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THE DIGITAL RESTAURANT: February 12, 2024

Get ready to explore the seismic shifts affecting your favorite dining spots as we guide you through the evolving landscape of the restaurant industry. As Google repositions itself, stepping away from being a middleman in online food ordering, we unlock the repercussions for restaurants and their relationship with tech giants. We don't just stop at a surface analysis; instead, we delve deep into the lawsuit that might have nudged Google aside and the newfound importance of Google My Business in directing patrons to restaurants' chosen ordering methods. Plus, we'll dish out the details on Uber Eats' landmark profit, and what this breakthrough signifies for the broader delivery service sector.


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Use this form to inform Google bout your preferred ordering link.


transcript:

Carl: Happy Monday, Meredith!


Meredith: Hello. Happy Monday, Carl.


Carl: Are you getting in the mood for Valentine's week?


Meredith: Mm hmm. Can't you tell by all the pink?


Carl: I'm a very romantic person, as you know. But Elicia and I, we tend to celebrate Valentine's in a somewhat different way. We head to somewhere like Target, find a card, pick it up, read it to each other, put it back down again. You can call me cheap, but I think it's a very effective way and not playing into the commerciality of it all.


Meredith: I think you're environmentally friendly, Carl.


Carl: There you go, there you go. Maybe I'll see you and Scott there sometime.


Meredith: Yeah, and we can just hang out in the aisle, reading cards to each other.


Carl: Well, we've got a busy week this week. We've got lots to talk about. So I guess we better get on with it.

 

Why is Google stopping restaurant ordering?

Meredith: Our very first question is for you, Carl. This one is about Google scaling back restaurant ordering in their search results for restaurants. So tell us about what did they used to do? What are they doing now? Why did they do it? Lots of questions.


Carl: Yeah. Google's announced that they're no longer going to be part of the transaction for customers ordering online.


They're going to be more of a middleman that facilitates a transaction between a restaurant and its partners, such as DoorDash and Uber Eats or the restaurant's own website. But there's also something here in this Meredith, which I think is a bit of a shame and I'll explore why. But I also think it's important to emphasize that this is somewhat different to Google My Business. That is still as important as ever.


But since 2018, Google had provided a platform for direct orders offering a service which of course isn't bad when you compare that to the third party marketplaces, which often can charge up to something like 30%, but it wasn't without its controversy because they weren't always connected to the smaller delivery providers.


And I'm wondering, I'm just speculating here, but a 2022 class action lawsuit might also be behind this and that lawsuit claims that Google may have redirected customers to third party services without making the restaurant themselves aware or consenting to it. And that, of course, is something we reported on a few years back with Grubhub, right, when they were also in that same kind of space.


The reason why I'm a little bit disappointed by this is that PYMENTS talked about a poll where they said, 62 percent of people named Google as their first choice for online restaurant searches. We know how popular it is to use restaurants near me.

In fact, I’ll bring up something here which shows the number I think it's the top 100 searches in Google in the month of January. And as you see here, it shows that restaurants near me was number 38 on the list. Of course, they're going past things like Amazon and YouTube, but number 38 on the list tells us how important restaurants near me is for Google.


Google My Business is still super important and it's often ignored, in terms of a restaurant's digital front door.


It's through that that the restaurant can now ensure that there is a direct link to their preferred ordering channel. It's going to be super important here and we'll put a link in the comments below so that folks know exactly how to go about doing that.


It's also crucial to understand the distinction between a marketplace search here and a Google search. Marketplace search is where customers are exploring the options, where a Google search often has a direct intent to engage with your restaurant, and so it's important for Independent restaurants particularly aiming to direct more customers to their more profitable and data rich own channel to really focus on this.


It's going to flow those searches of 'food near me' directly to their own website. So I think it's going to be interesting to see how this plays out. It doesn't hugely surprise me that Google are moving away from being that intermediary in this space, not necessarily wanting to supplement the technology that exists out there that customers are used to using.

But I do think in some ways, if restaurants aren't aware of making sure that the link is established in the right way, it might actually work out badly for restaurants.


Meredith: There was so much speculation about this on LinkedIn this week. I think everyone was really curious why Google was making this change and what the change was.


Lots of different theories about why it was happening. Yours about the class action lawsuit is interesting. There's also the supposition that, the number one thing Google cares about is user experience in the search. And if they were not having a good experience going through Google to transact you can see why they would change that because the revenue that they were getting off of it, since it didn't get a ton of traction, was probably fairly small relative to the impact it had on its searchers.


Carl: It adds a bit of friction. That's the thing I don't like. You know me, my friction, I don't like friction in the process, but we'll see.


Uber Eats turns a profit

Carl: We'll see what happens. But look, let's move on. A second question is for you this week. I know you love delving into year end reports, quarterly reports, and Uber Eats had a pretty impressive outcome.

I think first time they've turned a profit. What was your reaction to that last week?


Meredith: You know, me and my financials . I read with great interest, their letter and their earnings call transcript. The things that they highlighted, of course, were turning a profit, which is great for them. And I loved how Kristen Hawley talked about you know, finally they've proved themselves as not just a subsidized millennial excess vehicle, which is great. And good on them. However, of course, you know, I have some, howevers, Carl, a couple of things.


Number one of the profit that they turned. It was a 1. 1 billion dollar profit. 1 billion of that was gains on investments that they hold. So not actually the operating business, which means that they had something like 37 billion in revenue last year in order to make a hundred million. So it's not a super profitable business, but it is better than negative, which is good.


And then the other thing that really struck me is that although their delivery revenue is up, in food delivery specifically, their take rate is down. Now, they attribute this to business model changes that classify certain activities as contra revenue instead of sales and marketing. There's a lot open to interpretation there.


Notably, they did not say the word reclassified. They said classified, so it doesn't sound like they're moving money from one pocket to the other. What it sounds like is that they're spending new money. And of course, you would expect the take rate to be going up. And in fact they said that their revenue is going up in large part because of ad spend

of the restaurants on platform, so it's very curious. You would expect that revenue to be increasing take rate . Instead, what you see is the take rates going down. It's the same supposition I had about Uber and DoorDash last quarter. I think what is happening is if you just left things to the natural state, given all the price increases that we've seen in restaurants generally and then on platform specifically, the good old rules of price elasticity would tell us that consumers would order less.


But instead they're not. Those orders continue to grow. But then these weird things are happening with the take rate. So when I put all of this together, what I think is going on is that Uber, and we'll see DoorDash next week, are spending an awful lot on promotional activity to encourage consumers to keep ordering, so that they can keep those volumes high.


But that's costing them something and they're having to put that in contra revenue, at least in the case of Uber here in this report. So how long can they continue to do that for? I don't know, but they have an awful lot of cash on their balance sheet. So probably for a long, long time, and they're generating quite a lot of free cashflow.


It seems like they can keep this behavior up. Now, what that means for restaurants is you've got a bunch of consumers out there who are being trained to look for a promotion and are being trained that they should buy something that's on sale. And so it's creating a bit of a like pricing doom loop in the entire industry where everyone's taking their prices really, really high in order to accommodate, say third party fees and things like that.


But then the third parties are giving a bunch of promotions to make it palatable for the consumer. Those promotions are eating into margins for the restaurants because they're spending a bunch of money either on the promos themselves or on advertising to get placement on the platforms. And so they're increasing their prices more, and then there'll be more discounting.


This is all very bad. So, once again, we're back to the best place to be is first party transactions. Everyone says it's so hard to get there. And guess what? It's even harder if the third parties are giving promos upon promos upon promos to your customer.


Carl: Yeah, I think you're right. It's almost the the pricing struggle that folks have, right.

Is that if you're always on sale, then you only ever get the transaction when you're on sale. And so it perhaps works out for Uber Eats because it's going to help them from their advertising and promotion budget side of things, but for a restaurant and their brand and how it comes across. Creates some mixed messaging if it's not part of who you are as a brand.


Meredith: Yeah, right. Exactly.


Carl: Okay. Well look before we move on I have a request to make Meredith and I love to be seen as popular at least and we'd love to be seen a little bit more popular on platforms like YouTube and wherever you listen to your podcast. So if you wouldn't mind we'd really appreciate you hitting the subscribe button hitting the little bell symbol so that way every time we're coming up with a new video you hear from us, but please do that Also, if you wouldn't mind, give us a great little five star review if you enjoy our content, it gives us all the warm and fuzzies and look, it's the week of Valentine's make us feel nice. Give your fellow digital restaurant friends, something to feel good about.



The State of the Industry Report is released from the National Restaurant Association


Meredith: All right. Another question for you, Carl. The National Restaurant Association has come out with their state of the industry report for the year. Always fascinating to see what they put in this report. And I think you're going to have a lot to tell us about.


Carl: I am going to have a lot to talk about on this one, Meredith, I'll bring up a little bit here for us to share for those folks that are watching us on YouTube, but I'll try my best to describe some of the numbers here. There's a great webinar. First of all, Hudson Riehle, the SVP for the National Restaurant Association's research group took an entire hour out of his time to go through the findings from this State of the Industry.


And it was really fascinating. The number one number that I thought was worth focusing on right at the very beginning here was that one there at the top $1.1 trillion is forecast to be sold by this industry just in this year alone. That's the first time we said the T word. Now that's over, if I'm doing my math right, $125.5 million an hour, an hour. That's crazy. This industry is that big. It's often difficult sometimes to put some level of context around how big an industry this really is.


Now, the average sales volume according to Hudson is about a million dollars per restaurant each year that's about 2, 700 a day. So it just goes to show how much of the American economy is supported by the restaurant industry in all its different forms.


Now, on premise traffic levels remain lower than what they were before the pandemic off premise conversely, of course, remains higher than the pandemic. So what we're seeing here is that because off premise is a lower margin channel, largely because it's supported by those marketplaces and what we've discussed already today, we're seeing that profitability remains a concern.


So while numbers like this get the headlines. At what point do we press the pause button and say, given the number of independent restaurant failures that we know are frequent in this industry, given the crazy increase of the number of restaurants we have in this country, don't forget we said before about the USA is very high on the international list of restaurants per capita and not forgetting about our infatuation that our restaurant leaders often use recounting. all too regularly about the amount of units that they're adding to their portfolio. Perhaps more than they focus sometimes on profitable unit growth, I'd argue.


When do we ask ourselves, Meredith, is the business model of running restaurants broken? Food costs are up 20 percent according to the report. Wages 30 percent higher. Customers are still having to contend with inflationary pressures and so visits may be down. And according to the report, 84 percent of guests said that they would dine at off peak times if a discount was offered.


Dynamic pricing anyone? And 75 percent said they'd have smaller portions if prices reflected it. So all of the guests in our industry are still feeling the pinch, even though things have relented a little bit on the inflation front. Now, with all that said, consumer confidence, we'll go to this one. With consumer confidence improvement, the under 35s are most optimistic for the future of the economy. So that's really interesting because most times, and Hudson referred to this in the webinar, it's the older generations that have more positivity, but right now it's the under 35s that are most optimistic for restaurants.


Maybe it's because many of them are actually able to work in remote locations away from cities, for example, according to Riehle occupancy in metro offices remains really low. San Francisco, 41 percent New York, 47 percent Dallas, 55 percent that's more people working from home, or at least in a hybrid setup.


And that, of course, is contributing to the off premise opportunity. So there's a lot of really interesting changing trends that are still having the aftereffects from the pandemic. There's so much interdependability out there between the restaurant industry and how others in our wider economy are actually seeing this.


And one big one, of course, is employment. We've said this many times before, but one in 10 of every worker is employed by the industry. But in encouraging signs here is in spite of the growth and the focus that we often are talking about on AI and automation, another 1. 2 million jobs are forecast to be added in the next eight years and supposedly this year alone, 200, 000 jobs.


Now, current unemployment is at 3. 7 percent according to Hudson. And so at a time when restaurant workers can continue to be picky about who they work for, it's not going to get any easier if you're not focusing on the culture and the benefits and everything that restaurant workers are, saying is important to them.


And yet operators still don't feel they have enough workers to meet the high volumes of traffic that they're anticipating. Employment levels are back to where they were before the pandemic. Add to what we've spoken about earlier this this year about minimum wage increases and the likely knock on effect that will be felt deeper into the year from that, nearly a third of operators say that their biggest challenge this year is recruitment and training.


Now, that's better than the 53 percent that reported that same concern two years ago, but labor costs now four times the concern to what they were two years ago. With 8 percent of the responses saying that it's the cost of labor itself that's their main concern. So it's no wonder that 25 percent was saying they expect to utilize the gig economy to fill short notice staffing gaps.


It's a big reason why I think kiosks are due for a big year too.


Meredith: Yeah, absolutely. And honestly, Carl, I don't even know how you're memorizing all these numbers. This is amazing.


Carl: Oh, I'm not. I've got them right here in front of me. Don't worry

.

Meredith: It's, it's crazy,


Carl: but look, staffing is not the only concern, Meredith, right? There's clearly a number of other concerns that's happening. I've mentioned the minimum wage hikes that's going to bleed the talent away from the smaller operators to the bigger chains. And obviously the impact that you'll infer from that is that smaller operators perhaps might have to consider more automation approaches to handle that deficit of the workforce availability, but with 43 percent of operators still carrying debt from the pandemic and interest rates still high, I wonder whether affordability becomes a challenge unless the automation providers out there can appropriately finance it.


So the good news is. is that operators are certainly leaning more into technology. Over 50 percent of them are planning to invest in kitchen facing tech this year and over 60 percent plan to invest in consumer facing tech only 50 percent of the operators invested in either of those last year.

So it's, it's moving in the right direction.


Starship get a huge funding boost


Carl: Okay look, let's move on to the fourth question. More funding news. Now, one of our big predictions, Meredith, this year was that automation robotics might be having a better year than certainly they did in 2023. Well, Starship have landed a huge funding raise. Tell us about that.


Meredith: Yeah, it's already happening.

So Starship, for those who are not familiar with it, is a sidewalk robot delivery company similar to something like Coco or KiwiBot. They have just raised 90 million. So congratulations, Starship guys. We always love funding news and the happy news of bringing innovation into the space. They raised a total of 230 million, which puts them quite a bit ahead of Cocoa and KiwiBot which have raised 30 and 41 million respectively.

Yes. It is great news that funding is coming back into the category. Yes, it is absolutely true that the more expensive labor gets, the more we're going to see automation come into the industry. But I suspect that part of why these guys have attracted so much more funding is because they are largely international.


So they're able to operate in markets that have a lot less regulation, and they are able to operate in markets that are a lot more dense. And those are two really good things. If I were to pick a perfect market for a sidewalk robot, it would be like super dense, super expensive labor and very little regulation.


Being an Estonia based company, they've got customers all over the world. And so I think that is a little bit easier for them to grow. And I think they're probably seeing that in their numbers. Now, having said that. You also need a lot of money to do a robot company, right? So as you just said, although many restaurants might be attracted by the idea of replacing labor with technology in some form or fashion, replacing it specifically with hardware is very expensive upfront costs.


And someone's got to pay for that. Typically restaurants will say, yeah. Not so much. We don't want to, which means that the startup has to finance all of the robots and then recoup that money over time in a kind of robots as a service model. Now, that was really, really hard last year when interest rates started peaking.


I think it's getting easier now that interest rates are going down, but there still is this giant sucking sound of cash that's needed, right? I read in this article that they have completed 6 million deliveries. Well, we've completed 6 million deliveries with our software, no upfront capital investment needed.


There's other ways to do this that I think are a little more capital effective. And all of these guys are going to have to raise huge sums of money in order to be able to build enough robots to satisfy the demand that's out there.


Carl: Yeah, it's, that's right. But I think there's definitely certain segments.

and certain geographies like college campuses, where I think they have a large area of focus, right? Where that type of technology makes sense versus using gig workers and their cars and things. So I can see why they're given some traction in that particular space.


Meredith: What's my criteria?

Densely populated, lots of deliveries, right? Very little regulation because the regulation is controlled by the college campus and very high Costs.


Spatial Computing and what it means for restaurants


Carl: Absolutely.


Meredith: All right. Let's do our last one. Huh? You and your wacky technology, somehow you always tie it back to restaurants. And how you're going to do it this time. The Apple Vision Pro, which we've been talking about a lot in my house, but more for like video game purposes.

Tell us how you think it will apply to restaurants.


Carl: Have you got one yet? Because I really want to borrow it, if so. No, come on.


Meredith: No, we have not gotten one yet.


Carl: Oh, wow. That's it. That's disappointing. If we were doing this properly then I would be wearing it right now. Of course, you'd be seeing these spooky eyes popping through the Vision Pro.


Now, I don't know whether you've seen the videos this week going across social media where you've got people walking across Times Square wearing the Vision Pro on the subway. And yes, Even inside a restaurant. Now, what's the difference between a kid holding his iPad at a restaurant versus being immersed in one of these headsets.

Right now, I'm not going to go into a huge amount of information about what the device is. There's thousands of great videos out there explaining it, reviewing it, sharing their thoughts. But I did want to put my futurist hat on, if I may, Meredith, and talk a bit about what Apple calls "Spatial Computing."


For the rest of us that means augmented reality, which is where you're wearing a device in some way and you can engage with the operating system of that device and the apps within it, like your phone. But also the world around you, except this device is also reading your eye movements and little micro movements of your hands by your side.

And it's also creating a persona of your face. So if you're having a FaceTime video call with someone, it's going to recreate your face in somewhat of a realistic fashion . And, that gives them a pretty close idea of how your facial expression is on the other side of the call. Now, this is why I'm talking about it.


This probably marks. I think the biggest innovative step in wearable and augmented reality functionality in many years, and it could be that moment which changes the world and how we interact with it in the same way as the iPhone and the iPod did. And it's a version, I think, of what we described in the last chapter of our first book, Delivering the Digital Restaurant.


And so if you take a few of those components of what I've already shared there and sit back for a moment, and think about what this could mean for us in the restaurant industry. Let's start with talking about the guest experience. Over time, let's assume these devices are going to shrink. They're going to become less heavy.



They're going to be more aesthetically pleasing, much like we see the difference between today's iPhone and the very first one, right? They were ugly back then. Now they're a little bit lighter and certainly nicer to look at. But imagine you've been given a device and in wearing it, your menu appears in front of you with a video from the perhaps the chef describing the dish, depicting the items on it, who knows, maybe even emanating the smell of the dish itself.


Like we see in some of these 4DX movie theaters, right? Imagine you're sitting at the table and the scan of the food in front of you is telling you the allergens to be aware of or the calories that you're consuming, the temperature of the food to make sure that before you cut into that steak, it's the right temperature. These devices are going to use your iris as your identifier and your password, the knowledge of who you are can then be used to best recommend what to eat.


It can be used to help you understand what you've already eaten, what your doctor suggests, the amount of calories you've burned already today. And because of that same reason, your profile and your loyalty points can be accumulated in that one place which you can literally then pay for, excuse the pun, with the blink of an eye.


And because there's an immersive aspect to it, you can be anywhere. You could be in Tokyo. I could be here in California. And we could be eating atop the Eiffel Tower in Paris. And imagine those services that could perhaps emerge where the food itself is being delivered to these locations. So you're eating from the same chef in the same setting, but for all intents and purposes, you may be in a standard room that's comfortable chairs, but the ambience and the aesthetics of it are about what you're immersed in through your device.


I also see there's some opportunity from an operational perspective. I could see inventory control being managed by understanding the age of certain items on the shelves. You think of the way in which barcodes are used today. Well, again, that same thing could be read by a device, enabling faster reordering.


There already is an app on the Vision Pro that allows you to look at your stovetop and see various different timers of what's cooking and how long it needs to remain on the stove.


And now perhaps even servers could be remotely available through the headsets themselves to guests. They're almost like your personal concierge, if you will. Bussing dishes back and forth is something that we've seen robots do today. So therefore could service actually only happen through the device.


So as you can imagine, I am going very futuristic here and I can hear plenty of voices going, no, no, no, we're losing the humanity of our hospitality. And I, I can see that very clearly as a very viable concern, but our kids are growing up with devices in their hands. And with whatever that is consuming their attention driving their interest more than the conversations that are happening at the table Those kids are going to grow up right and they're going to be driving where money is spent and in line with their preferences And although some might see it a bit of a dystopic, maybe scary future, I can see the path being shaped through spatial computing here, where this kind of tech is going to lead us over the next 10, 15 years or so.


What do you think? Are you going to get one? Are you going to eat wearing one?


Meredith: We will undoubtedly get one. Scott is so excited, but I think I will cry if he wears it while we're eating.


Carl: Well, there you go. See, you're part of the no no no camp.

It'll be interesting to see how it plays out, but I, I think the stage of where it's at right now is clearly to allow the creative app developers out there to say, How can we make this thing work? And as ever, we'll see what lands and what doesn't. Okay, well, look, that is it for this week's Digital Restaurant.


As ever, we'd love to hear your thoughts about the topics we've discussed. What things do you agree with about the world of spatial computing? Can you see that playing a role in the way that I've described? What about some of the insights from the National Restaurant Association's reports? And do you think Uber Eats are going to continue to see profitability in the months and quarters ahead?


Or is it a flash in the pan? Until next time, please leave your comments below. Don't forget to subscribe and thank you as always for tuning in. See you next time.


The Digital Restaurant Podcast is available for you to follow and subscribe wherever you listen to your podcasts. Watch us, rate us, and subscribe to The Digital Restaurant on YouTube, and follow along on all our social media digital restaurant channels. Thanks for listening.


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