BLOOMINGTON, Ind. — To see the business opportunity that Indiana University startup professor Gerry Hays seeks to capitalize on, just take a short stroll in your local grocer’s deli – say around 8 or 9 p.m.
Slide past the bananas, the tomatoes, the shrink-wrapped potatoes – and saunter up close to the main counter where ready-to-eat meals are kept. It is well past dinnertime and yet, many shelves remain stocked with such items as rotisserie chicken, sub sandwiches, or penne pasta and meatballs.
Food that should have reached dinner tables hours ago. And it’s happening nationwide as part of what the U.S. Department of Agriculture estimates to be more than $160 billion worth of food waste that occurs annually in U.S. supermarkets.
“I’ve been in about 500 different grocery locations around the U.S. and observed the same chronic issues,” Hays said. “They make a lot of good, restaurant-quality food, but they throw a lot of it away because they’re waiting for customers to walk in the stores. But consumers aren’t walking into the store anymore. They’re taking delivery from outside the store, which really hurts their business model.”
Enter DinnerCall, backed in part by the Innovate Indiana Fund, a $10 million venture capital fund that provides seed or early-stage support for high-potential companies launched by graduates of any IU program, as well as current IU faculty, staff, researchers or students.
Founded by Hays in 2015, DinnerCall is a downloadable app for iOS or Android mobile phones that places the user’s local supermarket deli online – on equal footing with casual dining and some fast-food restaurants. In turn, delis can fill customized orders that are picked up curbside – rather than force customers to park, walk in for their order, then stand in a checkout line.
As a public-benefit corporation, DinnerCall also directs part of its proceeds toward causes that promote the return of evening family gatherings around the dinner table.
“DinnerCall can empower families to turn away from fast food, takeout and alternative meal kit options, and opt for traditional meals from their favorite grocery store,” Hays said.
Throughout the past year, DinnerCall made pilot runs in three small markets – two in Tennessee and a third in Indiana. More recently, an improved version of DinnerCall debuted in regional chain of 22 stores throughout Indiana and Michigan.
Meanwhile, consumers are not waiting patiently for meal apps to arrive. Within the past year alone, digital revenue at Panera Bread has grown from 12 percent of total sales in the third quarter of 2015 to 18 percent by the second quarter of 2016.
“They have estimated that by 2020, more than 60 percent of their annual sales will happen over a phone. Through pre-orders – not people waiting in line,” Hays said. “The consumers want it quick and easy. They don’t want to walk into a grocery store at 5 o’clock in the afternoon and assemble a meal. Especially with 10 other people trying to do the same thing.”
Hays estimates that the “dinner day” market throughout the U.S. currently equates to $400 billion annually, with grocery-prepared foods accounting for about $26 billion.
Each day, about $1 billion is spent around decisions on what people will eat for dinner, Hays said. By 4 p.m., about 80 percent of consumers have yet to solve this daily dilemma.
“What’s happened is that companies like GrubHub and Eat24 have brought takeout — mobile takeout solutions – to the restaurant industry,” Hays said. “Restaurant sales have been going up and grocery sales have been going down – and a lot of it is due to the technology introduced to the restaurant industry.”
Over time, outfits like GrubHub and Eat24 will be DinnerCall’s main adversary, Hays said. But for now, it is grocers themselves that pose the greatest challenge.
Hays said that a typical supermarket offers an estimated $3 million in “dinner spend” opportunities each year, yet often relies on merchandising strategies that date to the 1960s. For DinnerCall to realize success at a particular store, Hays said it must sell at least 20 to 25 meals a day over 20 days of a 30-day month.
One early adopter said DinnerCall allowed his store to close dinner time sales before cooking for the day even begins.
“This technology allows us to better meet the dinnertime demand by offering our customers more family-style options we already know they love, in a convenient and affordable way,” said Judson Naifeh, CEO of Naifeh’s Food Store in Millington, Tenn.
Investors such as the Innovate Indiana Fund feel confident that DinnerCall can meet that challenge.
“DinnerCall offers an innovative approach to a fast-growth opportunity with a very broad reach. Almost everyone needs to make a decision on dinner time options, but today’s extremely busy lifestyles make convenience a necessary feature,” said Ken Green, the fund’s managing director. “DinnerCall allows grocers to compete on an equal footing with fast food or restaurants. The technology is field tested and ready to go on multiple mobile platforms, plus you have an experienced, savvy and successful entrepreneur at the helm.”
Risk is a common thread that all entrepreneurs and inventors face – a message that Hays conveys to students through his own experience. A graduate of IU Bloomington and IU’s McKinney School of Law in Indianapolis, he has 15 years of experience to draw upon.
In his first venture, Hays sought to disrupt the residential real estate market through HomeYeah.com, launched in 1999 to “cut out the middleman” by allowing homeowners to sell directly to homebuyers. But a confluence of events led to its sale to a West Coast private equity firm four years later.
“We were absolutely killing it until the market crashed in 2000. That made it very difficult to raise money. Then 9/11 hit, which really sent our company into a spiral,” Hays said. “Looking back, I didn’t downsize the company like I should have. I always kept an optimistic approach, thinking it would bounce back. But I never could get ahead of it and ended up selling. It wasn’t a win. It was a survival sale.”
Shortly after Hays joined the Kelley School of Business as lecturer in early 2004, he and brother Geff Hays gave flight to Charley Biggs Chicken N’ Sauce. A prepared foods program for supermarket delis, the company has since expanded into more than 600 retailers throughout North America with annual sales in excess of $15 million.
“That’s sort of how I got my feet wet in the grocery industry, because we were supplying a lot of bulk ingredients to the prepared foods department within grocery stores,” Hays said.
Other ventures to date include Pear (formerly Apparel Media Group, since acquired by Fairfax, Va.-based CustomInk.com), which Hays co-founded in 2008 to connect group and event organizers that were seeking sponsorships with brands and local businesses. In 2011, he co-founded CoatChex, whose ticketless, electronic item-checking technology was pitched on Shark Tank, an entrepreneur-based TV series whose panelists include IU alum Mark Cuban.
Hays was issued a patent for the business system behind Apparel Media in 2012 and in 2013 filed for a patent on CoatChex’ inventory control system.
Not only does Hays develop companies; he funds them as well. In 2008, he built upon his initial success with Charley Biggs by founding Noblesville-based Slane Capital Partners, a small investment fund that backs early-stage startups.
To date, Slane has invested in about 15 startups, including about a half-dozen started by some of his former students. Some have proved successful. Others not so much.
“Risk is involved in every venture and you just try to minimize what you can. You cannot make money as an entrepreneur if you’re not taking risk,” Hays said. “If there is no risk to be taken, then there’s not much money to be made. If the business idea was so obvious, it would have been built a long time ago.”
PRACTICING WHAT HE PREACHES
As both entrepreneur and educator, Hays often feels compelled to practice what he preaches. From a business standpoint, it encourages discipline. From a classroom perspective, it provides plenty of material for discussion – making DinnerCall a living case study.
When Hays launched DinnerCall, one of the early hurdles he encountered was convincing himself the venture was both feasible and held profit potential.
“I ended up conducting three separate focus groups over three years to understand how consumers think about their dinner decision and how they use technology,” Hays said. “Over time, I could see consumers increasingly rely on their phones and laptops to procure dinner. This, plus the rise of takeout orders in restaurants, told me which way the trend was heading.”
He also visited some of Charley Biggs’ biggest chain accounts about the concept of a takeout order app. Their feedback was encouraging, but another source of information – the chains’ top decision makers — went untapped.
The decision seemed to make sense at the time, but ultimately would be felt throughout DinnerCall’s development.
“I wish I would have gone one layer deeper and talked to their decision makers. Problem is, they want to see a product,” Hays said. “They don’t want to talk concept with you. If you don’t come to them with a product, you really don’t offer them a reason to say yes or no to you.”
Feeling the need to have product in hand, Hays had full-blown prototypes developed for DinnerCall. Both iOS and Android operating systems were offered, each with a consumer-facing mobile app and an entire back-office system.
But it took 18 months to develop DinnerCall’s 185,000 lines of code, more than four times the 40,000 lines found in an average iPhone app.
That was six months longer than Hays planned — a virtual eternity in world where technologies are seemingly developed at warp speed.
“We should have moved faster with a lighter technology. That’s the biggest lesson here,” Hays said. “It was a risk either way. If you go with something lightweight and it doesn’t work, then you can get egg on your face. The good news is our technology works brilliantly.
“In the end, it’s all about speed – and getting a product right. We could wake up tomorrow and there would be three competitors from Silicon Valley who are either catching on to what we are doing or what the market opportunity is. It can happen just like that. So you have to be hyper-focused. You have to run at a really fast rate to stem off potential competition so you can be a part of the land grab when the industry wakes up to this opportunity.”
If DinnerCall makes its mark on the ready-to-eat dinner industry, Hays envisions as many as 6,000 to 7,000 grocery stores and supermarkets using the app. Yet even more valuable than the revenue that DinnerCall ultimately yields may be the data it collects.
“We’re going to learn so much about consumers in terms of why they purchase dinners, when they purchase dinners and what types of things they like to purchase,” he said. “In turn, we can present these analytics to grocers and CPGs (consumer packaged goods companies) so they can start being pro-active on their menus and really nail it when it comes to offering the types of foods that maximize their opportunity.”