Any other business

How Gousto will challenge Tesco and make fresh food delivery fashionable with £9m pot

10 min read

11 December 2015

Former deputy editor

Gousto, the fresh ingredient delivery service named in our Everline Future 50 2014, has secured a £9m investment from a new arm of the Business Growth Fund. Real Business caught up with CEO Timo Schmidt about the pot, how the business will apply pressure to Tesco and why he believes the sector can be as commonplace as buying clothes online.

Just Eat and Hungry House are two prolific names that are changing the way the food industry operates but, of course, this is a big sector and the two rivals are busy chasing domination of the takeaway market.

Then there’s Domino’s, which has preferred to go at takeaways alone – a decision that paid off.

75 per cent of Domino’s 2015 sales have been made online, more than half of which came from its own-branded Android and iOS apps. These developments have amounted to a digital revenue increase of 35 per cent year-on-year.

Elsewhere, you have Charlie Bigham’s – the high-end ready meal maker that is charging more than the average microwaveable product. 

However, as founder Bigham put it after his company was named the Mid-Sized Company of the Year at the Growing Business Awards: “We make delicious food. Ready meals aren’t about that. They’re about function over enjoyment.”

With a seemingly endless influx of new ways to satisfy appetites – so much for chips and curry sauce – 2012-launched Gousto is out to fill yet another pocket in this plump industry with ingredient delivery.

Of course, one could argue that there are supermarkets that do that. However, Gousto is tailored specifically to deliver ingredients that can be used directly for a multitude of recipes, all of which have a healthy core – key for a country that is suffering from an obesity crisis.

During our talk with CEO and founder Timo Schmidt, he said that the original thought was that Gousto would appeal to London professionals in their early thirties – the KPMG, law firm types.

Six months later and the team realised that they had actually pigeon-holed the product, which was evident as 80 per cent of orders were coming from outside of the capital, while the age group had expanded into the forties and a lot of customers have families.

“Our vision became much bigger,” he recalled. “The takeaway sector has become really hot, but look at dinner – there are 25bn meals cooked in the UK each year for dinner, it’s so much bigger in terms of opportunity.”

Schmidt said that the operation changed to include a more nationwide focus, while it took time to sit down with, and listen to, customers in order to find out what they truly desire.

“What you see today is really the tip of the iceberg and we’re just scratching the surface. Go back ten years – most people didn’t want to buy clothes online and now they’re spending billions of pounds on fashion,” he said.

“Just 30 per cent of people have bought food online in ten years. It’s the biggest part in retail and nobody is taking advantage. You have the likes of Tesco and Ocado, but nobody is building supply chains.”

As to whether supermarkets are competition for Gousto and its growth, Schmidt said that they are in a sense. “Tesco and Ocado are indirect competition – if you believe this market is shifting online, then it’s also clear people don’t want to search from 150,000 products on the internet,” he reasoned.

“There’s no way my kids and your kids will want to search on a mobile for 40 types of rice, so we want them to buy into a solution that makes things easy and delicious. Supermarkets have a massive challenge for not understanding online.”

Since the company was named by Real Business in the Everline Future 50 in 2014, Schmidt noted the company has evolved considerably.

“Over the course of the last year, we’ve introduced more delivery dates and shortened the time between order and delivery by half. We’ve also introduced dessert and wine options, as well as kitchen equipment, all to enhance the meal experience,” he said.

Read more on businesses combining food and digital:

In addition to bolstering services, the company has scaled significantly. It now has a dedicated mobile app to support customers at all times, while meals can be rated for transparency and TV adverts were introduced to generate nationwide exposure.

Elsewhere the time has scaled from 30 people to 140 people, allowing the business to grow sixfold overall.

The launch on mobile came as 30 per cent of orders were already coming from smartphones and tablets, a trend that now only continues to grow further as Schmidt calls the opportunity “massive”.

The food company has also invested in improving the efficiency of the operation, which runs out of a large Spalding-based warehouse, through data and technology capabilities and dedicated chefs.

“Back when I started, I invented most meals and now we have team of five people cooking all day, while everybody in the office gets to test the food,” he said.

We established that Gousto sees Tesco and other supermarkets as indirect competition, but what about the likes of HelloFresh – the Rocket Internet-backed rival service that boasts a $2.9bn valuation.

Schmidt isn’t worried and pointed to the company’s decision to backtrack on going public in November.

“The way HelloFresh is owned by Rocket Internet, it’s a massively listed public company with fantastic scale, but it sucks at the best product experience because they sell out immediately. They just tried to IPO and failed and HelloFresh will lose out because they’re not product-focused,” Schmidt said frankly.

“Our roadmap is to obsess about what customers want and use all of our resources to create the best product experience and that’s how we will win.”

He also highlighted that Gousto delivers faster, is cheaper and has more choice than HelloFresh, while adding that 95 per cent of products are organic compared to a barren offering with its rival. “If you compare the value proposition, we’re built substantially better to win the market.”

Making for a very merry Christmas, Gousto closed a £9m investment on 7 December – capital that will help the ambition to win the market.

The round came from the Business Growth Fund’s June-launched ventures division that has £200m to invest in early-stage tech companies, with Gousto marking the first investment.

It’s headed by ex-LOVEFiLM CEO Simon Calver, former MMC Ventures investor Rory Stirling, and ex-Balderton Capital investor Harry Briggs. Schmidt revealed he has worked with the trio in some capacity or another – something that made accepting the funding, which took total investment to £20m, an easy choice.

Calling Calver a “fantastic guy”, he said he’s always looked up to him, while Briggs and Balderton have been fans of Gousto for some time. As for Stirling, MMC has been referring to the food startup as its best ever announcement.

“They all experienced first-hand how well we’re doing and there’s a strong relationship with the partners , so it felt very logical to work in more formal way,” he said.

On the subject of how the funding to date had been used, Schmidt detailed: “It’s a complex business model. I think barriers to entry are fairly small, you could set this up tomorrow – but the barriers to scale are massive. There’s a physical supply chain, but then you need data and a team of chefs that can work with the operational constraints.”

Continuing on how the new investment will be spent, Schmidt added: “This is working extremely well and the plan for phase two is to make it better and better for the customers. We sold 300,000 meals last month, but this should be 300m a year.

“The focus of the new funding will be making it better to drive take-up and retention. In 2016, you should expect product innovation, better choice, more app solutions and content.”

With the new year in mind, Schmidt is anticipating anything between 100 per cent and 400 per cent growth of sales. “The key objective is to really drive consumer satisfaction. If people get hooked and keep buying, there’s an opportunity to leverage engagement.”