It’s been a grim few weeks for financial markets in the US. Experts are split over whether we’re headed for a full-fledged, bona-fide recession or just a period of not-great economic times — but in the short term, things are looking far, far less amazing (again, financial markets-wise) than they were coming out of the pandemic.
This downturn has found its way into restaurant technology companies, which not too long ago promised they could save the beleaguered restaurant industry amid a once-in-a-century pandemic. So… how’s that working out?
At some point between March 2020 and now, restaurant tech’s focus turned from helping restaurants get through the most difficult set of challenges in modern history to building a business large enough to turn a profit and work, at scale. When life went online, companies found their product-market fit. Big companies got bigger, smaller companies got acquired. At times, it felt like the only way forward for a small restaurant was to partner with one of the new behemoths to stay afloat. Tech had captured the attention of consumers in love with convenience.
Turns out, that was a very specific — and fleeting — moment in time.
Venture capital is hurting independent restaurants, the redux
When I finally shared this thesis, which had been bouncing around in my head for months, I got a fair amount of pushback, as expected. But I think this has held up, even as some VC-funded companies are forced to downsize amid changing economic conditions.
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.
The independent restaurant business can look terrible on paper. Margins are thin, returns on investment are low, hours are long, conditions, especially now, years into a pandemic that is not going away, are grueling. So it follows that the tech industry, focused on new solutions to existing problems, is excited to dig into perceived inefficiencies and “fix” them.
A month later, in May, I wrote somewhat excitedly that this unfortunate downturn might have some silver linings for the convergence of restaurants and technology — including a focus on responsible growth for the biggest companies that still work to turn a profit. Now that responsible growth, product-market fit, and, eventually, profitability are more attractive to the backers with the cash, restaurant tech companies’ interests might be more aligned with the industry they’re working to serve.
What is success, then?
One fundamental challenge I’ve faced over the past two years is how to cover the convergence of two different industries — restaurants and technology — when the industries themselves view success in very different ways. Those corporate earnings calls stand in stark contrast to my conversations with restaurateurs and other industry leaders.
Technology loves metrics and market penetration and scale and user growth. Restaurants think about all of those things, too, but differently: user growth means attracting new diners; scale is converting them to loyal regulars or maybe expanding the business — longer hours, lunch service, maybe a second location. And, I’d argue, their stakes are higher since most don’t have a pile of VC cash to fall back on. To them, runways are for airports and fashion shows, not business.
Small companies with big ideas: here’s your moment.
It’s not all doom and gloom; there’s still opportunity. While funding deals may have slowed, they haven’t stopped. Analysts in the delivery space don’t think the industry is doomed. After all — consumers love convenience. But they do acknowledge that it’s harder out there for a service now, and that many will choose to exit markets where they have no chance of winning (we’ve seen this strategy before with Uber Eats) or streamline operations (we just saw an example of this a few weeks ago when DoorDash shuttered Chowbotics, its salad robot acquisition.)
A founder in the space suggested to me that this could be prime time for small startups. Here’s why:
The biggest companies have less energy (and money) to focus on innovation as they work to keep the core business working for current customers while attracting new ones. Remember, restaurants’ adoption of almost anything new is long — the pandemic was a once-in-a-lifetime outlier. As consumer behavior normalizes, many tech companies might not be able to afford to ride out this long cycle waiting for mass adoption.
This opens the door for smaller, leaner companies with great ideas and sharp focus on the right slice of the market without having to worry about keeping legacy customers happy. In essence: if you want to take on DoorDash’s future, it’s go time.
When restaurant technology companies scale, they tell restaurants that the growth is in service of them, the customer, the artist, the hospitality provider. Now they have to prove it.
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What else is happening?
I took on that Google reviews scam for Bon Appetit. Many of the false reviews have been taken down, finally. Here’s the tl;dr from restaurant owners: “In the grand scheme of stupid things that restaurant owners have to deal with, this is just one more stupid thing.” (One thing I didn’t touch on: the “reputation management” industry that’s sprung up to help in these scenarios. I’ll save that for the next story.)
A ghost kitchen company just raised $100 million. This week, Kitchen United announced a $100 million Series C round of funding along with plans to grow from 15 locations to a whopping 500 in the coming years. Kitchen United provides professional kitchen space for delivery-only meals and works with some well-known restaurant chains and also inside several Kroger’s grocery stores.
In fact, Kroger’s participated in the funding round. So did Restaurant Brands International, the parent company of Burger King and Popeyes. So did a handful of other investors including company executives and, somewhat notably, “two-time NFL Super Bowl MVP Peyton Manning.” (Quotes because that’s how he’s introduced in the release.) The latest influx of cash brings the company to $175 million raised.
Safe and legal alcohol delivery is a tricky proposition. Honestly, one of the more humane developments to come out of restrictive city policies during the pandemic is the increased availability of alcohol on demand. Plenty of places across the country started allowing takeout cocktails, beer, and wine where there were none before. This was, to be totally honest, a personal bright spot during some of the darkest days of lockdown.
Now food delivery companies like DoorDash can deliver it too — but with great power comes greater responsibility. Last week, DoorDash rolled out a new two-step verification process for its drivers to make sure they’re only delivering the good stuff to app users of legal drinking age.
Customers will still have to upload a copy of their ID upon ordering, but now to receive the delivery, a DoorDash driver needs to scan the ID, too. Apparently, the driver is also required to… check for signs of intoxication in customers, which seems like a lot of responsibility for a contract worker just trying to make deliveries.
A piece in the Takeout points out that DoorDash provides its drivers with guidelines for alcohol deliveries, but if the driver hands over an order to the wrong person — an underage customer, or one who’s already too drunk — it’s the driver who’s held liable. DoorDash’s guidance advises drivers to “Politely tell the customer that you cannot deliver the alcohol,” and, if things go really bad, “Should a potentially tricky situation arise, get to a safe location and call the police.”
(For what it’s worth, Uber’s guidance for alcohol delivery is similar, requiring drivers to check for intoxication and also to upload photos of the customer’s valid ID.)
Chipotle invests in kitchen automation platform, mushroom-based meat alternatives. Hyphen and Meati Foods are part of the first cohort of the company’s Cultivate Next venture fund, which launched in April with $50 million. The goal of the fund is to invest in new startups that align with Chipotle’s mission and plans for growth. Hyphen uses robots to automate portioning more than 350 meals per hour with a 99.9 percent accuracy rate; Meati Foods Dollar amounts were not disclosed.
-Danielle Hyams
Instacart updates. The company’s co-founder, Apoorva Mehta, said he will step down as executive chairman and transition off the board of directors once the company goes public. The delivery company also announced that the Electronic Benefits Transfer and Supplemental Nutrition Assistance Program (EBT SNAP) can be used to buy groceries online in 10 more states through its app.
-DH
Uber will debut a new “grocery experience.” It will offer customers several new features, including allowing users to place orders from grocery stores on Uber Eats whether or not they’re open, live order tracking and improved product replacement. In a statement, Oskar Hjertonsson, Uber’s global head of grocery and retail, called the rollout the “most comprehensive update yet.” The updates will begin in select (but unnamed) cities this week.
-DH