Delivering a digital restaurant: delivery is dead; long live the delivery
Restaurant delivery disruptors, from seed to post-IPO, announce layoffs, hiring freezes, slowing growth, shuttered experiments, strategic pivots and management changes. As financial markets evolve and money becomes more difficult to access, newcomers to the restaurant industry are no less affected than their other tech peers. The layoffs are far more emblematic of what is happening in the broader economy and in particular financial markets than the future of delivery.
The current financial market volatility is causing all startups to look at their burn rates in a new light. The previous easy money pushed some startups to invest in growth that would justify their valuations – or as Lunchbox CEO Nabeel Alamgir put it. Business Intern, “we were all drunk on VC money and needed to sober up.” ChowNow CEO Chris Webb described the change in Business Intern in this way: “Interest rates have been practically zero for 12 years, and this has allowed companies, including ChowNow, to grow very quickly and take advantage of cheap capital. Those days are now behind us.”
We’ve heard a number of restaurants say now, “See, I told you. This delivery story is a fad. Enabled by venture capital funds and necessitated by the pandemic, now that money is drying up, people can (and want to) leave their homes again, and prices inevitably rise to pay for the convenience of having something delivered. thing – consumers don’t want more. We’ve also heard from several industry watchers predicting the demise of many disruptive companies that were funded during the pandemic.
We do not agree. Delivery is not a fad. It’s here to stay. But as with any disruption, it has gone through its creative phase where innovative companies are testing different approaches to meet consumer demand. As this phase draws to a close, consolidation and reorganization are needed. Olo, Toast, and DoorDash in particular have purchased features and will likely continue to do so. Other well-funded startups, like Reef and Lunchbox, will focus on their core businesses to build defensible intellectual property, find their way to profitability, and accelerate their maturation into sustainable businesses.
Layoff announcements usually have two things in common: first, companies try to lengthen their runway in case financial markets remain unstable. A lower burn rate makes it easier to survive and see a brighter day. Having fewer employees allows for a lower burn rate. Second, they are pivoting to position their businesses to focus on core business. For example, Reef’s layoffs earlier in the year included the announcement that they were going to focus on core geographies and that they were going to halt certain product expansions that had taken them into brand new, unrelated verticals. to restoration. What companies are saying with these moves is, “Hey, if we focus on the essentials that we’re really good at, where is our secret sauce, which is restaurant technology, restaurant brands and restaurant ghost kitchens, that’s where we’re much more likely to get to a profitable place sooner than if we try to innovate in 12 directions at once Sunday said the same thing. some of their geographies, focus on some of their core technologies Lunchbox said they would focus on SMBs and stop pursuing Enterprise.
That’s not to say all delivery startups will survive. Many will be acquired by a powerful few. Many more will close their doors. And some will create the future that we paint in our book, Deliver the digital restaurant. It is too early to say which company it is. And it’s possible the winners haven’t even been created yet. Think MySpace vs. Facebook. Or AskJeeves versus Google. We are still at the very beginning of the digitalization of restaurants. There is so much more to come.
As we discuss in our book, further delivery adoption will not be driven by more people doing more of the same thing. Further adoption (and therefore further growth in the size of the delivery market) will be driven by new technologies and approaches that actually reduce the cost of delivered food. As we highlight in the ‘Mature Markets’ chapter, there are places in the world where the food delivered is actually cheaper than eating in a restaurant, even without drones, sidewalk robots and automated food trucks cooking along the way. Intuitively, it makes sense that this is possible; If front desk staff, square footage dedicated to dining, prime real estate, and a third-party doing deliveries just aren’t part of the restaurant’s business model, getting great food delivered is possible. at a favorable price. Focusing on the things consumers care about the most (food and convenience) and then innovating to make them as good, fast and cheap as possible is what will move the US towards a sustainable delivery model that works. for everyone – consumers, restaurants, drivers and kitchen staff.
While our hearts go out to those affected by the layoffs, their experience will be invaluable as they apply it to the many other restaurant technology businesses that will thrive in the years to come. For the companies and leaders making these decisions, it allows for a moment of refocusing which, in turn, will lead to better outcomes for everyone. This is true in all relevant industrial sectors. Crunchbase analyzed all of this layoff news and concluded that 143 US tech companies had laid off over 24,000 people through June 2022. We’re really talking about something that affects all of tech, not just restaurant tech vendors. . It’s time to pause, reflect and pivot.
Some of the companies involved are experiencing strong underlying business fundamentals – record levels of revenue and gross order volume, continued growth in restaurant customers or loyal consumers, or even positive unit economics or overall profit. Webb from ChowNow said Initiated, “We signed more new accounts and new restaurants in June than throughout the year,” adding that ChowNow’s churn rate was low in May and June. “It’s not like our business has imploded. That’s not the case at all.” Nextbite’s Alex Canter said in a LinkedIn post a week after his company made mass layoffs: “In just 7 days, our amazing team at Nextbite brought live over 750 new sites,” breaking previous onboarding records. These companies are trying to focus that growth in a way that’s much more likely to drive profitability, which the markets are rewarding right now.
While the growth of DoorDash and UberEats has slowed as consumers adjust their behavior to account for inflation, their revenues continue to grow. According to Yipit Data quoted in the the wall street journal, order volume and delivery spend continue to grow in double digits. While this is a dramatic reduction from triple-digit pandemic highs, it still reflects consumers who value the convenience of delivery.
The delivery does not go away. It will evolve, but it will not disappear. Smart restaurants will evolve to meet consumer demand for convenience in a way that is sustainable for all stakeholders. The best restaurant technology companies will create business models that enable sustainable delivery.
Meredith Sandland and Carl Orsbourn are co-authors of “Delivering the digital restaurant: your roadmap to the future of food.” After each spending more than 20 years in corporate strategy and food retail, Meredith and Carl each concluded that food in America was changing. They left their corporate jobs in search of innovations that would transform the restaurant industry. Ghost kitchens, virtual brands, digital marketing, the gig economy and lean operations are central to the future they envision. For more information, visit DeliverleDigitalRestaurant.com or email [email protected]