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THE DIGITAL RESTAURANT: May 08, 2023

Food on Demand takeaways, DoorDash price parity, and Meredith is heading to Hollywood.

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.



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TRANSCRIPT:

Carl: Food on Demand takeaways, DoorDash, Price Parity, and Meredith is heading to Hollywood. That's all ahead on this week's Digital Restaurant.

The Digital Restaurant works like this. We're gonna ask each other five questions about headlines that have caught our attention here at Food On Demand, but also in the news that affect restaurants, off-premise and technology that tie back to our book series Delivering the Digital Restaurant.

Are you ready? Let's go.

Hey, Meredith, how you doing?


Meredith: I'm really good, Carl, how about you?


Carl: I'm losing my voice.


Meredith: You know, it has been a busy week here at Food On Demand. This is one of our favorite, favorite conferences because everyone here is trying to go after the same opportunities and solve the same problems. And so there's just awesome best practice sharing and tackling everything together.

I love it so I can see why your voice might be, At its end.


Carl: I know I've been doing a lot of talking, but we've also been doing a lot of listening.


Meredith: Mm-hmm.


Carl: We wanna start this week's edition by featuring a few videos actually that we captured. Cause we know everyone loves to, uh, hear some of the excerpts of what we captured, and sometimes we put them out on social media.

But we particularly enjoyed the first sessions on Wednesday. And we're gonna start off with Savneet at PAR and some thoughts he had. So before anything else, let me play this video and then we'll talk about it. "I just think we're so early in that trajectory of change that the second shift is too big, whether you know, and so we'll look back down the road and say, well, that spike in during the pandemic is gonna look really small five years from now."

So food on demand is here to stay as well as off-premise.


Meredith: Yeah. I really love this quote. And actually all of the CEOs alluded to it a little bit that we're still at the front end of delivery growth here in the US and there's a lot of room for it to continue to become a bigger and bigger part of our lives, which seems hard to believe after what we've been through in the last few years of the pandemic and the massive rise of digital and delivery in the restaurant industry so quickly because of everything that was going on.

But I think all of the CEOs echoed that we will continue to see growth and we're in the very early innings.


Carl: Reminds me of that quote we, we talked about last time, remember, about the amount of restaurants that are still not on even third party delivery. So there's a, there's some room to grow here. I think it's fair to say.


Meredith: Yeah, absolutely.


Carl: Okay, so then we also wanted to feature our friend Michael over at Kitchen United. Let's hear what he had to say about this. "I'll say this, if we think back to the mid nineties, and if Amazon's big idea was that you can go to a website and choose any book that you ultimately want, and they're gonna send out a local driver to go pick it up from Borders or Barnes and Noble, and that $16 Michael Crichton hardback, um, by the time the transaction fees are added in, by the time the, the actual price of the book is actually.

Increase by 20% to offset the take rate, the fees, the standard $5 delivery that you're paying $30 out the door. And that's the big value proposition ultimately to the end customer. That you're paying $30 for a $16 book that you can go to Barnes Noble or Borders or your local bookstore. I doubt that they're the fifth largest company in the world.


Um, currently. I think that ultimately what I believe the analog that Amazon sets for. Us is that what they created was a distribution network based on sound tech which, many here are developing. Been a core focus of our business is that ultimate logistics platform that makes the whole ecosystem work.


Meredith: This, honestly, hands down, was my favorite quote from Food on Demand. I absolutely love it. And when you couple it together with the first one from Savneet, I think you can see that part of what drives adoption to greater digital engagement with consumers in the restaurant industry and more delivery is fixing this fundamental problem of how do we do it in a way that's much more economically viable and makes more sense for the consumer? And a lot of folks here talking about different ways to attack that problem. Whether it's bringing the cost of the actual logistics down, whether it's batching things together. Michael went on to say actually that if you look at an Amazon van that's out delivering things, they're delivering $1,400 of merchandise per hour.

And when you compare that to what's happening in restaurant right now, because your typical driver's doing one, maybe two deliveries an hour at a $30 per order value, The merchandise going out in that order is $30 to $60. Well, just that right there tells you there's a huge amount of opportunity to change how we're going about this, and as we bring that cost down, that's gonna be one of the things that drives adoption.


Carl: Yeah. I moderated a panel on hybrid delivery and it was fascinating just to hear how the panel was saying, look, if we help utilize better logistics practices in food delivery, that's gonna overall improve the, the guest experience. And I think it was a really popular panel because we're starting to get more conversations happening about how we can make delivery more effective for everyone in the ecosystem.


Okay. Another video, Meredith. This one, uh, we particularly enjoyed as well. Let's listen to it first. This was Marianne over at Smoothie King. You know, looking at an 18%, 20% rate that they're charging, there is going to be a time and, and I do know that that restaurants are working on this now. Some are already putting in place where the consolidation of services across restaurants and it's, it's discussions that we're having with some of some people within our category, outside of our category of consolidating of services so that we can bring down and, and maybe look to, to third party provider that would reduce their fee down to eight to 10%. Uh, 18% is really tough when you're looking at margins particularly from our franchisee standpoint. They have a hard time supporting the third-party delivery services when they see 18% coming out of what their margin of a, of a 25% might have been.


Wow, 18 to 8%. Now, that might be a bit of a pipe dream, but it's a bold ambition.


Meredith: It is a bold ambition. And I think I have seen very few approaches that get down to that low a cost. My, my own excluded, of course, at Empower Delivery.

But there are very few ways to bring delivery costs, like literally physical logistics of driving the food to a person down to 8%. So, I don't know, maybe she has some tricks up her sleeve, but very interesting discussion. Everyone really reacting to that take great from the delivery companies.


Carl: If one industry will figure it out, it will be the restaurant industry. We're always trying to find different efficiencies and I think this year's focus around back of house optimization is certainly continuing on here at Food on Demand. And, we'll, we'll certainly see whether we can find ways to go to help restaurants make the overall economies work.

But whether it comes in reduced fees or not, time will tell. Okay. Next question, Meredith. You're going to Hollywood. You've been doing something a little bit recently in the background called Special Delivery, and I believe you're an executive producer. Tell us more.


Meredith: Yeah, yeah. I'm super excited about this announcement.

Roku announced this week at the New Fronts which is like the upfronts, but for streaming media that they have picked up a show called Special Delivery which is a show that I've been working on with Don Ray Von for quite a while now. And what the show does is bring all of the things we love about competition television and food tv, and then have it result in a virtual brand at the end that you can order via your remote control.

So, if you've ever been watching, I don't know, the Great British Baking Show or Top Chef or any of these shows that you watch, that you think that food looks so good, I wish I could have it. Guess what? Now, you can. So, the show will air in 2024, so it's still a bit of work to do to bring it to life, but an exciting announcement this week, nevertheless,


Carl: and if you are looking for it, you know, English host of any kind, I might be available.

You just need to drop me a line.


Meredith: You do have a lovely voice. The audio book is very, very good.


Carl: Thank you.


Meredith: Now, from a virtual restaurant, food industry, digital delivery perspective, what does this show mean? Why is it happening? I think one of the things that we're finding in virtual restaurant brands is that just throwing something up on the third parties and hoping for sales might get you a few orders, but it's not gonna generate the kind of repeat that a strong consumer engagement with a brand you know, real brand love is going to create and a show where America can co-create the celebrity and therefore the brand at the end I think has real potential to end up with a virtual restaurant brand that consumers can relate to and want to have as part of their lives on an ongoing basis.

All right, Carl. Next question's for you. So a survey came out about how delivery and digital and pickup and all these things are working in fast casual and what were some key takeaways from the study?


Carl: Yes, this one came out on QSR and I'll bring up this here so we can have a look at some of the charts from the survey


Meredith- let's have a look here. So, it's about the state of guest experience and they'd surveyed a whole range of different guests associated to the way in which they were feeling about the pickup experience. And so if I just go to this one here at the top here, you'll see, first of all, a range, but relatively high range of each of these different brands here, from Chipotle to Five Guys, to Panera to Qdoba, talking about how easy it was for shoppers to be able to find a designated pickup area.


Now, you might think this is rather basic, but. For me, I still think this is a huge area of opportunity for many restaurants in this space, but it seems certainly for these brands that most customers are easily able to find a place where pickup was available. So the headline, I think, from this particular news article is that generally a lot of these established brands are doing it really well.


One thing I did want to point out was actually when you go down a little further here, was this piece, the percentage of shoppers who reported interacting with employees was part of the pickup process. And here you see a bit of disparity. You'll see for example, Panera Bread at 36%, Five Guys at 96%. And I think all of us know in the pickup experience, sometimes you just want to come in and go.


But sometimes it's difficult to actually figure out which item is yours if there isn't the appropriate marking as to how to find, which package is yours. And I was at a Panera Bread this this week and I remember waiting around wondering exactly when I was gonna be able to have my package, and I had to go up a couple of times to see exactly where the order was.


So I think there's something here about, if you're not gonna have your staff actually supporting the pickup process, make sure there's still some form of digital interface, maybe a text message of some kind or some kind of a buzzer if you've ordered in store to notify the customer when indeed their order is ready.


But maybe some opportunity in this space. But I thought overall fast casual is clearly doing some good things in this area. Okay. Next area that we'd like to talk about and this kind of, you're gonna tie into the DoorDash results this week, but the question we wanted to bring up was, are restaurants winning the first party game?

How are you gonna tie this one together?


Meredith: I just thought this was so interesting. All the earnings results coming out this week. Both from DoorDash and all the restaurants and that DoorDash. First of all, great, great job - DoorDash. You beat, beat all your numbers. You did a fantastic job.

Orders are up 27%. Really amazing GMV for the year. They're now expecting to be well above $60 billion, which is incredible. You know, continued growth happening on the platform. However, they did note that C-store and grocery are outgrowing restaurant. So what that tells me is while orders are up a lot.


Probably mostly it's the new categories that they're adding, C stores and grocery. Unfortunately, they don't break that out in their numbers, so we don't know for sure, but at least the commentary suggests that that's the case. And then when you loop that together with the earnings that are coming out from the likes of McDonald's and Yum and Chipotle and all the other restaurants in this space, and they talk about their digital sales.


And how much their digital sales are increasing, these chains are reporting digital sales, 30%, 40%, 45% of their sales happening through digital channels. Now, of course, some of that includes the third parties but a lot of that is essentially known customers, so either the first party ordering channel, first party pickup or kiosk where they're able to tie that consumer directly to a transaction and start developing that data. And what's interesting here to me is that these restaurant companies are becoming digital e-commerce companies, of course, as we always say, and they are using that data to drive their growth.


They all had excellent top line and bottom line growth, and they're doing it profitably. So DoorDash lost $162 million in the quarter. Yum and Chipotle and McDonald's all made tons of money. So, I think very interesting and suggests that these big restaurant chains are really learning how to shift consumer behavior over to first party.


Okay, this is a doozy Carl. An article came out last week from Joe Guscowski saying that DoorDash is calling for price parity. Tell us what that means and, and what we think about it.


Carl: Well, I can tell you that for all the restaurants and some of the franchisees that I've been speaking to here at Food On Demand, there is blue murder being shouted about right now.


There is a lot of frustration and there's a lot of concern happening, I think, in our industry in relation to some communication, certainly from this article, but also quite, quite honestly, hundreds, if not thousands of letters that have been sent out to merchants that are working with DoorDash to talk about the way in which they're pricing their third party prices relative to their first party or on-premise pricing.


So we all know that marketplace orders are typically higher priced. I mean, most restaurants are extending prices in some way, shape, or form, at least to perhaps cover the fees. So, some of the DoorDash contracts here are actually relating to a particular range. Some might say zero to 20% that they can only work within.


And now DoorDash, are saying, well, if you are going above those thresholds, we're going to actually reduce your presence on the marketplace. You're not gonna get as high a search ranking. You're not necessarily going to appear as frequently if you don't stay within those ranges. Now, there's some conversation around DoorDash actually saying that prices need to be the same.


And I think this has really come into a place when it comes to takeout orders. Now, in Joe's article they, they referenced the fact that there's a particular concept in Chicago where a banner on the DoorDash listing said, "Menu matches in-store prices get the same price as you would in-store on DoorDash", and that the company is trying some in-app labels with select restaurants.


So on one hand you can understand what DoorDash are doing in the sense that they're trying to support the value that their customers on the platform can get when ordering through DoorDash. But on the other hand, and there's a level of, I'd say naivety here on the reality of economics through marketplace orders.


In fact, the, the Digital Restaurant Association have commented, and I've got some of their notes here associated to this article and what DoorDash should put out there and what they're really positioning for is more transparency to the end consumer around the fees. And so let me read a line here if I may.


From their response, when customers cannot see the often 30% in commission that restaurants have to pay delivery services, customers don't understand that keeping prices the same for delivery, as in the restaurant is a recipe for financial ruin. And I think there's a game of chicken emerging Meredith where this is going to be a situation where some of the bigger brands out there are gonna have to face up to determining whether they're going to react to these letters from DoorDash and how they're going to treat this situation because ultimately there is a big question mark here associated to the future for marketplace pricing. And I suspect the, the folks that are most interested in what's happening here and are perhaps sitting back with a smile on their face are the gentlemen and ladies over at Uber Eats.


I'll leave it there. All right, well, that's it for this week's Digital Restaurant. We'd love to hear your thoughts around some of the comments, whether you'd like to be on Meredith's show in Hollywood. I'm certainly putting my resume into the group there.


But if you have anything you would like us to cover on a future edition, please let us know. We're always interested to hear from you. But as ever, thank you for listening.


The Digital Restaurant Podcast is available for you to follow and subscribe to 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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