For years now I’ve been noodling on an article in my head that’s loosely titled “venture capital killed America’s restaurants.” The combination of big money with focus on growth and customer acquisition at (literally) any cost has made it hard for restaurants to survive alongside well-funded platforms clamoring for diner attention and dollars. 

Take the SoftBank Vision Fund. The Tokyo-based investment giant has poured hundreds of millions of investment dollars into businesses that are fundamentally reshaping the restaurant industry. It’s given Uber, parent of Uber Eats and Postmates, billions. It owned a significant stake in DoorDash when the company went public, turning a $680 million investment into some $11.9 billion. It backed Reef with hundreds of millions, helping to fuel the company’s aggressive growth as it installs ghost kitchen vessels in spaces across the country. In 2020, SoftBank made a big move in the virtual brand space leading a $120 million Series C round for virtual brand platform Nextbite (the company was named Ordermark at the time of investment; it’s since rebranded to focus on the delivery business). 

These companies have something in common: they’ve disrupted the way restaurants work in favor of models that can scale to crazy heights and provide, potentially, significant returns on investment. And now they’re growing up.

Uber and DoorDash, both publicly traded, have forever altered the restaurant discovery and marketing landscape with closed marketplaces and diner deals and perks aimed at customer retention. Reef has made even the youngest concepts instantly scalable. Nextbite offers a platform and plug-and-play brands by which to supplement a struggling independent restaurant business. So not only have these high-growth vc-backed companies set the guardrails for the way restaurants operate, they’ve also spawned new high-growth vc-backed companies built specifically to thrive within that ecosystem. For example: The fastest way to launch a new restaurant concept is on a third-party marketplace. 

There’s a reason that modern, scale-focused restaurants have positioned themselves as tech companies for years. The sort of growth that tech companies can manage is extremely attractive to the type of investor that can afford to pour millions into the business to support its growth before later sitting back and enjoying outsized returns. It’s a different mindset from running a high-touch, community-driven business; instead, companies are incentivized to move fast and break things — even accidentally. But consider the collateral damage.

“It’s not a tech company. It’s a restaurant.” 

Last week, Eater NY ran a story about Kellogg’s Diner, a beacon of late-night joy just off the Lorimer L stop in Williamsburg, Brooklyn that has been a neighborhood fixture for decades. Now it’s turned to technology to stay alive, even as a legacy business, even on a busy corner next to the subway, even with that flashy exterior. Since February, it’s run a whopping 18 virtual brands from a company called Profit Cookers out of its kitchen. The partnership has netted $40,000 in sales for the diner (this according to the founder of Profit Cookers, not Kellogg’s.) The math on that translates — very roughly — to a handful, maybe two handfuls, of orders per day. It’s certainly not a cash cow; by the owner’s own admission, “It’s bringing in revenue that we need to survive right now.” 

It might be easy to villainize the tech company behind the brands; after all, they’re making money from orders that are produced by restaurant kitchens hundreds of miles away.

Q: Who’s buying?

A: Diners scrolling Seamless in search of food — any food. The Seamless scroll replaces the IRL neighborhood stroll, i.e., the kind of walk where a flashy corner diner boasting a pages-long menu might attract a customer looking for a tasty breakfast. Instead, thanks to a tech-fueled behavior shift, that otherwise flashy IRL diner needs to flood the zone — the online marketplace — with outsourced brands like “Best Breakfast Company,” and “Anytime Breakfast Sandwiches” to get the same attention, all while jacking up menu prices and paying commissions to a virtual restaurant company for the privilege of operating.

By restaurants… for restaurants? 

SoftBank and other mega-funds aren’t the only way forward for restaurant-adjacent businesses, and there are plenty of investment dollars to be found in the marketplace. So could other sources — sources that understand the importance of a modern but functional restaurant industry — help?

This week, Chipotle announced Cultivate Next, a $50 million venture fund looking to fund growth-stage startups “to accelerate its strategic priorities.” Those priorities? Running great restaurants, amplifying technology and innovation, and expanding access and convenience, among others. “We are exploring investments in emerging innovation that will enhance our employee and guest experience, and quite possibly revolutionize the restaurant industry," Chipotle chief technology officer Curt Garner said in a statement. 

It’s the latest restaurant-specific fund aimed to boost new industry technology (and, likely, to provide Chipotle with an early look tech that might help its business down the line.) In 2017, New York restaurateur Danny Meyer introduced Enlightened Hospitality Investments, a private equity firm that backed businesses inside and outside (but mostly inside) the restaurant industry. Its portfolio includes reservations provider Resy, nationwide food-shipper Goldbelly, restaurant website builder BentoBox, employee management software 7shifts, and restaurants like Tacombi, Salt & Straw, and Dig. In January, EHI announced its second fund, $332 million targeting fine casual restaurants and hospitality tech companies. Other notable industry names have invested in restaurant tech, too; Tom Colicchio, Ben Leventhal, and Will Guidara among them. 

Could these funds be better for the future of the business? Presumably, restaurant-focused funds better understand how and why restaurants operate and are, maybe, less interested in turning the whole industry on its head in the name of profit. That is: salad doesn’t scale like software, something that restaurant industry veterans understand. What works for high-growth tech doesn’t translate exactly to restaurants. 

Take salad darling Sweetgreen, which managed a much-anticipated initial public offering last year. The company touted its tech prowess and potential for future growth, attracting investors. But I am not alone in my scalable salad assessment! Recent coverage of Sweetgreen’s stock noted “Sweetgreen's financials are less than desirable for a simple restaurant concept.” Its financials, including a $153 million net loss in 2021, “could be normal for a hypergrowth software company, but Sweetgreen sells salads.”

The pandemic has obviously altered consumer behavior, especially when it comes to how we order and receive food from restaurants. It accelerated shifts that feel inevitable, led by huge companies with even bigger budgets and the type of leverage to really change how we behave. It’s not a stretch to say big money and big technology are slowly killing off America’s restaurants.

The question is: Will we notice as we’re merely scrolling by?