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The Digital Restaurant: December 18, 2023

Ever wondered how the restaurant industry is evolving amidst the shockwaves of the pandemic and soaring labor costs? Brace yourselves for an enlightening conversation with industry mavericks - Zach Rash of Coco Robotics, Seth Cohen of Sweetfin, Alex Canter, Jim Goodman and Glenn Gerlach, who share their insights on navigating these challenges with the aid of technology and innovative solutions.


We're also putting the spotlight on the intriguing tie-up of real estate and future delivery platforms in the restaurant industry in this episode. We delve into the potential of robotics in tackling high delivery costs and making it more profitable for restaurants. We also discuss the impact of technology such as drones and robots on the controversial topic of delivery platforms and their commissions.


Our conversation takes a forward-looking turn as we delve into our expansion plans for 2024, the rise of virtual brands, and the importance of aligning with industry trends. We wrap up by exploring how vendors and suppliers can approach businesses in this fast-paced industry. So, join us for a thought-provoking discussion on strategies, industry trends, and the future of the restaurant industry. Be prepared for a hearty serving of knowledge!



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TRANSCRIPT:

Carl: We've gone and put the digital restaurant backdrop up. We've got a table for the masters of the food and beverage universe dinner that Saul Cooperstein is putting on tonight and looking forward to having a few special guests for our end of year special. Yes, we have an end of year special with not one but Six guests talking about their reflections on the year just gone. Join us as we chat with Zach Rash, co founder and CEO of Coco Robotics, Seth Cohen, president of Sweetfin, Jim Goodman of Bevy and Glenn Gerlich of Loop AI, and of course the irrepressibly impressive Alex Canter and our host for the evening, Saul Cooperstein of Virtual Dining Concepts.

It's the end of 2023. Let's get in to the final episode of the Digital Restaurant. Thank you for having us here at the Masters of the Food and Beverage Universe. Before we get started, Saul, Alex, tell us about what this event is. Because there is a wonderfully long table in front of us, full of people that are changing the world of restaurants and food and c-stores.

How did this come about?


Saul: So I was having dinner with Michael Montagano, probably two and a half years ago, in Pasadena, and we had just finished eating, and I was like, there's so many food tech people in LA, but no one talks to each other. The serendipity of it.


Alex: It's kind of crazy, you think about a lot of tech in San Francisco, but in LA we have ChowNow, and Sweetgreen, and Cloud Kitchens, and all the innovative companies coming out of this scene, and we thought it would be a good idea to bring together the heads of these businesses.


Saul: Six people showed up to the first one. We worked our way up, we have sixty people now.


Carl: Good evening guys. Thanks for joining us. We've got Zach from CoCo and Seth from SweetFin. Lovely to have you guys here. Before we get started with our questions, we'd love to for you to share a little bit about yourselves and your companies with the audience.

Seth, do you want to kick us off?


Seth: Sure. Happy to be here. I'm president and co founder of SweetFin. SweetFin was founded in 2015 as a premium poke concept. We have locations all over Southern California . Our mission as a company is to fuel life through freshness.


Carl: How about you, Zach? What's your story?


Zach: Yeah, I'm Zach Rash. I'm the co founder and CEO of Coco. If you're in L. A., you've probably seen the pink delivery robots roaming around, so we make these robots to transport food and grocery at a much lower cost than exists today.


Carl: Zach was very kind. He invited me to his launch party. How long ago was that now?


Zach: I think it was two years ago.


Carl: My goodness. What has happened in those two years?


Seth: Including bringing us on.


Zach: Yeah, that's right. We have our Cocos all over the place.


Carl: So, we're joined by Wonderful Glenn Gerlach and also Jim Goodman. Thank you for being here guys We really appreciate you joining our end of year special here on The Digital Restaurant.


Now let's first of all get a brief intro, if we could, about both of your backgrounds, and which companies are you with these days?


Jim: These days I'm with Bevs. We are a SaaS platform and operating system for liquor convenience stores. Past history, claim to fame, I was conceptualizer and founder of Ticketmaster Online. Did tickets.com.


Meredith: So you'd say you know a thing or two about marketplaces.


Jim: I've been around the block and have a lot of gray hair in my beard.


Carl: Great for you to join us, Jim. Glenn, tell us about yourself.


Glenn: Yeah, tough to follow that. So I'm a zero to one sales guy.

I've been working in different spaces such as accounting, healthcare, now hospitality, focusing on restaurants, specifically at Loop AI. We optimize the back end of third party delivery, make it more profitable, efficient, and, uh, give better understanding, clear data.


Carl: Fantastic. Awesome. What has 2023 been like?

What have been some of the challenges, what have been some of the surprises that you've come across from your conversations with people in the industry, Jim?


Reflections on 2023

Jim: I would say even more than just 2023, I think it was the realization of COVID and how the lockdown changed the industry on the whole, driving a lot of people to delivery and that flowed right on into 2023.

So it's that continuation on understanding where they need to be in order to reach their customer.


Meredith: Yeah, the consumer has fundamentally changed, not just the pandemic boom-splat.


Jim: It did happen overnight, but that adjustment to it doesn't resolve itself overnight, unfortunately.


Seth: Well, it was a big year for us. We went from 15 to 20 units. So there's a lot of building for us. Our tech stack more or less remained the same. I think as a trend, all restauranteurs felt the pressures of cost inputs going up despite what the CPI readings may say. There's still inflation, especially in services businesses with labor.

Rents are still going up. Just the cost of doing business is, is challenging. So I think all restauranteurs are trying to find ways to be more efficient both within the four walls of the restaurants and just be more efficient with their tech stack. So that's something that we've been focusing on a lot.


Meredith: Do you think that has a big implication for how much tech people are using? The kinds of tech people are using?

Restaurants consolidating their tech stacks

Seth: For sure. As restauranteurs are evaluating technology at this point, every piece of tech needs to have a really clear ROI. And so we're being very mindful of what we're bringing into our tech stack and maybe what we're moving from our tech stack.

And we want to make sure that the tech stack doesn't get too bloated for the size of the company that we're at.


Meredith: What do you think, Zach? What happened in 2023?


Zach: Well, we manufacture hardware, and this has been a record interest rate increase. The funding's gotten a lot harder, so it's a lot harder to move faster as an early startup.

We're about three and a half years old. Balancing that with the fact that labor costs have come up dramatically and they're continuing to do so. In California, restaurant worker minimum wage for these restaurant chains going up to 20 an hour. New York just is on the verge of passing this bill for door dash drivers or gig workers to make, I think it was like 29 an hour pre tips.

So huge increases in labor costs, at a time where, you know, I think a lot of businesses are concerned about consumer spending in a recession or in a higher interest rate environment. So. A huge need for the product, combining that with how do we make sure that we can scale and meet the needs of these businesses without getting overextended on cost and making sure we can do it cost effectively.

So, that's been a unique challenge, but I think we've gotten some good solutions.


Meredith: I suppose you need to put the capital into the machines before you get the customers.


Zach: Yeah, robots are expensive to grow, but in the long run, you have to invest a lot of money up front, but it can have a huge offset in cost because once you deploy them, they're just out there.

And you have this fixed cost instead of a variable cost. And we still have some variable costs, but a lot of that cost is up front and fixed. And then, as long as you start getting some volume to the neighborhoods, you can start reducing a lot of the costs for our partners and our ecosystem partners.


Alex: I think 2023 was like a come to Jesus year. It's no longer a big venture fund subsidizing growth and all the costs, so it's, it's down to building sustainably, and I think a lot of companies have done a wonderful job. The glory days of growth at all costs are gone.


Carl: 2023, for most of the folks we've spoken to seem to be saying It's been a year of optimization. Everything before it has been, Oh my goodness, we need to adjust quickly.

And now everyone's been able to take a breath and say, Okay, this is, we've got to take this seriously, and we've got to run this properly, and we've got to do it more efficiently. So it feels like this is very much the theme that's coming through from what you're saying.

Glenn: Yeah, it's too big of a black box as it exists today, right? You've got enterprises running the same software to manage third party delivery as mom and pop pizza shops, right? They're getting the clear understanding that, hey, if this is 18, 20, 30, 40 percent of my revenue, this cannot be a black box. We've got to run an efficient and effective business here and we need the tools to support that.


2024 Predictions

Meredith: So, coming in 2024, based on having seen this movie play out in other industries, what do you think is going to happen with marketplaces, both in restaurant and retail in the segment you're in?


Jim: What we've seen from the third party delivery services, as well as from other angles in the business, I'm going to couch it all in one umbrella of inventory. Being better able to understand what they've got so that way they can sell it properly, and, and track it. And all of the bits and pieces that go along with that. Because if they don't know what's in their store, they can't offer it up properly. Then you get into your world of cancellations, tracking, recoupment, chargebacks, all that kind of stuff.


So by being more efficient on the inventory side, makes everything downstream smoother.


Seth: I think it's a lot of the same. Businesses are trying to figure out ways to be more efficient. I think the consumer is It's going to be driven more by value. So I think Zach's solution with Coco is amazing because we can really promote our first party delivery service, utilizing the robots and not having a huge incremental increase in cost for our customers to order through first party.


So we're really excited about that. I think there may be some green shoots in the real estate standpoint. As the economy gets a little bit more shaky, unfortunately businesses have challenges, and I think it just opens up some good real estate opportunities for us potentially.

And just in general for all restrateurs.


Zach: We're going to try to capitalize on a lot of the investments we've made in 2023 so that we can start expanding. And like I said, I think the timing's really good for robotics right now. There's a lot of these kind of headwinds for businesses and for the delivery platforms to start adding more technology.


Reducing Delivery Fees Means Reducing Delivery Costs

Zach: And along the lines of Seth's point there's a lot of different products that people are trying to add to reduce their costs, but I feel like there's this narrative of you know, delivery platforms are evil. The big delivery marketplaces are evil because they're taking a lot of our money, right?


They're taking this 30 percent commission. The cost of doing delivery is just really high. And so until someone fixes that, none of that's going to change. You can use 10 different SaaS products to try to market to your customers and Build your first party volume, but if you're still using DoorDash drivers to deliver them, you know, you didn't really solve anything, you're just probably paying a couple more SaaS fees.


So, we're really trying to work with the big platforms to say how can we actually be a solution here so that brands like SweetFin can invest some of the savings into marketing and make their prices more attractive to consumers in a worsening economy. So, I think there's a lot of good benefits you can get from that in a world of higher interest rates.

 But, the only practical solution to this is you just need to reduce the cost of moving the goods around, because that's the most expensive part.


Meredith: I could not agree more. I think when you look at first party versus third party now, because restaurants have taken so much price on the third party marketplaces, it may be that first party is actually the less profitable channel, because the cost of delivery has remained the same, whether you're doing it first party or third party.

And until you figure out how to dramatically reduce that cost of delivery, either via efficiency or robots or whatever it might be, you're going to end up in the same situation.


Zach: Totally. And I think that's not super clearly identified. It's all annual contract for this and it adds up and a lot of people don't do this math because it's confusing and a lot of the pricing's not super clear.


But there's this stigma of, you know, big delivery platforms are evil and their commissions are just evil. But, like, the margins of food delivery from the big companies are not great, so, you know, clearly something needs to change there to make this work for the restaurants. And I think we're on the verge of it.


I think drone delivery in some less urban markets, and I think stuff like Coco is really going to help.


Saul: I think that we're going to start seeing a lot more of the use of the word love. That's the product that's actually experienced by the consumer. I think that's probably where I think the most consumers go.

People usually start reinvesting in product and experience.

 We were there in the early days when DoorDash made a move into liquor convenience stores and small independent groceries. So we were day one with them. The others are behind them in getting there, and we're the partner that they're teaming with.


Jim: And we've got a platform with a whole bunch of stores and we work really well with them all. And they love us because we've cracked the nut on mom and pop.


Meredith: Awesome. And then personally, either for your own self or for your company what kind of BHAG do you have for 2024? If you haven't heard the term before, it's a big, hairy, audacious goal. And what are you planning?


Seth: The goal from the company is to move from our our Southern California roots, and go to some other markets. I there's a lot of white space in our category. I think there's a lot of tailwinds for people that want to eat healthier.

I think we're at a great price point. We're fast in our service. We're customizable. We're great for delivery. So all the, the buzzwords that people talk about. We're right on trend, so I think it's time for us to move outside of LA.


Zach: Yeah, Seth's expanding everywhere, so we need to expand with him so our Big goals for next year is just more markets, more countries.


We really like these dense environments where the robots, you know, the robots do about two miles. We can be competitive on delivery times to the driver within about two miles. So, we need a dense urban environment where two miles is a majority of the deliveries, or at least a significant portion of the deliveries.


So, that's not just in the U. S., but internationally too. A lot of cities in Europe and Asia are perfect for this sort of a model. So, we're trying to expand as fast as possible. We're really prioritizing, places like New York and California where the cost structure is going to get pretty painful for the delivery platforms and for the restaurants in the next year.

So I think this California minimum wage bill starts in April. So, we'll be trying to move as fast as we can, in that timeframe.


Carl: VDC, virtual brands, they've been very much in the focus this year. Saul, what's your take? Is it Good year in 2024 for virtual brands.


Saul: Well, so I've said for many, many years now that there's no such thing as a virtual brand, so that it's not virtual, just the way that it's executed.

I still feel that way. Like you create a product that people love and you find as many ways to branch out as possible, and virtual is one of the ways that you can do that.


What Should Restaurants Be Thinking about in 2024?

Carl: So let's, let's think about this from the standpoint of as a vendor, as a supplier to c- stores or to restaurants. What do they need to be thinking more about in 2024? How would, if they were to change something in the way they approach, the way they speak to companies like yours, what would they be doing differently?


Glenn: I mean, that's a very bold, statement to make anything I would say, but I would say probably from my observations, third party is, is not going away, right?

These marketplaces are not going away. They've built the infrastructure, they've got the customer, the customer always reverts back to the mean, right? It's simple. So if you have this ecosystem that you must work in, and essentially it's very difficult to extract data from it, you can't just throw your hands in the air, right?


With the data that is available, what insights can you extract from it to deliver the best possible experience to your customer? Because at the end of the day, they're on there, they're looking to spend money, their, their order volumes are going up, their total basket sizes are going up, so let's make sure that we give them, every tool possible to really understand that customer, and deliver the best possible experience so they keep coming back.


Jim: And for us, it's an extension of that because we deal so much more on getting the catalog and menu into the third party delivery systems. So it's creating packages and bundles that the consumer wants. It's making sure that they've got the accurate pricing there, the reporting that goes along with it, so that way they can act upon it and deal with it, and getting a better experience for them on the whole with these third party delivery systems to onboard smoother to onboard faster to have a better response time and a lot of white glove treatment because they're not techies. This is not what they do and they get very frustrated when they call customer service and get bounced around with,


Seth: Just the cost of the tech stack. There's going to be a lot of consolidation and I think less is going to be more. I think vendors can do a better job of providing more services, a better ROI, explaining, you know, different products within their suite of services to restaurants, so restaurants don't have to look outward to other solutions.

So I think there's going to be more consolidation, on the tech side and I think that we're going to be working with less tech providers next year than we were this year, and I think that trend's only going to continue.


Carl: And, Zach, for yourself, when you think about what restaurants could do perhaps a little bit better, or you'd like to see more from them, to help not just your product, but just generally the folks that are bringing technology and innovation to the industry, what do they need to think differently on?


Zach: Yeah same thing, you just, like, we need to massively consolidate the tech stack, and so it just gets really confusing and we have to integrate with the POS, with the delivery platform, we have to integrate with all these different components. And so you get in the weeds of this all and you're like, this is a nightmare to manage.

And so, I do think you're probably going to get a lot of consolidation as people start scrutinizing, do I need this extra monthly SaaS spend for this product? I think that would be really good for the operators. I think a lot of these products have matured and duplicated their features. So I do think some bundling is probably going to happen where they're going to get much lower prices from one company to offer all those features.


I think that would be really good. I just think a restaurant doesn't need 10 different software providers for things. And then accordingly, Coco, we've been trying to integrate with the top players as much as possible so we can make that very seamless for the operators. They don't need more confusion or, to do more accounting to understand where their economics are.


So fewer providers keeping it really simple and then making it really obvious where the value is being created. I think that's gotten a little crazy in the last few years. Seth can probably relate to that even more than me. Yeah. They've avoided that. But there's a lot of brands with pretty complicated tech stacks, and I don't think


The Great Tech Divide


Seth: We try to keep it simple. I was just thinking about, like, trends. And one thing I've been thinking about lately is This tech ecosystem, it's kind of like you have this divergent path between the haves and the have nots and with inflationary pressure on costs, I think the haves, the companies that have the resources to invest and develop their own technology in automation, like the Chipotles, or maybe even the Sweet Greens, are going to be able to create a moat that is going to be challenging for the smaller companies Fast casuals or any restaurant really to compete. And so I think that is going to be interesting to see if the technology that they're creating is going to be democratized and eventually pushed to smaller guys or if there's going to be this divergent path where they can take price and The rest of us so to speak are going to be stuck with with costs that are continuing to increase


Meredith: Well, it's certainly been the case so far, you know Someone like Chipotle has been able to dramatically outpace price increases versus the rest of the industry and I think consumers have been willing to pay it In part, because the process is so frictionless.

Right. It's so convenient, so easy to get, that you make that tradeoff.


Seth: Yep. Definitely.


Carl: Great stuff. Well, guys, thank you for joining us tonight. Enjoy the meal here at the Master of the Food and Beverage Universe table. We've got a big long table in front of us. Hopefully we'll have a nice meal ahead and happy holidays to you both.


Yeah. Thanks for having us. Guys. Thank you so much again for inviting us, for putting this on. This is amazing. I really appreciate you letting us have the podcast for you as well and speaking to some of your guests. Awesome. Thanks so much.


The Digital Restaurant Podcast is available for you to follow and subscribe wherever you listen to your podcasts.

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