[HS Exclusive] How FreshMenu went from nearly shutting down to raising Rs 50 Cr and getting back on its feet stronger than ever

Sitting outside the office of another well-funded startup, Rashmi Daga, the founder of FreshMenu, couldn't help but think back to how the tide simply seemed to turn overnight. In one year, the company she had built from scratch and that was profitable on a unit level was suddenly fighting for revenues.

Within a span of a few years, cloud kitchen and food delivery startup FreshMenu has battled several funding crunches, reports of a potential acquisition and a pandemic. 

However, despite the headwinds, FreshMenu—which started as one of the first cloud kitchens in India—remains resilient.

While the pandemic shook the foundation of several sectors, according to Rashmi, it was the Prosus (then Naspers)-led $1 billion funding in Swiggy in 2018 that proved to be a gamechanger for food-tech in India. 

It was the single largest funding raised by a food-tech company in India. In the same year, Zomato had picked up funding from the likes of Alibaba. The funding that FreshMenu was set to raise suddenly froze. 

“It generally doesn’t take time for tides to turn around. The $1 billion funding had made everyone wary. People wanted to wait and see, and the sector, as they say, had become too hot. Everyone wondered what the well-funded startups would now do. As they had raised significantly large amounts of money,” explains Rashmi. 

FreshMenu, which had begun its journey in 2014, had by this time had raised over $3 million in funding and had opened in multiple cities.

“Backed to the corner, I had two choices, either take whatever was offered or fight back. The problem with a founder of a company that is going through the acquisition route in situations like this can be significantly difficult,” says Rashmi. 

She had realised the acquiring companies had the bargaining power and simply weren’t looking at FreshMenu and her team as a partner. “It wasn’t like we had much of a choice. It was either dissolve into a larger business or find ways to fight back,” adds Rashmi.

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Stuck between a rock and a hard place 

Continuing to fight meant going back to the drawing board. One thing Rashmi was absolutely sure of was that she had a business and a model that stood out. 

The wait did pay off. 

FreshMenu raised Rs 50 crore ( about $6.4 million) recently, led by Florintree Advisors. The funding will be used to scale up their kitchen footprint and also to create new brands. Florintree Advisors is led by former Blackstone India Head Mathew Cyriac

Speaking of why it chose to invest in FreshMenu, Mathew, currently Principal at the Blackstone Group, says, “Rashmi has been a pioneer in the cloud kitchen industry in India and has managed to build a strong business with healthy kitchen level EBITDA margins."

He says Florintree Advisors plans to re-energise the Freshmenu brand with a deep focus on customer experience, supply chain management and technology. 

“One of the key insights we received through our diligence was how much consumers love Freshmenu, the company commands an industry leading NPS. We plan to build Freshmenu to be India’s leading cloud kitchen company by increasing its kitchen network and brands, without compromising on food quality- a key tenent of Freshmenu,” says Mathew. 

Rashmi says her belief in the brand kept her going. 

“We were making fresh food and were making it at scale. The model was strong. Everyone was doing deliveries, they had started their own cloud kitchens, but it wasn’t the same as ours. It simply wasn’t easy for me to understand terms that didn’t allow FreshMenu to thrive and grow as a brand,” adds Rashmi. 

FreshMenu had raised $2.94 million from Lightspeed Venture Partners in January 2019. While the funds were enough to tide the year over, the company still needed more to grow and expand.

“We were always very confident of our product and FreshMenu is the strongest brand built in the delivery food space. Tough times pushed us to reinvent and turn profitable. We have the best unit economics in the cloud kitchen space.  We showed a lot of resilience in the last few years to survive in tough times with very limited cash, solve for business problems in a tough environment due to the pandemic,” says Rashmi.

The turnaround 

Multiple COVID-19 pandemic waves disrupted FreshMenu’s business. According to the founder, keeping the team safe and motivated was a very important task at this point. 

“We worked on multiple aspects of the business including menu engineering, cooking methodology, packaging and overheads to ensure that we run very efficient kitchens with healthy EBITDA margins,” says Rashmi. While she was against firings of any kind, many of the delivery staff left on their own. 

FreshMenu also saw salary cuts for a few months. 

“The team as a whole took different percentages of salary cuts. We had a strong focus on kitchen economics. We took the downtime to rework on our processes and cost structure for kitchens. Menu engineering to reduce our supply chain SKUs and hence manage food cost better,” says Rashmi. 

According to the founder, the new funding will help FreshMenu target “Rs 200 crore ARR in FY23 and double our kitchen footprint.” The startup also expects to scale its upcoming brands. 

The pioneer 

FreshMenu, Rashmi’s second foray as an entrepreneur, was one of the first cloud kitchen startups in India. 

A salesperson for most of her professional life, this IIM-A graduate believes that her learnings in sales have helped to a great extent. "After working in sales in true-blue corporate companies, I decided to venture on my own and I bootstrapped a startup - afday. It was a platform of curated art and art forms,” explains Rashmi. 

The venture, however, did not take off as she had hoped. So after shutting operations Rashmi rejoined the workforce and for close to one-and-a-half years, she headed the sales efforts for Bluestone and Ola cab. However, feeling the need to start up again, Rashmi decided to try her luck with the food business this time around.

Rashmi says that the business choice was born from her own love for cooking food. But the restaurant model didn't seem scalable. So beginning with looking at the western markets, Rashmi thought of starting freshly-made, chef-cooked gourmet meals in a box. 

From there on FreshMenu had gone on to witness over 12,000 to 15,000 orders a day. 

"FreshMenu was born to bring the world on your plate. We were the first ones to launch meal bowls in India in single serve portions. Our kitchens were designed to have chefs cook your meal and deliver in a 5 km radius. Our name was chosen as FreshMenu because we wanted to bring new menu products all the time as well as work with freshest ingredients in our meals,” says Rashmi.

From the beginning, food was inextricably woven into the DNA and spirit of FreshMenu, so Rashmi was particular that they needed to own the complete chain. From the ideation of the menu, to the ingredients, packaging and delivery, every step is owned by FreshMenu.

(This story has been updated to correct a grammatical error in the first paragraph.)