Like many start-ups, the idea for online recipe delivery service, Gousto, came about to solve a problem in the founder's life.

Timo Schmidt, co-founder of Gousto, moved to the UK from the US ten years ago and was lucky enough to rent a flat above one of London's most famous foodie-destinations – Borough Market. But while the self-confessed food lover was happy to live next to such good quality produce, his long hours working in finance meant he was unable to visit the market when it was open, and what he did manage to buy was often wasted.

After realising there must be a simpler way to eat good quality meals, Schmidt learnt how to cook and quit his job to set up Gousto in his living room, with his neighbour and co-founder James Carter.

"I didn't have a mortgage or kids. What's the worst that could happen?" says Schmidt.

Schmidt and Carter started with a stall in Borough Market selling their boxes which provide recipes with the exact amount of ingredients to prepare meals from scratch. But they quickly realised it was the people who couldn't make it to the market they needed to target, and the easiest way to do that was to go online.

Online only

"I realised how massively online is growing – over the next five years, £12 billion worth of grocery spending will move from offline to online, and the only people taking advantage of this are Tesco and Ocado," he says. "It's like fashion ten years ago, when everyone said they wanted to try on clothes in the changing room and now 50% buy online. Right now people still want to touch and smell tomatoes, but give it five years and 50% will want to buy them online."

But Schmidt says customers don't want to choose from 150,000 grocery items on their mobile while sat on the bus home: "You want to choose a meal, through something nice and engaging, and deliver it as quickly and efficiently as possible". And that is what Gousto has strived to do.

Three years later and the company now employs 140 people, with headquarters in Shepherds Bush and a warehouse in Spalding which creates 300,000 meal kits per month. While Gousto was turned down in the BBC's Dragons' Den, the company went on to secure £1.2 million of funding from angel investors, and has now raised £20 million in total.

Customers can choose their meals – with ten new recipes a week, some created by Michelin-starred chefs – and have their kits delivered in a minimum of two days, Schmidt prides his business on the fact it has zero food waste.

"We leverage hugely smart data capabilities which means we have 0% waste. By comparison, Tesco has 20% waste on average – it's a massively ethical issue, but it also allows us to make a better margin than Tesco."

Data

Unlike supermarkets, Gousto's USP is using data to learn about its customers and recommend meals, in a similar way to online snack delivery service, Graze. In fact, Schmidt says the company learnt a lot from Graze and online film rental service, LoveFilm, with the latter's CEO, Simon Calvert, about to join Gousto's board.

"You can ask people for their preference by surveying them, but we built a data engine to tag every ingredient and recipe to build up a network understanding of what people like and don't like."

Schmidt says food is a very personal experience and Gousto embarks on an emotional relationship with its customers. "We understand that if they rate and like teriyaki chicken, they might like the salmon when it comes onto the menu," he explains.

"The recommendation engine takes into account millions of data points and predicts what people want to eat – we call it 'Laura', she's the first person in customer care and becomes smarter over time."

Schmidt explains that this machine learning now handles 1PB of data per day (as a comparison, Google handles 38PB). "I don't know how a small start-up like us can handle a that amount!" he exclaims.

"With all of this data, it is even more important to understand when the customer is thinking about food," he explains. "With deep understanding you can learn that they made a meal at 5.30pm and ate at 7pm. And then at 8.30pm they watched a food programme and at 9pm thought of ordering again – if you understand that process you have a massive advantage."

Schmidt also reveals that customers tend to order fancy meals for the weekend, while 20 minute meals are most popular during the week. "Also in terms of calories – people tend to watch those more during the week."

Skills

All of this data warehousing is built in-house thanks to Gousto's very talented tech team. But in a time of IT skill shortages, Schmidt has avoided any recruitment problems by hiring young people, straight out of university.

"One of the reasons Gousto is succeeding is because we hire the smartest people you can get, but not necessarily the most experienced – 50% of our management team joined from university with computer science or maths degrees, so we're escaping the skills gap."

And without this deep understanding of consumers' wants and needs, Schmidt doesn't believe the supermarkets will last much longer. "I really think supermarkets and the way they operate today will not exist in the next 25 years, there's a complete lack of change and understanding. It's hugely fascinating how quickly those changes are coming and with the cost of cloud storage coming down, it will only be easier."

Logistics

One service supermarkets do provide over Gousto is immediacy. The industry is understanding that shoppers' habits are changing as many are purchasing food for 'now' or 'tonight', so most supermarkets are increasing their convenience store portfolios to capitalise on this. Meanwhile, Gousto, at its best turnaround, delivers in two days.

Schmidt argues this timeframe will only continue to decrease as the company is investing in measures to improve the process. "When we started it took us eight days for delivery, and now on our best days it takes two to process – so give us six months to reduce this again."

Schmidt is very keen to reduce the timeframe in a smart way, while safeguarding the company's 0% waste policy. At present the boxes are sent via a third party courier, but Gousto has experimented with 30 minute delivery by placing a food truck in the middle of London and deploying a few scooters to deliver the food boxes. "It's not completely feasible and it's not the most important thing for our customers at the moment," he says. "So while we're investing in R&D and seeing a take up, it's not our priority. The other companies who specialise in delivery will do that for us and we can partner with them over time."

Having won ‘Retail Business of the Year’ at the 2015 Startups Awards, Gousto is now set to scale the business. But is Gousto a food business or a technology business?

"We have this discussion internally every day," laughs Schmidt. "Culturally the majority of our employees are data and technology driven, but at the heart we share a massive passion for food and everyone on the tech team is cooking every single week.

"From a capability perspective, we're a software company, but at the end of the day we're a food business, we cook every single day and everyone in the company gets to eat. It's much more fun to work for a company which has food at centre stage, rather than a payment processing company, or something like that – although you might be a little leaner if you do!"