How ClusterTruck is winning the billion-dollar race from kitchen to your curb

The next food-delivery disruption is happening inside a 2,000-square-foot kitchen in Downtown Indianapolis. Here, on a Tuesday morning, about a dozen workers are ramping up for a lunch rush.

Cooks are lined up along three aisles flanked by stainless steel tables. Their eyes pivot, glancing up at monitors and back down to the food they're making — an omelette, pad Thai and macaroni and cheese are among the meals in production.

If you were to look on from a small storage area off to the side, you'd see food glide from left to right, like words in a pleasing sentence, from preparation to a packaging area, where brown paper bags are handed out the door to drivers who will drop them off — one per courier — to someone's curb within six minutes.

Food-delivery startup ClusterTruck is changing the way Americans order and receive food, starting at the corner of North Pennsylvania and East St. Clair streets and expanding to other cities. Not necessarily because of this kitchen, or even because of the particular food that comes out of it — although customers give it high ratings. The kitchen is the hardware, like a cellphone or computer, and ClusterTruck is a software company.

ClusterTruck's innovation is the operating system that orchestrates the kitchen — an algorithm that factors in a customer's location and order time to determine when each part of the meal should start cooking so that everything is completed just in time to be packaged for a driver who will arrive at exactly the right moment. The company's combination of food quality, freshness and delivery speed has brought it to the cusp of becoming a national player in food delivery.

But that's not enough for ClusterTruck CEO Chris Baggott.

"I envision this being a global company, for sure," Baggott said in an interview. "Our job is, let's win in the United States and let's get in some other countries."

How it works

ClusterTruck's delivery time averages 21 minutes in Indianapolis, according to the company, in part because of the narrow zone in which it operates. ClusterTruck serves a radius of six driving minutes from its Downtown Indianapolis kitchen. If the company were to expand in Indianapolis, that likely would mean opening another kitchen to serve a different area.

Despite the clever name, ClusterTruck does not deploy a fleet of food trucks. The company's website and app list about a dozen virtual food trucks, with names such as Pizzeria Camion and Taqueria Rapido, which amount to one giant menu of food made by the same people in the same kitchen.

When customers place an order, it shows up in ClusterTruck's platform, which it calls "the cloud" (a name that might be the least creative thing ClusterTruck has come up with). Workers don't begin making the order until a driver has agreed to deliver it and is en route to pick it up.

Once a driver accepts the order, the monitors that hang along the kitchen indicate that it's time to start cooking. ClusterTruck's platform sets a schedule for each item to be made and handed off as the driver arrives. Customers are required to meet drivers, or in some cases bicyclists, at their curb to save time.

ClusterTruck has differentiated itself by delivering food faster and fresher than competitors such as GrubHub, DoorDash and Uber Eats. That's because those companies mostly deliver food from partner restaurants, an extra step that adds complexity and time to the process.

'Our goal is to grow'

Before ClusterTruck launched in April 2016, Baggott said it would become a $1 billion business. He declined to disclose details of the company's financial performance to IndyStar. ClusterTruck is not profitable, but Baggott said it could be if that were the goal.

"We're a high-growth, fast-growing startup," Baggott said. "Our goal is to grow as fast as possible. That's what our investors are hiring us to do. We can turn profitable at some point. If we want to stop growing and start squeezing margins, we will be very profitable, but at this point in our existence it's all about growing."

ClusterTruck has reported raising more than $30 million from investors since May 2015, according to Security and Exchange Commission filings, but the total is likely greater than that. Baggott's track record suggests his projections — whether it's a revenue target or becoming a global brand — have some basis in reality.

Baggott, who co-founded ClusterTruck with Dan McFadden, already has helped launch two successful Indianapolis companies: ExactTarget, which sold to Salesforce for $2.5 billion in 2013, and Compendium Software, which sold to Oracle in 2013 for an undisclosed price.

Frank Dale, the CEO of Indianapolis deal management company Costello Inc. and a former CEO of Compendium, who worked with Baggott, said he expects ClusterTruck to follow a path similar to those other ventures.

"My gut is he's going to keep adding locations as quickly as possible and some big food conglomerate, like a restaurant-type group, will come in and buy it," Dale said. "It's possible he could want to (go public), but I don't see that as something he wants to do."

Baggott insisted he doesn't have a specific exit in mind.

"Well off into the future, that's all a possibility," he said. "Right now, we think about growing the business and thrilling our customers."

ClusterTruck has expanded to about a half-dozen markets, including Bloomington, Denver and Columbus, Ohio. By the end of next year, Baggott expects to operate in between 10 and 20 cities, including Charlotte, Minneapolis, Atlanta and Fort Worth, Texas, where the company already has signed leases.

"The business model is working very well and we want to scale as quickly as possible,"  Baggott said.

People love eating out

ClusterTruck is tapping into a surging demand for delivery across the U.S. Food-delivery sales are on pace to grow from $30 billion today to $220 billion by 2020, according to a July report from Morgan Stanley.

"I think they can keep expanding pretty quickly," Dale said. "The good news for (Baggott) is food is a massive market. American spend a lot of money eating out."

Long-established restaurants, with the exception of pizza chains, generally are not well equipped to capitalize on this trend. Inexperience with delivery has forced many restaurants to partner with third-party services — ClusterTruck's competitors — with mixed results.

Some chains have been able to tap into the growth of delivery dollars. Wendy's, for instance, is partnering with San Francisco-based DoorDash to deliver food from 2,500 of its locations. Wendy's CEO Todd Penegor said during a November earnings call that customers have given his chain high ratings on the DoorDash service.

"We're seeing some significantly higher checks, but we're also seeing a great partner in DoorDash getting deliveries to the consumer in less than 30 minutes from the time they order," Penegor said. "So, as they deliver one order per delivery, high integrity of the food, too."

Other restaurants are wading more cautiously into third-party delivery services — and finding drawbacks.

Bojangles' CEO Clifton Rutledge said last month that his chain is partnering with Uber Eats, DoorDash and Grubhub at a small number of locations. He's concerned that, in some instances, delivery orders are cannibalizing direct sales and costing his company money.

"You got the very, very high commission, 20 percent to 30 percent, that they're owning off the top," Rutledge said in the earnings call. "If that's incremental sales, then great — if that's at nighttime and it's something that we wouldn't have got. But what would kill us is that if that same customer would be coming through our drive thru, that we're now taking away from that, then that just doesn't work."

ClusterTruck does not deliver food on behalf of any other restaurant.

For now, ClusterTruck's competitors are much larger and have more money. Uber Eats already has grown into a $3 billion business, according to a document leaked to The Financial Times, and the service has outgrown Uber's original ride-hailing business in some markets, according to a report in Business Insider.

Japan-based SoftBank recently reached a deal to invest $300 million in DoorDash, according to Recode. GrubHub had a $2 billion valuation at the time of its 2014 initial public offering. The company's stock price has risen from $37.06 at the beginning of the year to $72.22 as of Dec. 26.

GrubHub CEO Matt Maloney claimed in an interview with CNBC that other food delivery startups have "wasted" billions of dollars trying to catch up with GrubHub, which has more than 75,000 partnerships with restaurants. Maloney said GrubHub's advantage is that it delivers food from existing restaurants that already have loyal customers.

"People want to connect with their restaurants. It's about the service," Maloney said on CNBC. "And the only thing we do is we connect diners to their restaurants."

Baggott, though, said such partnerships create an extra layer of separation from the customer.

"GrubHub stock is fantastic. They're a great company and they're doing very well," Baggott said. "But they're not able to control quality."

ClusterTruck lacks the name recognition of GrubHub's partners. It relies on marketing and beta tests, which include free and discounted food, in new markets to introduce its food to customers.

Virtual restaurants

There are signs that larger food delivery companies might eventually look more like ClusterTruck. GrubHub, DoorDash and Postmates have been adding virtual restaurant concepts, according to a recent Wall Street Journal report, which involves leasing kitchen space to restaurateurs.

Virtual restaurants — or, in the case of ClusterTruck, virtual food trucks — lack well-known brands, but have their own advantages. Delivery-only kitchens can produce food without the real estate and staffing costs of dine-in eateries. Baggott, for instance, estimates ClusterTruck would have to lease triple the space of its Pennsylvania Street kitchen in order to serve guests on site.

Unlike other startups that are delivering food from their own kitchens, ClusterTruck owns its entire operation and controls its process from order to delivery. ClusterTruck has a 35-member corporate team, in addition to about 60 drivers who work as independent contractors. Baggott said he expects several drivers to finish 2017 with more than $60,000 in earnings.

"We really feel like we've cracked the code here with the combination of high-quality scratch kitchen, big variety and software to make sure the food is fresh when people get it and our drivers are making a lot of money,"  Baggott said. "Everybody in the entire ecosystem is happy."

The key to continued happiness, he said, will be rapid growth.

"I would've liked to have been a little bit ahead of this as far as opening more kitchens in more cities," Baggott said.

ClusterTruck has been slowed at times by unpredictable variables, from utilities to regulations, that come with opening kitchens in different cities — a process Baggott did not have to navigate in other software companies.

As Baggott has sought to remake the service sector in the image of his algorithm, he has had to learn more than he might have expected about how to open and run a fast-paced kitchen.

"It's an interesting thing," he said, "because, mentally, I still think of ourselves as a technology company."

Call IndyStar reporter James Briggs at (317) 444-6307. Follow him on Twitter: @JamesEBriggs.