Hello, $OLO
IPO day is here! Plus, more on Grubhub's future, and some helpful definitions.
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Hello, $OLO
The Olo IPO is here. Late Tuesday night, Olo set its share price at $25, well above its original range of $16 to $18. The range was later revised to $20-$22 before settling even higher. This values the company at $4.6 billion. What was once thought to be a $100 million IPO ended up a $450 million IPO.
Among the notable elements of Olo’s business is that it turned a profit last year. While this was fueled by pandemic tailwinds, the company has built a business providing online ordering technology to enterprise restaurant companies. That is: it has lucrative contracts with 400 chain restaurant brands from Shake Shack to TGI Friday’s totaling over 64,000 individual restaurant locations.
Olo started in the days of text messaging — it launched before the iPhone. But it’s updated with the times and now successfully integrates with over 100 tech partners, including the ever-popular third party delivery services. In fact, a significant portion of the company’s revenue — 19 percent last year — came from its work with DoorDash.
Grubhub’s new parent hints at the company’s future
It’s the age-old tactic of lowering prices to undermine competition. We’re enjoying a little less guessing about where Grubhub might be headed under its new European leadership. Just Eat Takeaway (JET), Grubhub’s soon-to-be parent when the deal is finally completed, has been losing market share in Europe to UK-based Deliveroo. It’s a similar story to what’s happened to Grubhub in the US with growth of rivals DoorDash and Uber Eats, but some profitable regions might provide a boost to business across Europe. Later, that strategy could also work stateside.
According to the Wall Street Journal, “Management is betting that by keeping delivery fees at less than half the rate charged by others in certain markets, rivals will be forced to slash their prices and deepen their losses, or begin to shed customers.”
(Grubhub CEO Matt Maloney is no doubt hoping those so-called promiscuous diners will come home to roost.)
There’s another potential point of differentiation: JET’s labor model. Last summer, the company’s CEO announced the company would stop using the gig worker model in Europe, instead making its delivery drivers employees. Since then, Jitse Groen has also hinted that the company might explore the same model for Grubhub, a notable split from the gig worker model championed by Uber and DoorDash and vigorously defended to the tune of hundreds of millions of dollars to pass California’s Proposition 22.
We’ve seen what happens when third-party delivery companies lower commission rates, usually by forced compliance in certain jurisdictions — the cost is passed onto diners in the form of location-specific city fees. In California, companies introduced additional diner fees to help shoulder the cost of additional benefits offered to drivers just weeks after Proposition 22 laws went into effect in early January. During the runup to the November 2020 election as voters were deciding Prop 22’s fate, Uber and other gig worker companies threatened to stop operating in California should they be required to classify drivers as employees. A lower fee + courier employment model from Grubhub could really shake up the already competitive and volatile third-party delivery market.
On Tuesday evening, the New York Times reported that Uber would classify 700,000 drivers in the U.K. as “workers” and that they would receive some benefits, like minimum wage, a pension, and vacation pay. The classification stops short of deeming these drivers employees of Uber. This change was a response to a court ruling last month.
By way of definition
On Monday mornings, I co-host a Clubhouse with Andrew Genung of Family Meal. (It’s really fun and you — yes, you — should join us. The point is for us to speak to readers and restaurant industry pros from across the country to understand the stories you’re thinking about and we should be paying more attention to!)
During Monday’s edition, which stretched to two hours, double our usual time, and I was asked more than once to, in some way, define the term “ghost kitchen.” Indeed, it’s become quite a broad term, used to describe everything from a single, virtual-only concept to a freestanding commissary kitchen space to a virtual chain of delivery-only businesses helmed by a celebrity chef.
I’ll assume that readers of this newsletter have a greater-than-average understanding of the concepts, but for clarity, here’s how I break it down when I cover the space:
Ghost kitchen: This is a physical place. It’s a commissary kitchen (like Kitchen United facilities) or a pop-up kitchen (like a Reef parking lot trailer). I think this term sometimes applies to a restaurant kitchen that is making food for a virtual-only brand, as in, “hey, that restaurant is also a ghost kitchen for [xyz virtual brand.] Speaking of,
Virtual brands are brands that exist virtually. This can be the kind of one-off concept from a brick-and-mortar restaurant that spins out a delivery business for a different menu under a different name. It’s also what I call nationwide concepts like MrBeast Burger and Guy Fieri’s Flavortown.
Virtual food halls are groupings of disparate brands under a virtual “roof,” much like how a brick-and-mortar food hall groups many businesses to operate in close proximity. This can mean that they are actually operating within the same ghost kitchen facility, whether they share a kitchen or just an address. But, and this is interesting, because the concepts are grouped together virtually, they could simply be neighboring businesses whose locations make it easy to combine orders.
This list isn’t exhaustive, and there’s still considerable overlap! But as the space continues to grow and change, it’s important to keep these small distinctions in mind.
In the (Club)House
I love this newsletter but I also like chatting! Join me:
Tonight: Wednesday, March 17 at 7pm ET / 4pm PT I’m moderating a panel about virtual brands and ghost kitchens (gasp!) featuring leaders from Zuul, Wao Bao, FoodHaul, and Lunchbox. I’ve joked before that ghost kitchen chatter is Clubhouse gold, but that’s just because there’s so much to say. I promise to moderate an interesting and useful conversation.
Monday: March 22 at 10:30am ET/ 7:30am PT I’ll co-host my aforementioned usual weekly chat with Andrew Genung of Family Meal. On Monday, Eater editor-in-chief Amanda Kludt will join us for a one-hour conversation. (Last week’s edition stretched to two hours, because ghost kitchens are Clubhouse gold.) These are better when more people jump onstage with us, and we’d love to have you.