes a 5 percent cut from restaurants on every order placed through its site.
Food intends to move beyond its core service of providing an online network of thousands of local restaurants from which diners can place orders for takeout or delivery. With the latest investment round, the San Francisco-based company intends to beef up its service with restaurant reservations, recipes and food columns accessible from virtually any device - from a computer to a pager.
Frank also is leaning toward developing food-themed TV shows. For McDonald's, the investment is an initial exploration into e-commerce. Through its worldwide chain of fast-food joints, McDonald's serves 43 million customers per day.
"Internet commerce, and it's starting today with [the investment in] Food.com, is a way to expand that," said Mike Gordon, a McDonald's spokesman.
But Gordon cautioned that this doesn't mean the company will allow for consumers to order a Big Mac, fries and a shake online. "Today, this is not about hamburger delivery," Gordon says. Rather, it's more of a marketing initiative - at least for now, he said. "We're always looking for creative ways to connect our brand to customers." But that in itself is big news.
McDonald's, which spends of hundreds of millions of dollars annually on TV advertising, has been slow to promote itself on the Net.
Kraft sees the move as a way to get its 60,000 recipes, plus the Kraft brand name, in front of more consumers. Also, Kraft has a large restaurant clientele.
It hopes to use Food to supply more of its products to these restaurants.