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THE DIGITAL RESTAURANT: June 19, 2023

Nextbite’s next chapter, More layoffs in restaurant tech and Netflix has a pop-up in LA.

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 last week’s hot news stories - subscribe today to The Digital Restaurant and register at www.deliveringthedigitalrestaurant.com for more bonus content.



Articles mentioned in the video:







TRANSCRIPT

Carl: The Digital Restaurant works like this. We're gonna ask each other five questions about headlines that affect the worlds of restaurants, off premise and technology that in some way tie back to our book series Delivering the Digital Restaurant. Are you ready? Let's go.

Carl: Okay, Meredith. First question is for you. This week C3 has gobbled up NextBite. What has happened here? Is this bad tidings for the virtual brand world or is something else happening?


Meredith: Two things happened. The company that was Nextbit sold off its Ordermark division to Urban Piper, and then sold off nextbite, which is the virtual brands to c3.

So the company dissolved into those two pieces completely. And I think a lot of things here. Number one, we've talked a lot about the financing environment just being very different and companies need to get to profitability faster. And in many ways this is just yet another consolidation among players to try to drive to that profitability as quickly as possible.


But I think it says nothing about virtual brands, to be honest. You and I are very pro virtual brand. I think they have a huge place in our restaurant ecosystem. They help drive utilization for underutilized kitchens off peak times. They help change the cuisine types available for Americans very rapidly. They take advantage of many of the new digital and delivery technologies that didn't used to exist. For all of these reasons, I think virtual brands generally are good.


I think we have learned over the last few years, and maybe now some of these things sound really obvious, but they weren't by any means when we started that virtual brands have to have shared ingredient SKUs with the underlying host restaurant. We've learned that they have to have shared processes and shared stations using similar equipment or they need to be so different that they can be completely isolated from the rest of the operation. But having something in the middle where you have a bunch of new SKUs and your team has to learn a bunch of new things, and it's taking up space on your existing line, not so much.


We've also learned that operational execution matters, and that's very challenging to do when you have a fragmented host base. And I think over time what will happen here is we'll have the creation of OpsTech that helps get execution be more consistent at these individual restaurants.


And you can see stuff like this already starting to happen. I was with a restaurant here yesterday who was showing me her LMS and I was just smiling from ear to [00:03:00] ear. This woman has six restaurants and she has an LMS. That's incredible. That's incredible. That speaks to the saasification of the industry and I think back to, when Taco Bell had something like that, we had to have thousands of restaurants to make that investment make sense. And now someone who has six restaurants can do it. Technology like that -technology that's helping the restaurant worker, the line cook, execute in the moment- all that stuff is going to make ops execution better for things like regular restaurants and virtual brands.


And I think we're going to have the emergence of MarTech in the restaurant space, which we haven't really had yet. It exists in the e-commerce world. But we're just starting to see it on the restaurant side. So as those two things become more common, virtual brands will get easier and easier to execute.


Now some of you might be saying this is what a restaurant does. The whole point of a restaurant is to balance the ops execution with the [00:04:00] consumer reception of that item, right? In an ideal world, ops would always say, we want it to be as easy as possible, and marketing would always say, we want it to have as big of a wow factor as possible.

And the job of any good restaurateur is to figure out how to balance those two things and bring them together so that they're giving the consumer something amazing that can be executed at scale and repeatedly. But I think what we learn here is that just as a regular restaurant does, so a virtual brand needs to do too.


All right. The next question is for you, Carl. A new survey about delivery came out and it has some myth busting in it. Tell us about that.


Carl: It does in a way. And first of all, thank you to Lisa Miller, who we were on a digital book club this week, weren't we? We shared a bit about both of our two books.

Lisa Miller is a former VP of innovation at Brinker and a former VP of Insights at Frito Lay Pepsi. And now she is supporting through her own company lots of different consumer [00:05:00] sentiment analytics, and every month, She does a thousand surveys asking customers about their opinions about restaurants and retail and various different things.

And recently she's been digging into what customers think about delivery. And I think this is quite an interesting one because when, let me bring this up. Always like to have an image, Meredith.

This is one of the images on her blog post here and you'll see it's about the average amount of customers out of a 10 delivery occasions that is represented.


We'll start in the top left hand corner there where it's saying seven out of 10 customers start with a restaurant, in mind. So they start with a brand in mind, which I think is really surprising, right? Most of us think most customers go onto to a third party marketplace. Most of them don't really know what they wish to order.


And so to be able to see this, if they're thinking about having food delivered, there's a large proportion, at least of a thousand customers that she has spoken to that have a brand in mind before they even choose which way to go. Now if you break that down a little further and go further down into this [00:06:00] here, you'll see that those folks that start with a third party app, but already know the restaurant, you'll see here it's two out of 10.


And then similarly when you're actually starting with a third party app and then decide which restaurant -one out of 10. So I think it's interesting to see the split. She's got the Gen Z and Millennials here. We don't necessarily see anything about Gen Xers and Baby Boomers and the like.


So it'd be interesting to understand the distribution spread here. But I think this is really encouraging because if restaurants aren't investing in having first party presence, this tells you they're missing out on some potential opportunities.


Meredith: And that consumers will really respond positively if you have a great first party experience.

As we've often said, if you make it frictionless, easy to use, consumers do want to deal directly with the restaurant, which is great.


Carl: Now, this next one wasn't so much of a MythBuster for us because I think we've been talking about this for a while in the sense that I think consumers gave,

gave restaurants a bit of a by through the pandemic in the sense that they have had a level of patience [00:07:00] and forgiveness around the delivery experience. And what Lisa's called out in her second MythBuster is that 18% of delivery users are saying it's not worth it anymore. And that actually frustrations are high, patience is low.

And so when you've got 47% of customers saying that their fees have gone up too much, and that's up from 35% in April. I think what we're seeing now is not only the inflationary effect, but the fact that folks are feeling they're not getting as much value from what they expected. So that one stood out too.


And then the last one I'll mention is about consumers. The myth was consumers only care about receiving their food, not who delivers it. And what Lisa reveals here is that consumers trust first party restaurant delivery three times more than third party platforms, which is again, odd because many of those customers are being serviced perhaps through a third party, just through, just the delivery component of it.


So 52% of those thousand customers prefer first party delivery [00:08:00] to the 16% on third party. So pretty interesting. I encourage those folks that haven't checked out this article to have a look at it. And if you are interested in getting analytics support, then reach out to Lisa as well. Okay. Before we move on to question three, Meredith, I would love to invite our listeners as ever, if they haven't already, to subscribe to our podcast to give us a five star, because like restaurants, we like to get rated highly so that we keep coming back every couple of weeks and doing this.


If you haven't subscribed, please do so, hit the little bell so you're notified when we come out on YouTube. And of course take a look at our digital restaurant newsletter on LinkedIn as well, that comes out the day after this on Tuesday.


Okay, third question. Olo and GrubHub have given news about layoffs this week and more layoffs, I guess it seems to be. We don't get through a podcast without talking about layoffs these days. Meredith, is this a sign of the time? Should we be concerned? What's your reflection?


Meredith: Oh goodness. Yeah, it was certainly a sign of the times.

Yes. Money's not as easy as it was, and that means that we all have to be very careful with our resources. So that is true. However, there's a lot going on here. The layoffs that we're talking about specifically are first with Olo who laid off about 11% of their workforce. And I think that, while that sounds pretty significant, and given all the other bad news that we're covering this week one might wonder what's happening.


For me, this one's really about repositioning. And I think this is smart, right? What got you here won't get you there. And Noah has done a great job talking about his future vision for the company and what it will be doing in terms of the digital entirety that I know we talk about a lot. And as they shift Olo to these three business units around order, pay, and engage, they're also shifting the team to really reflect those three verticals.


They brought on new talent from American Express, from Microsoft, from SMG. These are great companies who have a long experience in enterprise software and in restaurants. So I think that one is really more about repositioning.


Then the next set of layoffs came from news from GrubHub.


They described it as a very competitive environment and certainly they have been the biggest loser from the DoorDash wins. In terms of market share, they've really lost a lot. What's tricky here is trying to parse apart - are the layoffs because GrubHub's having issues or are the layoffs because delivery is having issues and specifically third party delivery?


I would couple this together with an article that came out from the Financial Times, talking about some delivery woes and a lot of layoffs that are going on around the world in delivery. As well as an article from the Washington Post where they talked about who gets what from a delivery charge. Consumer pays a lot more. Driver doesn't get much, restaurant doesn't get much. Delivery company frankly doesn't get much. When you're trying [00:11:00] to split a limited consumer dollar among that many parties, things get tricky. So this whole third party system might be one that just is tough.


That goes along with, some of the things that you were just noting from Lisa's survey where she was talking about consumers saying it's not worth it. 47% of consumers saying that prices have gone up too much. As consumers start to pull back and say, "okay, of all the things that I spend money on, is convenience really the most important?" Maybe not. I think we will start to see some flattening or even declines among the third party delivery numbers.


I feel like this last one maybe is more about third party delivery than it is about GrubHub specifically.


Carl: Yeah, and look, you only need to look at what we saw from DoorDash's first quarter results, right? They were reporting actually a huge level of increase in their orders, and that was coming across numerous


different channels, not necessarily just the food delivery piece. So I think when you look at what Uber and DoorDash have been doing, of spreading the load, maybe utilizing their delivery fleet more effectively, they're obviously therefore helping their drivers get better utilization. , I think they're also then been able to spread the cost more effectively.

And they're therefore able to reduce the churn of those drivers, and by reducing the churn, they can improve the effectiveness of their service. And one of the things that I didn't mention in that piece on around customers is that also they're saying things are not necessarily delivering on time. Things aren't necessarily accurate. So if you're gonna have to pay that much more, you at least want to get what you expect in the timelines you would want to expect. And those companies that are trying to embrace logistical fleets across numerous occasions, I think are going to be able to help that.


Meredith: That's exactly right. And we say often, especially in these last few weeks, that creating the future is messy. I would not be surprised to see a fundamental change in how things are delivered and it isn't because the demand for it isn't [00:13:00] there. Consumers love the convenience of delivery. It's that maybe there's a better way to do it .


Carl: Absolutely. And I think e even in the data, I see a lot of I think this is more about frequency. When you look at what people are buying, you're still seeing average tray volumes, holding up.


You're seeing in many ways the actual items on a tray increasing. So it's more about how often is someone turning to a delivery solution. And we've already seen over the last year the fact that a lot of folks turn to pick up now as well, because of the cost.


Meredith: All right, Carl, so Netflix is opening a pop-up in LA serving their celebrity chef food, which sounds super fun. And we might have to take a field trip up to see, but tell us about it.


Carl: I think that's a really good idea. Yes, it's a limited time popup called Netflix Bikes. Bites rather, not Bikes.

That would sound weird. And it's opened up in LA -it's an amalgamation of dishes that have been showcased on shows such as Chef's [00:14:00] Table, Iron Chef featuring the dishes of some of the esteemed chefs on those shows such as Rodney Scott or Curtis Stone. And they'll even be featuring drinks from the show, Drink Masters as well.

I read this, I thought, oh, finally, this is exactly what we've been talking about for ages now that you're gonna be able to sit down, watch one of these shows and get the item delivered to you. But no, this is actually gonna be a sit down tasting menu type of format at the Short Stories hotel.


And I think you can actually reserve the tasting menu for $25 deposit. And the celebrity chefs aren't gonna be present, so it's more about the dishes and celebrating them, and it's only gonna be there for a limited period. But as Lisa Jennings calls out as she was wrapping up this particular article, there's a lot of fun here that could be achieved.

And I think the only missing angle for it is about having things delivered, which is where your show might have an edge Meredith


Meredith: Yeah, exactly. Coming soon to you. And also I think for me it's a little bit like Netflix becoming Disney. Think how Disney reinforces their media properties [00:15:00] all around you with theme parks and cruise ships and clothes and all this whole lifestyle.

And Netflix has some really amazing media properties and being able to use those to reinforce a lifestyle and have the lifestyle then reinforce the show. That's exciting for us grownups maybe who have aged out of Disney.


Carl: Yeah, I agree. But look, for me, I think this is an opportunity for the streaming companies to become a marketplace of sorts, right?


You're sitting down watching a show on Netflix, you're super impressed with the food, and then what appears in front of you is this immersive experience, which on your remote, you can click a button, have it added it to your Netflix cart, and then delivered to your door, either maybe for tonight or tomorrow.


And I think if you can bridge TV and entertainment and food, that's a real differentiating component that I think Netflix and the others out there that are doing this could really think about. But maybe the sit down tasting menu is a start. We'll see what happens. Yeah.

Meredith: We'll bring you the remote control thing via Roku.

I don't think Netflix is ready to get there.


Carl: There you go. We're looking forward to it. And don't forget, there's a great English TV presenter I know that's ready for the opportunity. All right. Let's finish up this week.

The end of the latest Zume , it's a rather depressing digital restaurant podcast this week.

I know it's what's happened with Zume, because we've told their story before, and of course the latest iteration has also ended poorly, it seems.


Meredith: Yeah, I'm so sorry to be a bummer this week everyone. There are some endings happening and one of them is Zume. Of course, Zume had previously pivoted away from their pizza making vans and become a packaging company.


And I actually thought some of their packaging was really neat. We had seen it at several different conventions and conferences. It was very focused on sustainability. It looked really good. But I think a couple things here. Number one, if you have a huge and ridiculous valuation and then you start a whole new business, it's really hard to grow into the valuation that you are already given from the prior business. So part of this might just be, again, the financing woes of the environment.


But the second is, [00:17:00] they had said that they shuttered their plans to build a plant in California and. Honestly, that just made me wonder, if I were going to build a plant anywhere in America, it probably wouldn't be California. That made me wonder if they were really focused on unit level economics and trying to get to a place where the business made sense. And ultimately, unit level economics matter. They matter in software startups. They matter in packaging. They matter in pizza making vans just as much as they matter in restaurants.


And I think one of the things that's been very tricky here these last few years is that it feels like venture capital has come into our little industry and thrown unit level economics out the window and said it doesn't matter if we lose money with every delivery. It doesn't matter if we lose money with every van.


It doesn't matter. But it does matter, right? And ultimately, whatever you define the unit as has to make money. If it doesn't make money, you have to have a [00:18:00] very clear plan for how eventually it's going to make money. And we and restaurants know this, and we don't build a second restaurant unless the first one is making money. I wonder if that's just because the unit is so clearly defined in restaurants, it's so obvious. I care about an individual order. I care about how those orders aggregate over a four wall location. Whereas maybe in some of these other things, it's less clear what the unit is.

I don't know. I don't know. But Zume is no more,


Carl: What I think about this one, it makes me think about that word 'pivot'. Because lots of startups have to pivot. In fact, in many ways that's the success of a startup is when you see a company pivoting, but also I wonder is an about turn a completely different direction, a pivot? Or like a completely new business model?


How much do you actually pivot towards a slight directional change? Or actually are you saying, is this better for us to start from a blank sheet of paper?


Meredith: Yeah, totally. Who knows? This might have been a great business if they had just started from scratch.


Carl: Yeah. We're gonna try our very hardest next week when we come back to speak to you because we are gonna find some more positive stories, right Meredith, we're gonna, we're gonna find some great stories that are happening out there because obviously it's been a tough couple of weeks for the digital restaurant economy, but we're still very bullish about it, as should you be.


And if you've got any thoughts as to some good articles that we can share, things that you are excited about for the future or perhaps comments about what we've spoken about today, We'd love to hear from you. Please reach out to us. Please leave your comments below. But until next time, thanks for listening.


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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