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MONDAY MINUTE: January 02, 2022

Our Predictions for 2023 and how successful were our predictions from 2022? All these headlines and more represent our thoughts and views on the world of restaurants, technology and off premise food in our round up of the last week’s hot news stories - subscribe today to the Monday Minute and register at www.learn.delivery for more bonus content.



Carl and Meredith's 2023 Predictions:

1. Leading digital restaurant brands will look increasingly like e-commerce companies


2. E-commerce metrics will become critical to managing a great restaurant brand


3. Restaurants will start to talk about the percent of sales they spend on technology


4. Restaurants demand for technology ROI will combine with the interest rate environment to cause consolidation among technology providers


5. 2023 will be a year of normalization for restaurant delivery


TRANSCRIPT


Carl: Happy New Year. It's 2023 and here on the Monday Minute this week we're going to talk about 2022 and our predictions of what we thought was going to happen last year and our projections of what's coming up in 2023. Are you ready? This is the Monday Minute.

Now, usually here on the Monday Minute, we talk about five headlines that have caught our attention, but we're doing something a little different this week. As you know, many of you have read our book Delivering the Digital Restaurant, and that touches on the aspects of restaurants, technology, and off-premise.

So we have that theme about this, but in case you are one of the few that are yet to check out a copy of the book, here's where you can get it.

Happy New Year, Meredith, how are you?


Meredith: Happy New Year, Carl. I'm very good. How about yourself?


Carl: 2023. I'm not sure about odd years. I always feel like even years feel better to me so I go into 2023 with hopeful expectations of a year ahead. But let's see whether it's going to be a good year. I think it's going to be a tough year for many. It's my initial kind of projection.

I think it's gonna be tough to solve.


Meredith: What do you think? I myself love odd years. I mean, something interesting is happening.


Carl: Interesting. Well, let us start by looking back. We had our podcast come out at the end of December in 2021. And here are some of the lovely notes that we wrote about what our 10 projections were for 2022 and some stakeholder groups if you recall.

And so I thought we should do a little school report on ourselves to see how well did we get on. The first one here is about the consumer and the consumer demanding more healthy, diverse food options reflecting Chapter 2 of our book and the consumer expectations for these better experiences when it comes to both on-premise and off-premise.

So where do you think the consumer has been demanding more of these things?

Meredith: Hmm. Well, I don't know that they got healthier in 2022, but I do think they got more diverse in 2022. You think of a lot of the high growth brands that are out there, you know, things like Cava. They did eat a lot of chicken and chicken continues to grow which sounds healthy, but generally of the fried sort...maybe not.

Carl: Well, I would like to point out those stats that, I can't remember which Monday Minute it was, but we talked about the growth of Middle Eastern food. We talked about the growth of Thai food, if you remember, Mediterranean, so clearly there are these slightly more diverse food types that are becoming more and more interesting by the consumer. So I'm gonna give us a point on that one. What other one so far?



Meredith: I'll take it. I'll take it. Yeah.


Carl: Alright. Restaurant workers is next. Obviously the labor crisis was well into effect in 2021 and I think it's fair to say 2022 hasn't been any easier, but we did say Boomers won't return in their historic numbers to the restaurant workforce enabling a new generation to make their mark and I that we've done that. Right. I think that's exactly what's happened. It still continues to be a very difficult environment for restaurants to find the right worker for them. But similarly, they're having to adapt both what they compensate their restaurant employees with, but also how they treat them.


Meredith: Yeah. I think that's certainly true and we definitely saw my oft- quoted Boston Fed report saying it is the Boomers not coming back that's causing all these labor challenges.


Carl: Yeah. Supply chain was next. I remember early into 2022 and a bit of 2021, seeing those boats outside of Long Beach queuing up to get in.

Remember that and the supply chain challenges continued and that has only manifested into one thing. Inflation. It continues to go up. We see all the interest rates going up around the world, and so I think the supply chain one here for us continues to demonstrate that our prediction so far are 3 out of 3.

What do you think, Meredith?


Meredith: I think we're doing pretty good.


Carl: All right, good. But here's where I'm going to put a question mark. Restaurants and menus will continue to simplify, but more variety and growth in heritage food types with authentic stories and nutritional density will be enabled through continued growth in virtual brand development.


Now, this is what you were just saying, right? When you look at the amount of virtual brands that have emerged over the last year, it seems to be more towards the traditional American fair as opposed to more of those as we put heritage food.


Meredith: Yeah, a lot of craveability in the form of cheese and breakfast items and desserts and fried things, which they're all very yummy, so I can see why they're taking off.

But I was really hoping that virtual brands would enable a lot more niche cuisine types that did not make sense for a full restaurant expression, but absolutely made sense on an incremental basis out the back door. So hopefully, you know, we still have a chance to have that dream come true.


Carl: I think will happen, but three out of four. Three outta four. I'm not going to ding off a point on that one.

The next one, however, I think we can score, because guess what? We are doing it. We're living the projection. Technology providers will continue to make inroads into the restaurant industry as increasingly restaurants will be run digitally.

And of course they're at the bottom here, dynamic ordering and pricing functionality. So obviously, everything I'm doing with JUICER I think plays into this. I think everything you are doing with Empower Delivery plays into this, we're seeing an increasing amount of a digital footprint hit restaurants and hopefully make their overall operating system more efficient, more effective, and a better guest experience.

As we go to the next one here, third party marketplaces. We thought things were going to consolidate. Now, you and I had a bit of a debate off air before we began and we negotiated. It became a bit heated at one moment, but we've decided to give ourselves half a point here. Tell us why.

Because we thought Just Eat would sell Grubhub to DoorDash, Uber.


Meredith: Yeah, that's exactly right. You know, most verticals and most geographies end up with two marketplaces. To have three is a little bit unheard of. And of course, Grubhub has lost a tremendous amount of share as DoorDash and Uber have gained.

So we really thought they'll probably go away as a standalone player and of course they still exist, so we missed the mark there. But my argument that we should get partial credit is that Amazon did make an investment into GrubHub with their free GrubHub Plus for Amazon Prime members. Their investment, depending on certain performance metrics has the potential to go up to 15% of the company, which is kind of inching toward getting really involved.

So yeah, part credit.


Carl: Especially when Amazon exited India this year, right? So they exited the US once and now they exited India. So maybe they're coming back into the US in the longer term. They're probably keeping a very close eye on the Grubhub business as those memberships continue to scale.

All right. The next one was drivers. And we thought drivers are going to do better as their utilization improves. Of course the convenience side of things were starting to heat up. We saw at the Super Bowl the way in which Uber Eats was talking about things that weren't necessarily supposed to be eaten. And I think it's fair to say that the marketplaces have really invested a lot in making sure drivers have more occasions to service.

And I think you're going to say we are going to score a point from this one because Tony over at DoorDash thinks that restaurant drivers or rather delivery drivers for DoorDash and are in particular making more money.


Meredith: He would say that DoorDash drivers make $25 an hour on average. Of course there's a lot of flack on the internet about drivers saying that they make nowhere near that, but it is an average. So maybe some make more, some make less, I don't know. And the $25 an hour, you can really only get there if they're doing about two deliveries an hour by having them deliver bigger basket things, where they're getting higher tips. Right? DoorDash has probably been subsidizing a little bit to make sure that the drivers are coming in at their peak times and things like that, but, $25 an hour. It's not bad. And especially, we were absolutely right about DoorDash getting more and more into other verticals and because of that growing the number of deliveries that they do.


Carl: All right. Five and a half out of seven, I think we're doing well. The next one was about GMs and above- unit leadership and the way in which Restaurant 101 will get more attention as consumers demand better and more consistent execution.

You know, this is a difficult one for us to measure, so I don't know whether we can truly claim a point or not on this one, but what I would say is that when you think back to the Tattle survey that we reported on about a month or so ago, we did say that, customers now are saying "we want better, we want more value."

Value is definitely something they're not feeling, they're getting, and with the inflation effects- with prices going up across the restaurant industry -where the inferior service is kicking in, customers are reacting. And when you look at some of the numbers, which would imply that delivery sales are down relative to 2021, you could say that's perhaps a customer reaction to the service expectations. I think it's also a bit of the post pandemic effect and just things starting to normalize. What do you think, Meredith, a half a point in that one? What do you think?


Meredith: I would say half a point for sure, because in addition to everything you just said, we've got GM turnover coming down in the industry.


Carl: Oh yeah.


Meredith: And everyone really, really focused on that because we know that, as you said, Restaurant 101 is what delivers on the expectations and the main thing that drives Restaurant 101, Restaurant General Manager.

Carl: Totally. However, I am firmly saying that with number nine here, Investors, we did not get it right. We thought there was going to be a continued level of investment into the industry in 2022. And while there certainly was a lot of things happening with regards to consolidation I'm not sure we saw this right.

What do you think?


Meredith: Well, I again think that we need a half point here because we were right until halfway through the year, right? As long as there was a lot of cash in the world, which was true up until about mid-year, things were still getting funded and the valuations were still pretty healthy.


And it's just as those interest rates went up and the cash available went down and the expectations for profitability went up and the expectations for growth went down. That's when things really started to change. So at least for half the year, I thought we were doing pretty good.


Carl: All right, fair enough. I will give us another half a point and we'll see whether the Price Waterhouse auditors come in and question our accounting measures anytime soon.

The last one is Retail and Restaurants will increasingly blur. C-stores may become an instant national micro fulfillment and ghost kitchen network based on their ideal locations.


Well, look, I think we need to point to our friends over at Kitchen United and their partnership with Circle K, right? I mean, if ever there was a reflection of Ghost Kitchens, C stores, micro fulfillment coming together, it feels like that is a great example of somewhere which could really take advantage of this.


Okay. So what do you think? I mean, I think we did pretty well. 70, 80% roughly, of our projections coming through.


Let's change tack because I'm conscious of time and we always try and keep people to 10 to 15 minutes. Maybe this year we kick off with a slightly longer episode.

Meredith: It's gonna be tough, man. We're already going.


Tell you what we'll do, we'll only come up with five projections for 2023. Let's try and get into that. First one, expect leading digital restaurant brands to look increasingly like e-commerce brands from other industries. What do we mean by this, Meredith?

Restaurants are really turning into e-commerce companies. Even though the fulfillment is quite different, right? It's not coming out of a DC somewhere, but rather out of your local restaurant. The digital interfaces and interactions with restaurants are looking very, very similar to what we see in e-commerce.

And in fact, every new innovation that comes out reminds me of something that we saw five or 10 years ago in e-commerce. We have long been fans of Larry Ingrassia's Billion Dollar Brand Club. I read that book, which is all about direct to consumer brands in the CPG and apparel space. And I just replace CPG or apparel with the word restaurant and it's easy to see where we're all headed, right? So for anyone who hasn't read that book, I'll plug it again. Go read that book. But I think what this means is, with something like what you're doing, dynamic pricing, Carl, at JUICER, it's not like you guys invented dynamic pricing, right? That exists in e-commerce. Amazon's been doing it for years. You go on your cart and they say, " this item has changed 27 cents," this happens constantly in other verticals, and in many ways restaurants are lucky because we're going last. And so we just get to lift all these winning ideas and bring 'em on over to our industry.


Carl: Well, I think C-stores are going last, but restaurants are towards the end of the tail, that's for sure. But there's another term, the sneak peek if I may, on our new book that is coming this month, Delivering the Digital Restaurant: The Path to Digital Maturity. And we bring up this term called Headless APIs.

Headless APIs. The other day we were saying, "Well, you know, JUICER and what we're doing with JUICER is a Headless API." And I think really what we're trying to say is that technology, as it becomes prevalent with new features and functions doesn't always have to sit on its own, it can sit as part of something else. And certainly that's one of our approaches with JUICER.

What are your thoughts around this headless concept? Because for us, I think we see further innovation coming more through that pathway than trying to create another standalone addition to an already convoluted tech stack.


Meredith: Yeah, absolutely. What we've seen in other verticals is the creation of platforms, which would be the single or dominant place that the customer goes to get most of their technology. But then other folks plug into it, and sometimes that's in the form of an app store where you can go choose the things you want to add in. Sometimes that's happening invisibly in the background where the big company gets an API license with a smaller company and brings their functionality in. Sometimes that happens with an outright acquisition where the big company says, "oh, this is a really neat piece of technology that I want to all my customers to have access to."

And I think we're gonna see a lot of that, right? So it doesn't necessarily have to be the big companies always doing the innovation in-house, and it certainly doesn't have to be what it's been for the last few years in the restaurant industry: "and you need this subscription and this subscription, and this one," which is I think, a bit maddening for a lot of people.

Carl: There's a nice link here between our projections because if we assume that restaurants are going to become a little bit closer to e-commerce companies, then clearly we need to have some metrics also to the e-commerce aspects and so L T V, CAC, S E O, C R O. So let's go through those.

Customer Life-Time Value, Customer Acquisition Costs, Search Engine Optimization, which I'd say has probably been around for quite a while, not just in the e-commerce space and Conversion Rate Optimization. These are definitely items that I think are going to become part of the everyday vernacular. What do you think?


Meredith: Absolutely. And I think that the marketplaces are going to help us get there. They're already starting to make the reporting on their backends better so that you can do things like measure your return on advertising spend. There's another one not on your list and see how your customers are going down through the e-commerce funnel: from viewing your restaurant page in their menu to actually getting your restaurant page to going to your menu, to selecting things and putting them in the cart. Cart abandonment. That's another metric that we'll see. So I think all these like e-commerce funnel type measurements are going to be much more common, in the restaurant industry as more and more of the transactions become digital. Even if they're not on the marketplaces, if they're first party direct or if they are on kiosk, in store, on a tablet at the table. All of these transactions become more and more digital. We will start to say, "oh, that's interesting that they put that in their cart, but they didn't ever check out. Hmm. What's that all about ?" which today we don't even pause to wonder about for most of us in restaurants.

Carl: Restaurants are also going to start demanding those types of metrics from the technology companies. It only takes a quick look at the back end of the biggest marketplaces and compare them to what you might get from a Google dashboard for example, and you could see straight away that you don't necessarily get the same level of competence as what you would with a big established player like Google.

So there's probably even more and improved reporting that's going to come from the marketplaces.

Well, okay, the next one that we have keeps along the same kind of spirit of things, but we're gonna say from a measurement perspective, we're also going to see restaurants talk about the percentage of sales that's spent on technology.

So I was mentioning this convoluted tech stack. In an inflationary environment, in a recessionary environment, perhaps, we're going to find that things are going to start to get cut. And that isn't always in people's jobs. It's also in terms of the costs that are actually being spread across the business. When you look across the average restaurant business today and you to assess the amount of technology of sales, what do you think, Meredith? Two to 4 percent of sales roughly?


Meredith: I think that's probably about right and it's very hard traditionally for restaurants to measure this. Some of it's happening in store, some is happening above store, some of it is capitalized. Some of it is OPEX. Some of it is actual technology subscriptions. Some of it is perhaps utility-based fees or even people working in technology.

It resides in so many different parts of the P&L that it's very hard to keep track of and therefore very hard to measure as a percentage of sales. But I think that restaurants are going to get much more focused on " okay, how much are we spending in total on this? And is it driving the return that we want? And how could we be smarter about how much we're spending on technology by maybe consolidating down the number of tools that we're using or getting rid of extraneous ones. Which, I think takes us to our next trend.

Carl: almost like we planned it in advance. Because once you start looking at the cost and you start to see really what value is being derived from those kind of technology investments, you then start to say, "well, can I do this in a better way?"

Now, I would say right now many tech stacks, especially the ones that have been pieced together, are somewhat complex in the sense that they don't always talk to each other and when they don't talk to each other, you either have to create clunky interfaces to help them talk to each other or you just do without, and that obviously isn't great for the efficacy of the [00:18:00] operation and ultimately the guest experience.

So I guess this one is a natural follow on from that in terms of understanding the cost and simplifying technology. Is this, Meredith, perhaps more consolidation? We saw a bunch of consolidation efforts from the likes of Olo last year with acquiring Omnivore, for example, and we saw Toast acquiring some folks.

Did we see more of that happening or is this something different?


Meredith: I think potentially we will but you know, ultimately we have to deal with the root cause of this issue, which was that we innovated a whole bunch and in our innovation kind of frankensteined all of these bits and pieces together. And that's what's led to the clunky tech stack, right?

So the only way to really get around that is to step back and go back to first principles and say, "Hmm, now that we know what a digital restaurant needs, how would you build that if you were building it from the beginning instead of cluing all these things together? So, we might actually see something start totally from scratch and recreate the tech stack in its entirety.

We'll certainly see acquisitions from the big companies as they look to become one central place that you can get all of the various things that you need to run your restaurant. and back to what we were talking about before. We'll start to see that headless API thing where, you get little bits of functionality plugging into other people's big platforms.

Carl: Sure. And then of course, everything you are doing with Empower, it also helps, right? Because you've got one system that's been designed to enable all the functions to work together because it's been built that way from the ground up, which I think is a very fascinating area to keep an eye on. So, you know, exciting times.

Alright, last one. Last one for us. We are bullish. We remain bullish. That delivery is still a big part of our industry and we think, when you look at 2022, it was 2022 versus a year still suffering of the pandemic in 2021. So while last year might have felt tough from a delivery number standpoint, I think 2023 is going to normalize.

I think we are still going to see delivery being quite a substantial, and when I say delivery, I also mean pick up and drive through anything off-premise, we're still gonna see that being something that is quite sizable, something that restaurant executives around the world need to take seriously.


Meredith: I think for sure. And we've said this, I think we said it last year in our predictions. We'll say it again there's been a lot of people have said, "well, in the face of all this inflation, surely one of the luxuries that will go, is delivery. People will go get it themselves or they'll go back into the restaurant, or God forbid they'll even start cooking."

But I think it is important to remember the total cost of use with delivery. A lot of us who order delivery, it means we don't have to get a babysitter, or maybe we are consuming a bottle of wine that we have at home instead of buying one at a markup at the restaurant, for some people who don't have cars.

Wow. Like think of the savings if someone will bring it to you rather than buying a car. My goodness. Like, that's enormous. If we really look at the total cost of use of delivery for a lot of segments of Society, it's actually cheaper to get delivery than to do things the old fashioned way. And for that reason, especially for those people who have Dash Pass and Uber One and GrubHub Plus, I think they will continue to order delivery in large numbers.

Now, I think they are likely to be very, what I'll call promo sensitive and you'll see a lot more promotional activity on the platforms. You probably won't see basket size growing, but I think you will continue to see those transactions.

Carl: Great. Well, we've had a slightly longer version of Monday Minute, maybe we should call it the Monday Hour this week.

But in the Monday Minute this week, looking back on 2022 and 2023, what do you agree with? What do you disagree with? What are you looking forward to in the year ahead?

Please put your comments. What I would love to hear from you, and of course, if you have anything you'd like us to share, as we go back to our traditional format next time, please get in touch.


But until next time, Happy New Year to you and we'll see you soon.


The Monday Minute is available for you to follow and subscribe wherever you listen to your podcast. Watch us on YouTube and follow us on all our social media learn.delivery channels. Thanks for listening.

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