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Why OpenTable Should Worry About Third-Party Delivery’s Success
DoorDash, Uber Eats, et al. do demand gen just as well.
Uber closed its Postmates acquisition on Tuesday, finalizing the $2.65 billion deal and consolidating the domestic third-party restaurant delivery market.
In an email to its users, Postmates wrote: “While there are no immediate changes and both Uber Eats and Postmates will operate as usual, we will be working over the coming months to ensure that the partnership means access to more of your favorite restaurants and retailers across the United States.”
The key word is access — in a worsening pandemic, access is everything. In this pandemic, ordering and delivery services like Uber Eats and Postmates have become the front door to many restaurants. They’ve served as marketing and discovery engines, driving business.
So what does this have to do with OpenTable and restaurant reservations? OpenTable’s business model relies on covers to make money — $1 per seated diner in most cases. But its real value to restaurateurs, at least from the conversations I have with them, is demand generation. That is, business from customers who check OpenTable to discover a restaurant with availability at any given time. In fact, OpenTable takes a much smaller per-diner cut (or sometimes none at all) when a customer books a reservation through a restaurant’s website.
It’s the same way that we (consumers, diners, whatever) use third party delivery apps, and why they’re so valuable. It’s also why they can charge high commissions and add additional fees for marketing upgrades — i.e., inclusion in a list or email to consumers, or even preferred placement within the app. We know all of this, right? But it really feels like something’s gotta give.
As we hold our collective breath waiting for widespread vaccine distribution and a return to whatever will be considered “normal,” it’s worth asking how much demand gen a restaurant can afford to pay for, and how many suggestions a consumer actually needs. What will the market for pricey software that runs a brick-and-mortar restaurant even be in a post-pandemic 2021?
OpenTable’s parent company, Booking Holdings, is an $84 billion company. Booking acquired OpenTable for $2.6 billion in 2014, and two years later took a $941 million write-down on the asset (that is, it reduced the company’s value on paper). Today, Uber is worth close to $88 billion; DoorDash will seek a $32 billion valuation in its upcoming IPO. Like it or not, these companies have a hold on the restaurant industry.
OpenTable acknowledged the importance of delivery, even before Covid, when it added delivery options through third party partners to its app in 2019. Now “Delivery & Takeout” is its own tab in the app’s navigation, and restaurants’ pages link to both delivery partners and direct to-go ordering both through OpenTable and additional partners. The company won’t disclose the partnership terms, i.e., who pays who, but does tell its restaurant partners “OpenTable is an additional lead source for our restaurants to get delivery through their delivery providers,” and, “OpenTable also helps restaurants sign up for delivery providers if they aren’t already using them,” — so I have a guess.
Partnering with delivery companies to drive demand to restaurants is a fine strategy for a decades-old consumer brand like OpenTable, for now. But will there always be enough room here for everyone, especially as the newer-to-market companies continue to build and iterate to prove their value to shareholders ?
The New Franchise Model
Also on Tuesday, a company called Virtual Dining Concepts launched two new restaurant brands, both attached to some (sorta) household names. Mario’s Tortas Lopez and Pauly D’s Italian Subs are virtual brands from (yes…) former Saved-By-the-Bell’er Mario Lopez and MTV’s Jersey Shore-famous DJ Pauly D. The food is available exclusively on Grubhub and comes from the kitchens of existing restaurants that sign on to host the delivery-only brands. According to a Virtual Dining Concepts spokesperson, restaurants of any size, independent and chains, anywhere in the U.S. can become "market partners" to any of Virtual Dining Concepts brands, which also include Tyga Bites, launched over the summer.
It’s a franchise model made for modern times. In October, a company called Ordermark announced a $120 million round of funding led by SoftBank’s Vision Fund. The company offers online ordering software for restaurants, but it also built a “decentralized ghost kitchen” with a product called Nextbite, presumed to have especially piqued investors’ interests. Similar to the above — but perhaps with fewer C-list (D-list?) celebs — Nextbite creates virtual brands that existing restaurants can sign on to operate. (It does have a restaurant in partnership with Wiz Khalifa, however.)
For all its challenges, the franchise model is tried-and-true business for large restaurant chains. I don’t write about it a ton because, TBH, it’s complex and there are others who do a better job. But fast food, which is perhaps the industry most associated with the franchise model, is doing great business during the pandemic. Similarly, delivery companies are recording record numbers in 2020 fueled by Covid tailwinds. And, of course, the ghost kitchen and virtual brands business has never been hotter, more popular, or better funded. (I wrote about this for Eater a few weeks ago.) Throw a celebrity in the mix and you have instant marketing success! Or something.
Related: I’m hosting a panel next Wednesday, December 9 as part of The Spoon’s Ghost Kitchens Deep Dive event. Register here.
Service Work During Covid
Food delivery companies are thriving, but what about the last-mile delivery workers? A New York Times report details couriers’ struggles in the city, which is recording a 13.2 percent unemployment rate. Beyond the obvious risk of exposure to Covid, there’s also rampant bicycle theft. And it’s harder than ever for couriers to find an available restroom during their shifts. The piece also contains some real-world numbers representing how much money couriers actually take home, not just just what the delivery companies say should be possible.
Recently, DoorDash announced a $200 million, five-year effort that includes support for its Dashers in partnership with the National Urban League. And just yesterday, Grubhub announced a grant program for drivers offering $10,000 toward their philanthropic, business or educational goals. (Applicants must be current Grubhub couriers and submit a 500 word essay or five-minute video detailing how driving with Grubhub fits into their larger mission in life and what goals you’d pursue with this grant. Only 20 recipients will be selected in February after applications close.)
DoorDash just agreed to pay $2.5 million to settle a lawsuit that accused the company of pocketing drivers’ tips. It has since changed its tipping policy.
Further reading: For more perspective on service work in a pandemic, please read Alicia Kennedy’s recent newsletter, On Service, Part 2.
What else is happening?
Ghost kitchen company Zuul recently announced a partnership with Thrillist in New York. Zuul facilities will play host to a series of guest chefs from beloved New York restaurants through April. They’ll offer a selection of dishes made to travel, and Thrillist will cover all costs including food, labor, packaging, and delivery. Participating restaurants include Rao's, Chinese Tuxedo, Sylvia's, Caracas Arepa Bar, and Milu. Ghost kitchens have truly challenged the concept of “restaurant” as they offer space to create dishes to be enjoyed not in a restaurant, and with this program it’s Zuul’s hope to offer more support to struggling businesses.
After a soft and quiet debut over the summer, The Infatuation has formally launched Outpost, its marketplace for restaurants to sell goods and services. Digiday has the backstory, which hasn’t changed too much since I reported on it in early September. The business model seems a little more solid now though, with Infatuation CEO Chris Stang noting that his company takes a percentage cut of each order. Right now it’s only available to New York restaurants at outpost.market.
I like to say that all food delivery is local, but it’s also localized. HungryPanda, a Mandarin-language food delivery app that targets Chinese consumers outside of China, raised $70 million in Series C funding. The app features Chinese restaurants and Asian grocery stores and, according to TechCrunch, has a potential audience of 50 million Chinese people living abroad; tens of millions more considering second and further generations. Currently Hungry Panda serves 47 cities, including New York. This makes me think back to one of my favorite Eater NY pieces this year about what a proposed ban on WeChat would mean for New York’s Chinese restaurants — it’s a good reminder of both the huge opportunity and importance of targeting the markets some mainstream products overlook.