The New, Digital-Only Chipotle
+ Uber's third quarter, more ghost kitchen thoughts, and lots of news
|Nov 11, 2020|
Chipotle is opening its first “virtual kitchen” which is the new term we’re using for takeout-only restaurant locations. It’s in Highland Falls, New York, north of the city on the Hudson River, and also the home of West Point. (The new Chipotle is located just outside the military academy’s gate, according to a press release.) Ordering is completely online — third party or via Chipotle’s own channels —and there’s a separate entrance for picking up large format and catering orders. You have to order ahead; the facility takes no in-person orders.
Chipotle has made huge investments in digital infrastructure under CEO Brian Niccol, who joined from Taco Bell in 2018. There’s the now legendary “second make line” which has been referenced in every earnings call I’ve listened to in the last two years, a second kitchen team dedicated to online orders. There are the Sweetgreen-esque pickup shelves that hold digital to-go orders. There’s the Chipotlane, the digital-only drive-thru for pickup which did so well even before the pandemic that the company sped up its construction of new lanes. Expect more virtual storefronts like these, which the company says are “designed to include all of the sounds, smells, and kitchen views of a traditional Chipotle restaurant.” Chipotle will target urban areas and other places that don’t support a full-size restaurant for more locations. Fast casual dining rooms are so 2010s.
Uber Q3 2020
Uber released its third quarter earnings last week, and, as anyone who reads the news could have guessed, delivery is still growing exponentially, while the rides side of the business has cooled. Again, Uber CEO Dara Khosrowshahi talked about Uber’s strength via diversification — where its rides business falls off, its delivery business stands up. "I'm not going to make a call as to whether mobility or delivery are going to be bigger. I want those teams to fight it out,” he said. (No pressure.)
When explaining the total addressable market for delivery, he also addressed the relatively low restaurant market penetration. Uber has 560,000 restaurants on its platform worldwide, but this represents just 30 percent of U.S. restaurants, 15 percent in the U.K., 15 percent in France (where delivery has been profitable) and 10 percent in both Mexico and Brazil. Khosrowshahi expects that restaurant partner growth will continue “in many multiples” but cautions, “the incremental restaurant that we bring on to the platform probably is not going to be quite as productive as the restaurants already on the platform.”
Khosrowshahi reiterated that both delivery and rides have a “path to profitability,” and Uber chief financial officer Nelson Chai repeated Uber’s plan to that delivery will “be breakeven some time in 2021.” It’s a tall order given the state of the third party delivery fee structure, but here’s one look at how they’ll get there: since Uber added advertising to its restaurant offerings in the U.S., over 30,000 restaurants have signed on to run campaigns.
Uber will soon maintain a smaller delivery brand, Postmates, under the Eats/delivery umbrella. The company got a step closer to its proposed acquisition on Tuesday, with the Department of Justice reportedly clearing the deal of any antitrust concerns. As part of this, Uber filed a letter detailing plans to waive Postmates exclusivity agreements in certain locations and not enter into any exclusive arrangements with those restaurants for six months following the close of the deal, per Axios. Uber will pay $2.65 billion in stock for the company.
Elsewhere, on Ghost Kitchens
I wrote a piece for Eater this week about virtual brands and ghost kitchens. The tl;dr is that there’s much room for development and innovation in the emerging space, but it’s not without constraint. There’s also a *whole lot more* news that will start to come out in coming weeks and months, not to mention the hundreds of millions — if not billions — being poured into the space from investors. It’s a market that’s quickly hit its inflection point, attracting huge corporate interests that can afford to put up the capital to deal with large operational costs as well as smaller, software-based startups working to optimize and monetize every aspect of each transaction. And don’t forget: the entire model is predicated on the success of third-party delivery companies. It’s not unlike the Amazon Marketplace model and... have you read about Amazon’s latest antitrust situation?
I have been thinking a lot about what comes next here for restaurants as new brands and franchises are built virtually and deployed from shared commissary and restaurant kitchens across the country. This is maybe a wild idea, but I’ve had a little wine tonight so hear me out:
Third party delivery is synonymous with speed, convenience, and value, kind of like, say, a Target store. Many restaurants that didn’t offer delivery have turned to these platforms as a way to do business, especially during Covid. These restaurants have the same complaints as everyone — high fees, limited branding, challenging customer retention and engagement, but are likely enjoying an expanded customer base as they wait out Covid restrictions and hope that the Pfizer news isn’t too good to be true. Is it too far off, then, to expect these restaurants to start to offer lower-end, easy-to-execute versions of their food for a delivery audience? This is essentially what Burma Bites, the new DoorDash-funded restaurant in Oakland, is doing, right? It’s like when a clothing designer comes out with a line for Target. It’s exciting, it’s accessible, it’s limited time only and it’s not the same as buying the real deal. But we line up and we buy it and we love it because it’s there. Free idea.
What else is happening?
Caviar is (finally) expanding. Online ordering and delivery platform Caviar is moving into three new U.S. cities and 3,000 restaurants in Austin, Miami, and San Diego. DoorDash acquired Caviar last year, and in August moved Caviar restaurants onto its platform (with a few reported hiccups). Caviar bills itself as a curated marketplace — which is to say that it has far fewer restaurants on its platform than parent company DoorDash or competitors like Grubhub. A Caviar spokesperson declined to share the total number of restaurants it supports, but said, “We are focused on curating the best local restaurants and featuring as many of each city’s most acclaimed spots as we can. We have a dedicated team that works on identifying local restaurants in every city and partnering with them directly for delivery and pickup.” Its size has served Caviar well as it’s managed to uphold a reputation as an urban ordering and delivery service full of the types of restaurants you wouldn’t normally associate with delivery, but with a fraction of the market penetration it would need to survive without a large parent company behind it.
Spyce, the Boston-based robot restaurant from 2018, has relaunched. The first concept got some love in the New Yorker a couple years ago as its MIT-educated founders worked with chef Daniel Boulud as “culinary director.” Boulud is only casually mentioned in some coverage of the relaunch, though as I remember it he was never a figurehead. He was an investor, though, as were Thomas Keller, Gavin Kaysen, and Jérôme Bocuse. (Boulud was also an early investor in the ill-fated Munchery and also Sweetgreen, h/t to current Eater NY reporter Erika Adams for this coverage from our time as colleagues in 2018.) Anyway, apparently Spyce’s co-founder told press in October that“It made more sense, instead of scaling, to go back to our model … and reinvent what we invented.” The co-founder also said that the company has no plans to license its technology (which is called “Infinite Kitchen”) — which seems like a miss.
A NYC automat is expanding across the U.S. via a franchise deal that will launch 500 automats in the next 10 years. (Attn: Spyce.)
Grubhub partnered with Restaurant Strong to offer $2 million in winterization grants to restaurants in New York, Boston, Philadelphia, and Chicago. The $10,000 grants are available to restaurants with five or fewer locations, and includes restaurant groups with a number of brands under one owner. More details here.
DoorDash launched its own $2 million grant program (distributed by Hello Alice) in October, offering $5,000 grants to restaurants in select cities. Applications for this grant program closed last week; winners will be notified by the end of December. Neither DoorDash nor Grubhub’s program requires restaurants to be active customers of the service to apply.
Speaking of, still waiting on that DoorDash S1. Best guess? The Wednesday before Thanksgiving-ish? (This is a total guess.) I’ve heard no plans of pushing the reported Q4 IPO into the new year (yet!) Reach me securely at firstname.lastname@example.org anytime, just saying!
It’s no Vice President-elect Harris, but Proposition 22 passed in California, giving companies like Uber and DoorDash a pass on the law that would have required them to classify their drivers as employees. The companies spent hundreds of millions of dollars to get the W. I like this New York Magazine piece.
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