Was anyone really surprised that the next foodie empire was born on a college campus stocked with perpetually hungry students? Kevin Tan found his fortune in catering to the “freshman 15” at Yale University, when he and Jamie Marshall founded Snackpass in 2017. (He was a senior studying physics there at the time.)
Combining a social media platform with a restaurant-ordering app, Snackpass lets you see what your friends are ordering, get takeout from your favorite eateries, and even gift a pal — or potential love interest — a tasty treat. (The "snack" in "Snackpass" refers both to food and someone you'd like to, uh, let's say, get a meal with.)
In the last four years, Snackpass has spread from New Haven (where a staggering 80% of Yalies relied on it for their snack fixes) to 12 more college towns and garnered over 500,000 users, with a valuation of over $400 million. It made waves in June when it raised $70 million in Series B funding from investors who included everyone from Bastian Lehmann (the founder of Postmates), to the Jonas Brothers and Steve Aoki. Suddenly, everyone seemed to remember that Facebook was also once just some university-based platform that satisfied college students’ appetites (for gossip and diversion).
We spoke to Tan, now the CEO of Snackpass, and in his mid-20s, about how he got his start and why the company stands out in a crowded field of food-related apps.
What are the origins of Snackpass?
KT: I was friends with he owner of Brick Oven Pizza [Pizza at the Brickoven]. I actually made some websites for him, [but] I was also brainstorming with him on ways to drive more business. And so we started out just creating a website where you could log in with your.edu email and then get exclusive student deals.
But then there were two big insights in those early days that led to what Snackpass is today. The first was that people liked the discounts but they stayed for the convenience of being able to order on your phone and not pay with your credit card and wait -- kind of order synchronously, if you will. So that was like a big realization that this is going to completely shift the mode of how people order food, when they pick up, to be all mobile first.
And then the second big realization? [The app] was growing at a linear rate. We looked at Facebook and Tinder and Snapchat -- they grew so fast on college campuses, virally, and we wanted a way to have it grow like that. That combined with the fact that we didn't have any money to spend on referrals or promotions, like Uber and DoorDash.
And I was thinking, well, what if I can use my app and send them a gift? And it'd be like a public thing. So it'd be this gesture. What if that was the motivation? And we had reward points at the time, so then it kind of clicked: What if you don't just get points for yourself but you get to send one to a friend after every purchase? And it turned this utility product into a more viral social product.
So when we launched in the fall, it exploded on campus. We were inundated with orders [so much] that some of the restaurants couldn't even handle all the orders. And we thought, well, this is great. Let's try to bring it to a new campus and repeat the process, which shows it's not just a hometown phenomenon. So we brought it to Brown. And then Berkeley. And Ann Arbor, Cambridge, UPenn. Fast-forward a little bit and we're in 13 markets now and starting to expand into cities, and we have a lot more product lines, like self-ordering kiosks
What differentiates you from the other restaurant-ordering apps out there, once you're outside the college towns?
KT: There's been a huge rise in delivery platforms, and we've seen that they become big businesses, like $60 billion. And it's a huge business because all that is moving online from offline to online.
But deliveries are only 8 to 10% of the restaurant industry, and the other 90% is still offline. That's where we're focusing, is that pickup, the register. And we believe that in four or five years, there will be no more registers and cashiers manually punching in your order. It's a relic of a previous era, a nondigital era, and it doesn't actually make much sense and is, in fact, very costly. It's going to be self-service.
And then we're going to turn a single-player ordering experience where you're just buying for yourself into a more multiplayer experience where you're finding foods with friends, whether that's discounts or just sharing a meal and seeing what your friends order.
Would Snackpass have grown as big as it is now if you hadn't started on a college campus? Is there something about college campuses that lends itself to startups like Snackpass?
KT: I've got to admit, it wasn't the most deliberate thing. I was trying to make something for myself and my friends. But it definitely is a great environment, because all the users are co-located and it's very walkable. And the restaurants want to get more business from the campus.
For the Series B you recently raised, you have a huge list of backers. You have big names like Andreessen Horowitz and even celebrity names, like Kevin Hart. What will the Series B will enable Snackpass to do?
KT: No. 1 is we're growing the team a lot. We're investing a lot more in engineering and also sales, and we're expanding to different markets, like L.A., New York, Chicago. Maybe one part into growth and one part into engineering and scaling.
The trend is that customers are moving away from delivery services, especially in big cities, where they're using apps native to those specific stores -- they'll use the McDonald's app to place an order. How does Snackpass fit into that shift? Or do you think that's just a temporary thing?
KT: I think that's a very healthy shift, because the restaurant industry is not like the hotel industry, like Booking.com, where you have a big aggregator of all this demand. Most restaurants are mostly driven by repeat customers, and it doesn't really make sense to pay a higher take rate consistently for people who are going to order from you anyway.
But what's happening is delivery is becoming kind of like a third-party API [application programming interface, or software that merely acts an intermediary between two other applications, as opposed to an end product in itself]. So you can call it from any app, including the McDonald's app, and pull that up. So what you're seeing is restaurants leveraging their brand equity and taking back control of their customers. And that's a positive thing.
What we're doing is trying to enable that for every other restaurant that doesn't have millions of dollars to spend on their digital strategy. Seven out of 10 restaurants are single-unit mom-and-pops. Sweetgreen has millions of dollars to spend on their app, and it works for them. But there's a ton of other restaurants that want to have the same benefits of digital, like saving on labor and being able to reengage your customers to make them more valuable, but without the cost of losing all your margin to a third-party aggregator.
How does the social aspect of Snackpass conquer the low rate of engagement that food-delivery services haven't figured out?
KT: These apps have a low rate of engagement -- maybe the average customer orders 10 times a year. It's mostly because of the high cost of delivery. So you only do want to do that for certain meals, not 21 meals a week. So, if you get delivery, you probably go broke within a few weeks.
But as far as social features, we're focused on the consumer side, being able to unlock rewards and value that you couldn't get anywhere else, and being able to see what your friends are ordering. So it's just a much more fun and engaging experience.
And on the merchant side is leveraging that to bring them incremental demand, and marketing at a cost that's much more affordable than on DoorDash, [where] maybe they pay for ad placement. On Snackpass, you can use gifting and group buying to get your customers to market for you. And you don't have to pay an additional amount just for that ability to get more marketing. It's a win-win where the merchant benefits by giving incentive to the consumer for spreading the word. And as a consumer, you're getting that incentive in return for ordering with your friends. And it's a really fun thing.
You know, one person I talked to said, she was going to just order with her by herself at this one Indian restaurant when she saw the group-buying feature. Then she shared the link with her entire suite so that they could all get a bigger discount. It's almost [become] like a [Snapchat] Snapstreak system, where it's like some digital symbol of your friendship with someone.
And you think this will work in places that aren't centered on university life?
KT: It saves you time, it saves you money and it allows you to connect with friends. And that's pretty universal. So, yeah, we've found in our early experiments that restaurants with Snackpass in noncampus regions are doing really well. I think the real driving force for the next couple of years is partnering with as many restaurants as we can who want to stay ahead of the curve.
When people talk about the the market for delivery apps, people don't necessarily think of someone standing in line at a restaurant as being a market that is disruptive.
KT: It definitely is a cost. For the restaurant, to have a someone standing there, there's a labor shortage. So they're just struggling to hire cooks. And so if you can't have a cook because you need someone standing in the front punching in orders when when the customers could have punched it in themselves, that's going to cost $100,000 per person a year when you include churn and sick hours and stuff like that. Huge cost to the restaurant. Also, it's very inefficient in terms of throughput. You're like losing the ability to turn out more orders. It's a bottleneck.
And then on the consumer side, people's time is valuable. All the time spent staying in line at restaurants in the U.S. is probably some percent of GDP.
Considering how contentious a relationship many delivery apps have with businesses, how is Snackpass navigating those partnerships?
KT: We take basically like a 10 times lower rate than DoorDash and all these services, and we price it so that a restaurant would feel comfortable moving all their customers to Snackpass. And we found that customers on Snackpass order twice as much as customers who stand in line to pay at the register, so the take rate is an order of magnitude different, which allows us to be much more sustainable partner, as opposed to the 30% take rate from DoorDash. For most restaurants, over 60% of their orders come from repeat customers, so [other delivery apps are] not really bringing them new customers. But they are charging as if they were.
With California's Proposition 22 and other political measures making drivers and delivery less profitable for services like Seamless and Uber Eats, how is Snackpass taking advantage?
KT: Customer acquisition of drivers is huge. The cost is like $1,000 to have a driver per week in a market. So if you're not even making that much in revenue, like in margin, then you're gonna be in the red. So it's less of a headache for us. And, at this moment, there's a big labor crunch. So it allows us to be in markets where maybe DoorDash couldn't be in or Uber Eats couldn't be in.
What the biggest challenge Snackpass faces?
KT: The biggest limiting factor might be restaurant customer acquisition. We've just got to go and partner with a lot of restaurants. And that often takes a lot of handshaking and getting to know them. It's just a little bit time-consuming.
We're partners with 1,000. Our goal is to be partners with 10,000 by next year.
We've been talking about the U.S. this whole time, but is there a bigger global picture we should be aware of?
KT: If you look at China, there's a lot of things that are happening that kind of seem obvious and just haven't happened yet here. For example, my friend walked into a restaurant and was waiting in line, and then everyone's looking at him, like, "What are you doing? You're making a fool out of yourself. Just order on your phone!" So it's already a no-brainer [over there].
The other aspect is, in China, there're so many successful examples of social commerce working to drive a lot more virality and growth because people are working together. And in the U.S. that hasn't happened yet.
So Snackpass is leading in those categories that no one else is really doing. On the social commerce side, at 60 million gmv [general merchandise value] per year, we're probably one of the biggest experiments of social commerce in the U.S. to have worked and to be growing. And no other food app, let alone ecommerce, is really nailing that.
And on the replacing-the-register side, most companies are focused on delivery, but I haven't seen many really crack pickup yet, even though some have tried. So, along those two vectors, we're leading the charge and driving toward that future that is kind of inevitable.