Underweight: Airport Food Delivery from AtYourGate

Key Stats:

Summary

AtYourGate has been selected as an “Underweighted Deal” by KingsCrowd. If you have questions regarding our deal diligence and selection methodology, please reach out to hello@kingscrowd.com.

Problem

With food delivery firms like DoorDash, UberEats, GrubHub, and more, it may seem like the mobile app food delivery market is crowded. While this may seem the case in the broader market, certain niche spaces are still underserved or unserved entirely. Case-in-point, hungry consumers on the go who find themselves waiting for their next departure at the airport. It can be stressful for travellers to leave their gates, as they may miss important announcements or boarding calls. Similarly, airline employees often need to stay close to a gate as their flight time approaches. But what if the food options near your gate are scarce or unappetizing? These consumers may find themselves frustrated by their inability to seek out better meals before their flight.

Solution

It’s with the goal of providing new, affordable food service options that AtYourGate was founded. The company’s premise is simple: provide an app that allows users to order food while at the airport and have it delivered at their gate. Travelers would pay a fee of $4.99 per delivery. The app would also provide delivery options to the flight crew’s jet bridge and to airport employee break rooms. For airport employees and flight personnel, the delivery fee would be just $2.99. Specifics have not been provided, but management is also working on a subscription model. This would guarantee predictable, recurring revenue for the business.

Since launching, management has done well to grow the business. Today, they operate in four airports in California, two in New York, and one in each of four other states. The list of customers includes San Diego International Airport, LaGuardia, and JFK. At present, the firm is focused on expanding to 10 of the top 30 US airports. Details have not been offered, but the company operates under multi-year contracts. This guarantees them exclusive distribution deals for these locations.

To help its growth plans, AtYourGate has found it advantageous to partner up with GrabMobile. GrabMobile offers an omnichannel presence at 55 airports that includes app-based e-commerce via a mobile marketplace. It also involves self-service kiosks, and even the ability to order at whatever table you’re sitting at. Since its founding, GrabMobile has expanded to include operations in four countries. It has completed over 5 million orders in all through its system. This is definitely a valuable strategic partner for AtYourGate to have, so long as the terms of that agreement have been set up right.

At this point in time, AtYourGate is still a company very much in its infancy. In 2018, revenue for the business was $48,646. That year, its net loss was $1.33 million. In 2019, sales surged to $199,091. This might not be so bad if not for the $3.88 million net loss the company generated that year. Due to these large net losses, the business has had to take on significant amounts of debt. As of the end of its 2019 fiscal year, AtYourGate had a total gross debt of $8.39 million. By comparison, its cash and cash equivalents totaled just $49,172. Detailed financials have not been provided for 2020 so far. However, from May through July, the company’s sales averaged $3,500 per month. Annualized, this would take the firm to $42,000 in revenue for the year. This drop is surely temporary due to the COVID-19 pandemic. But with operational expenses averaging $130,000 per month and only $65,000 in cash on hand today, the company is surely hurting financially.

A Niche Market

The market that AtYourGate operates in is an opaque one. Our team could not actually find reliable data specific to the airport food service market. What data we did find, though, should give us a general idea of the opportunity investors are presented with. For starters, consider the airport retailing market. One source we found pegged the industry at $40.6 billion in 2019. With an 8.5% annualized growth rate, the space should grow to $47.8 billion by next year. A different source estimated airport food service to be worth $33.1 billion last year. Its 4.8% annualized growth rate means that by 2026 the market should rise to $46.2 billion. As AtYourGate grows, this could be a valid market to tackle, but for now that looks to be the domain of its partner GrabMobile.

Another way to look at this space is through the in-flight catering service market. Though AtYourGate does not provide in-flight services, what it offers could be viewed as a substitute for it. One source we identified estimated this space to be worth $19.9 billion in 2019. The 3.1% annualized growth rate forecasted for the industry puts it at $24.6 billion by 2026. A different source thinks the market will grow from $17.7 billion last year to $24.7 billion by 2025. This translates to a 5.7% annualized growth rate for the industry.

In its own discussion about the market opportunity for the business, management cited the 625 million traveler departures globally each year. It also added on 25 million departures of flight crew and 75 million for airport employees. Using management’s pricing for the service, you could come up with a TAM (total addressable market). But that would rely on speculation centered around how many orders per x-number of departures the app could scale up to. Without hard data to cover that, such an estimate would be pointless.

Terms of the Deal

In order to keep running, the management team at AtYourGate is trying to raise some capital. They are doing this by issuing preferred stock in the business, with each share valued at $2.56396. In order to participate in the deal, investors must contribute a minimum of $100 apiece. The ultimate goal is to raise between $250,001 and $1.07 million, and as of this writing it has received commitments totaling $237,467. 

An Eye on Management

At this time, there are three key individuals running AtYourGate. The first of these is PJ Mastracchio. Mastracchio is the founder and CEO of the business. Prior to his time working on this concept, he was employed as a Senior Vice President at PSKW. Before that, he founded and owned Triax Media Group. The next individual in line is David Henninger. His current role is as President and COO of AtYourGate. In the past, he operated as a board member and Treasurer for The Independence Fund. Before that, he was the CEO of The Conrad Marketing Agency. He also at one point served as the CMO for Hooters of America. The last key member of the AtYourGate team is Chris Hartman, the company’s Chief Experience Officer. He previously served as the founder and Managing Partner of CCP Tech. Before that, he worked as the Director of Technical Sales at KDI Inc., and his position prior to that was as Director of Sales at BISG.

Rating

Based on our review of AtYourGate, our team has rated the company an Underweight prospect. Despite the sales progress the company saw from 2018 through 2019, its overall financial position is precarious at best. Net losses are significant, and debt is very high. Debt is so high, in fact, that it’s a legitimate question whether the current capital raise will do the business any real good. Another major concern is the sky-high valuation of the firm. At the start of its raise, AtYourGate listed a valuation of $49.8 million. Since then, they have lowered that figure to a still high amount of $29.5 million. If it were generating sales in the millions of dollars per year, its original $48.9 million pre-money valuation might be justifiable. The company seems to agree that they over-estimated their own value, given the recent change. But with sales of $199,091 last year and this year likely to be lower, even the new $29.5 million is a hard sell. The industry that AtYourGate is operating in is growing at a nice clip and it’s of a decent size. But the niche nature of its focus presents challenges regarding user utilization and the potential to turn this into a sustainable business. Throw in safety hurdles that are inherent in the airline industry, and it remains to be seen just how many airports will even permit such a service on their property. For all of these reasons, we believe the risks facing investors are awfully high.