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Daily news and analysis about the food tech revolution

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Week in Restaurants: Ghost Kitchens Might Be Hurting Small Businesses

Food delivery has a dark side. That we knew, but it does seem to be getting more airtime lately, with legislators and restaurants alike pushing back against some (okay, most) of the practices companies like DoorDash, Grubhub, and Uber Eats employ. We saw more of that this week when a San Francisco restaurant owner took Grubhub to task and urged others to join her. Judging from Grubhub’s latest earnings call, though, the service isn’t budging on certain practices.

Read on for more on those as well as other noteworthy restaurant news from around the web this week.

Ghost Kitchens Get an Oversight Hearing in NYC

Ghost kitchens are all the rage, but not everyone is thrilled with them. On Thursday, New York City council members held an oversight hearing to discuss whether ghost kitchens are a friend or hindrance to local business, and if they need to be regulated. “Are you a threat to our mom-and-pop restaurants, or should you be embraced as a partner that’s going to help them continue to flourish and grow?” councilmember Mark Gjonaj asked ghost kitchen operators at the hearing. (Gjonaj has also been vocal when it comes to third-party delivery in NYC.)

Kitchen United CEO Jim Collins was present, as was Zuul Kitchens cofounder Corey Mancione. While regulatory measures were not discussed, the event definitely puts a spotlight on the more controversial aspects of ghost kitchens. The main debate at last night’s hearing was whether ghost kitchens hurt small, independent restaurants by lessening overhead costs for bigger chains, who have the deep pockets to more easily embrace off-premises ordering.

Image via Unsplash.

TripAdvisor Unveils a Review Aggregator for Restaurant Operators

TripAdvisor launched a new tool on Wednesday that aggregates restaurant reviews from multiple websites so that owners and operators can view all of them from a single dashboard. Dubbed Review Hub, the subscription-based feature gathers reviews from Facebook, Google, Yelp, and “other major review sites” into one place. The aggregated view promises restaurant owners an easier, faster way to spot trends in feedback, see what’s working and what isn’t, and respond to customers more consistently. Subscriptions are available on both a monthly and annual basis.

Planet Hollywood Founder Launches a Virtual Restaurant Network

Robert Earl, known as the founder of Planet Hollywood, has launched a virtual restaurant concept called Wing Squad, which is available exclusively through third-party delivery platforms Grubhub, Uber Eats, DoorDash, and Postmates. The online menu is fairly streamlined, offering up just wings, sides, and a few desert options, all of which is cooked in ghost kitchens. The restaurant is currently available in 16 cities, including Los Angeles, San Diego, Detroit, and Las Vegas. Earl, whose Earl Enterprises owns chains like Buca di Beppo and Earl of Sandwich, said in a statement that Wing Squad is part of his Virtual Dining Concepts network. Other online-only restaurants are coming soon.

Grubhub Added 150,000 Non-Partnered Restaurants

Grubhub beat Wall Street estimates for Q4 2019 in what was a drastic change from the company’s dismal third-quarter results. Part of the third-party delivery service’s efforts in Q4 included doubling its restaurant inventory by adding 150,000 non-partnered restaurants — that is, restaurants that do not have contracts with the service and have not given permission to Grubhub to use their menus online. The controversial tactic is also used by Postmates and DoorDash. While Grubhub defends the strategy, saying it is meant to reverse the slowdown in daily orders, more and more restaurant owners are speaking out against the practice, turning the issue into the latest battle between restaurants and delivery services. Mark Gjonaj, over to you.  


Will the Restaurants Themselves Be Third-Party Delivery’s Biggest Opponent?

A while back, I wrote that third-party delivery services like DoorDash and Grubhub are engulfed in a massive fight now against all manner of opponents, from government regulators to investors worried about profitability to the force that is social media. But in the wake of fresh controversy, these delivery companies’ strongest opponents might actually be the restaurants themselves. 

Restaurants’ need to push back against delivery services was (once again) brought to light recently when San Francisco restaurant owner Pim Techamuanvivit, who owns Michelin-star restaurant Kin Khao, left the following tweet:

Techamuanvivit went on to explain how she discovered that Kin Khao was listed on Grubhub and its subsidiary brand, Seamless, despite the fact that the restaurant has never offered delivery or even takeout. After all, it is a Michelin-star joint.

An excellent article from Wired goes into the full details on how Kin Khao got mixed up with a virtual brand that operates out of one of Reef Technology’s ghost kitchens. (It was a technical error.) But the bigger point, as Wired underscores, is that Grubhub had listed Techamuanvivit’s restaurant in the first place, without her knowledge or consent, and that doing so is actually a common practice Grubhub started some months ago.

Essentially, Grubhub identifies non-partnered restaurants — that is, restaurants with which it doesn’t have a contract — that are popular in a city, creates a page using the establishment’s menu and basic information (pulled from public sources), and has orders sent directly to Grubhub. Grubhub then figures out how to actually get the order, which usually involves sending a driver to retrieve a pickup order. However, in the case of a high-end restaurant like Kin Khao, which only offers dine-in service, that tactic clearly doesn’t work.

Many restaurants have voiced concerns over this practice. Steven Sorensen, general manager and partner at The Farmhouse at Jessup Farm in Colorado, had a similar experience to Techamuanvivit’s, even though his restaurant had “routinely” declined to partner with Grubhub. “Our food is not designed for that app,” he told the Coloradoan. “It’s designed to be enjoyed immediately in the restaurant.” 

Another restaurant owner, this one from Ohio and going by the handle @ThaibyTY, tweeted that Grubhub had listed incorrect information about their business and incorrect menu items and prices:

Other services like Postmates and DoorDash follow a similar practice. The argument is that listing non-partnered restaurants widens third-party services base of restaurants and and is a way to drive more delivery orders to local restaurants.

But this practice of listing restaurants without their consent is just one of many griefs with delivery businesses are getting louder about.

Grubhub has for some time now also been dealing with a controversy around charging restaurants “bogus” phone order fees. The service announced a new phone-order system in January (which NYC regulators immediately labeled “insufficient”), but according to the NY Post, the service has yet to refund the majority of its restaurant partners on those erroneous fees.

That service, along with Uber Eats, was the center of an oversight hearing in Manhattan last year that called into question the commission fees delivery services extract from restaurants, usually 20 to 30 percent of each transaction. Caps have also been proposed for these commission fees.

DoorDash isn’t off the hook, either, given the controversy last year around how the service tips its workers, a point that’s the center of a lawsuit filed by DC Attorney General Karl Racine.

I wrote back in December that, for at least the first half of 2020, we should expect the already messy food delivery space to get even messier “get messier, raise more questions, and incite more regulatory battles as it progresses towards normalization.”

But maybe it shouldn’t normalize, at least not in its current form. Maybe this latest controversy should instead encourage more restaurants to vocalize their concerns around the unregulated, unsustainable beast third-party delivery is becoming, and in some cases, take further action in order to become a legitimate threat. Techamuanvivit, for her part, is promising legal action against Grubhub and has encouraged other restaurants to do the same.

Litigation is tricky, though. In-N-Out Burger famously tried to sue DoorDash in 2015 but the case was dismissed two months later in a confidential settlement. What the industry needs to see are examples of such lawsuits going to trial and their outcomes forcing changes in how business gets done between restaurants and third-party services. There are no guarantees that will happen.

There are arguments out there that if restaurants don’t like the way these third-party services operate, they shouldn’t use them. That angle might have held water two years ago. Now, off-premises orders are expected to drive most restaurant sales over the next decade, which means delivery is practically mandatory for many restaurant types. Unless you’re a restaurant like Kin Khao, where delivery doesn’t make sense for your brand, most restaurants have to contend with marketing costs, paying drivers, and managing the technical logistics of on-demand ordering. Often the cheapest way to do that is to use third-party services, which may handle the heavy lifting of delivery operations for the restaurants but which are also largely unregulated and as of now face little accountability for their business practices.

Whether Techamuanvivit’s Twitter takedown of Grubhub and possible forthcoming lawsuit can inspire others in more precarious positions (those restaurants who feel they need the partnerships with third-party services), remains a question.

Meanwhile, talk of consolidation among third parties continues, and worry from investors over profitably continues to threaten the model. Coupled with growing concern and louder voices from the restaurants themselves, it seems more likely that something big is going to give very soon. And it should. Otherwise, everyone loses in the long term.

Week in Restaurants: Delivery Gears Up for Super Bowl Sunday

In today’s delivery-crazed culture in which we live, Super Bowl Sunday has become as much about the food we’re ordering as it is about football or hotly anticipated TV ads. Makes sense, then, that QSRs, fast-casual joints, third-party delivery services, and many more are dabbling in delivery initiatives this coming Sunday. Check a couple of them below, as well as more restaurant-centric news from around the web this week.

Chipotle is running a TikTok campaign for Super Bowl Sunday.

In a clear bid to win over Generation Z, Chipotle has launched a campaign on TikTok called “TikTok Timeout.” For every commercial break after a timeout during the big game, some of the app’s most popular content creators will share their own Chipotle delivery ads set to Justin Bieber’s song “Yummy.” The campaign is searchable through the hashtag #TikTokTimeout.

Little Caesars spotlights delivery with DoorDash.

Known historically for its pickup service, Little Caesars finally joined the delivery craze not long ago when it announced a partnership with DoorDash to ship pizzas directly to customers’ doorsteps. The pizza chain is spotlighting that move with its first-ever Super Bowl ad, which could cost over $5 million. Clearly the chain is ready to invest aggressively in delivery. 

Postmates will have customers sign a waiver for wings.

Delivery service Postmates is running a couple Super Bowl-centric initiatives this week, according to an email sent to The Spoon. From January 30 to February 1, Postmates users can enter to win a wings pack themed around the web series “Hot Ones.” The goods, which include wings as well as “Hot Ones”-branded sauces, will be delivered to the winner on February 2 just before the game starts. The wings are apparently so hot users must sign a waiver upon delivery. 

In a separate campaign, Postmates users can also enter to win a year’s worth of pizza or wings. More details on the campaigns are here.

Yelp launches health score pop-up alerts for restaurants.

Yelp released a new feature this week in Chicago and Los Angeles that alerts users via pop-ups when a restaurant has health code violations. According to the Chicago Tribune, when a user scrolls through a restaurant’s review page, they will see a pop-up message alerting them if the establishment has a bad health score. Yelp already lists restaurants’ health scores on their pages; the added pop-up feature is a way to quickly call attention to businesses with the worst violations. The Chicago and Los Angeles release of the feature Yelp did in its hometown of San Francisco in 2015.


New Proposed NYC Legislation Takes Aim at Third-party Delivery Tipping Practices

A new NYC bill proposed this week is once again putting third-party delivery services’ tipping policies under scrutiny, according to an article from the New York Daily News. Specifically, the proposed law is aimed at transparency around how much of the tip on any given delivery order actually goes to the delivery worker as, well, a tip.

New York City Council member Richie Torres introduced the legislation on Wednesday that would, according to the NY Daily News, require third-party delivery services to “notify customers if gratuity is paid to delivery workers in addition to their regular wage – or if tips are put toward their base pay.”

Speaking strictly of third-party restaurant-food delivery companies, the proposed legislation seems aimed specifically at one. In July of last year, DoorDash received a storm of bad press over its then-tipping policy, which used money from workers’ tips to meet the minimum guaranteed base pay.

Though the company eventually changed that much-maligned tipping policy, D.C. Attorney General Karl Racine later brought charges against DoorDash, claiming the old tipping model mislead consumers about where their money was going.

Torres’ proposed legislation seems as much aimed at protecting workers as it is about transparency towards customers about where their money goes. In a tweet Wednesday, he wrote:

#NYC can no longer afford to turn a blind eye to app-based delivery companies stripping workers of their hard-earned tips. It’s wage theft, plain & simple, and the public has a right to hold businesses accountable for exploiting their workers and stealing their wages.

He also told NY Daily news that there’s “a special place in hell for companies that confiscate the tips of low-wage workers,” adding that tips are “profits for the companies – dollars the companies should be paying workers out of their own profits.”

If the legislation is approved, all third-party delivery companies, including DoorDash competitors Grubhub and Uber Eats, would have to comply by disclosing their tipping policies in their terms of service or via some other method before a transaction is processed. Failure to do so would result in services being charged penalties.

DoorDash competitors Uber Eats and Grubhub would be on the hook to comply, as presumably would a service like Instacart, which has also come under fire recently for questionable tipping policies for workers.

A spokesperson for DoorDash said in a statement that “100% of [a] tip goes directly to the Dasher who earned it — in addition to the base pay our company offers for each delivery.” He also added that DoorDash shares “in Council member Torres’ commitment to transparency and we look forward to working with him to ensure the highest quality experience for our customers and workers.” 

Reports of a Grubhub Sale Fuel Talk of Consolidation for Third-party Food Delivery

Grubhub has hired financial advisors and is “considering strategic options including a possible sale” according to a report published by the Wall Street Journal yesterday. 

The news comes on the heels of a rough few months for Grubhub that started when the third party delivery service reported lackluster Q3 results in October of 2019 and posted a fourth-quarter forecast well below Wall Street expectations. The company cited competition from other players like Uber Eats and DoorDash as one of the main reasons for its slowed growth. Shares nosedived more than 40 percent after the earnings call.

Grubhub went public about six years ago and was a pioneer in on-demand restaurant food delivery. But with the seemingly unstoppable demand for off-premises orders and the rise of competing companies trying to see this demand, Grubhub has seen its worth erode over time by billions of dollars.

Yesterday’s news sent the beleaguered company’s value up 12.5 percent, to about $54 per share according to CNBC. CNBC also noted that Uber shares “also spiked on the news, as investors bet consolidation in the crowded food-delivery industry would help the company.” Uber is no stranger to lackluster earnings calls: the company posted billions in losses on its most recent earnings call, and its Uber Eats delivery business is said to be hemorrhaging money. 

Grubhub merging with Uber Eats, Postmates, or DoorDash is an obvious possibility, and today’s news won’t be the last time we hear the word “consolidation” when it comes to discussing the third-party food delivery market. Consumer loyalty with any one service isn’t high, with users preferring to hop from one app to the next in search of the best deals and perks. Investors, however, aren’t as excited about the free delivery, rides to restaurants, and other perks third-party services are doling out like after-dinner mints. Of late, investors have instead been urging these companies to focus less on attracting customers and more on actual profitability — something no third-party delivery service has yet achieved.

A consolidation of the market could help. Across the Atlantic, it’s already happening with the Just Eat-Takeaway.com deal (which is still moving ahead despite recent counter offers). Amazon, too, could be a potential player when it comes to mergers and acquisitions, though much of its future involvement could depend on how its controversial investment in Deliveroo shakes out, at least in Europe.

In the U.S., Some experts in the field say there isn’t room for more than two companies in the third-party delivery space.

DoorDash will probably be one of those companies. The service has built a food delivery empire by adopting the “out-raise and out-subsidize” approach when it comes to the competition. It is one of the fastest-growing brands in the U.S., and despite controversies around its tipping policies, the service is currently valued at over $12 billion. It grabbed the top spot among major food delivery services away from Grubhub in 2019.

Grubhub joining forces with any one of its main competitors could boost margins for these companies — though they still have yet to prove to investors that the third-party delivery model can even become profitable.

DoorDash Partners With Chase to Give DashPass Subscriptions to Cardholders

Today DoorDash announced its first-ever partnership with a credit card company. The food delivery startup has teamed up with Chase to offer DashPass subscriptions to certain Chase cardholders, according to a press release from DoorDash.

The DashPass is DoorDash’s monthly subscription service that waives delivery fees for users on orders of $12 or more. Normally, the service costs $9.99/month.

The deal with Chase gives certain cardholders access to the DashPass for a free or discounted rate. Chase Sapphire Reserve and Preferred members can receive a complimentary DashPass subscription for up to one year (maximum two years). Chase Freedom, Freedom Unlimited, Freedom Student, and Slate cardholders can get a complimentary pass for three months, followed by a 50 percent discount price on the DashPass fee for nine months. 

Catherine Hogan, President of Chase Branded Cards, noted in a statement that Chase has seen spending on food delivery “more than double” in the last year, with cardholders ordering delivery at least once per month on average. The deal with DoorDash gives those cardholders access to more rewards for the money they spend on food.

For DoorDash, the deal is also a way to access a larger number of potential DashPass subscribers. DashPass launched in 2018 and has since grown to 1.5 million active users, with 1 in 3 DoorDash orders in top markets coming from DashPass users, according to the press release. Chase, however, is one of the largest credit card issues in the U.S., with 93 million cardholders overall — many of whom could in theory at least become DashPass holders long term.

So far, no other third-party delivery service has teamed up with a credit card company. However, if the DoorDash-Chase deal proves fruitful for both companies, we could see many more initiatives like this between other banks and delivery services. Both Uber Eats and Postmates offer monthly subscription plans that could potentially be used for similar deals, for example.

Eligible Chase cardholders have until December 31, 2021 to activate their DashPass service.

Little Caesars Is Finally Delivering Its Pizzas, Thanks to a Hybrid Strategy With DoorDash

Little Caesars — a chain best known for its pickup-only model for pizza — announced today a partnership with DoorDash to deliver from Little Caesars stores in the U.S. and Canada directly to customers’ doorsteps. 

Here’s the catch: Little Caesars will not actually be listed on DoorDash’s website. Instead, the chain is adopting a hybrid delivery strategy where orders originate via the Little Caesars website and app. DoorDash will only be involved for the last mile, using its drivers to transport the food from restaurant to customer. 

The deal is just the latest of many hybrid delivery strategies restaurant chains are employing of late when it comes to using third-party delivery services. Panera operates an inverse version of the Little Caesars deal, where orders originate on the DoorDash, Grubhub, or Uber Eats platforms and are then delivered by Panera’s own drivers. Outback Steakhouse, meanwhile, struck a deal with DoorDash in September of 2019 to “complement” its existing in-house delivery program and receive incoming orders from both its own app and that of DoorDash.

By some accounts, 70 percent of restaurant delivery orders will come from third-party platforms like DoorDash by 2022. At the same time, however, restaurants large and small are looking for ways to offset the hefty commission fees and loss of control over branding that come with letting third-party services handle the entire delivery stack. So whether it’s handling the technical logistics, the last mile, or some combination of those, it makes sense more restaurant chains are experimenting with ways they can customize the third-party delivery model to meet their specific needs.

The deal with DoorDash will cover about 90 percent of Little Caesars’ locations in the U.S. and Canada. The chain’s full menu will be available, and there will be no minimum amount required for delivery.

Last year, Little Caesars unveiled its self-service Pizza Portal to speed up in-store pickup orders. With the addition of delivery, the chain is clearly taking consumer demand for off-premises options seriously. 

DishDivvy Partners with DoorDash to Deliver Home-Cooked Meals

Today DishDivvy, an online marketplace for home-cooked meals, officially announced its integration with DoorDash to facilitate food deliveries. Previously, hungry folks who had purchased a meal from a home cook over DishDivvy’s platform had to go and pick up their homemade lasagna/spanikopita/pad thai themselves. Now they have the option to pay a mileage-based delivery fee to have it delivered directly to their door.

DishDivvy may have just officially announced the news, but CEO Ani Torosyan wrote to me today that the startup had been making deliveries with DoorDash since 2019. “We held off on announcing because we wanted to test the integration and really understand delivery when it comes to home kitchen operations,” she wrote. Since then she said that they have iterated on their integration, but wouldn’t reveal exact details.

The official news comes just a couple weeks after DishDivvy announced it would be expanding from its home state of California into Utah. Torosyan said that they hadn’t tested DoorDash delivery in all of Utah yet, but that as of now there is some coverage in the state. She added that third-party delivery of home-cooked food is completely legal in both California and Utah.

DoorDash’s costs for the home-cooked food are a bit pricey: $6 for delivery within a 3-mile radius. That might seem excessive when you could just zip over and pick it up for free. However, adding the delivery option allows DoorDash to reach a wider audience: those extremely strapped for time, people without access to a car, anyone who is mobility-challenged, or doesn’t want to leave the house, etc. etc.

It may seem like a relatively small step, but integrating with delivery shows that DishDivvy is serious about making the cottage food marketplace a legitimate food option available to all — not just a niche audience. Well, at least in those states that allow the sale of home-cooked food.

3 Predictions for the Ghost Kitchen in 2020

In 2019, the idea of a restaurant kitchen with no dining room that would exist solely for the purpose of fulfilling off-premises orders was an intriguing but little-known concept. Fast forward 12 months, and ghost kitchens are now a major talking point in the discussion around how to meet customer demand for delivery and takeout orders. And it’s not just restaurants getting involved. Third-party delivery services like DoorDash have opened their own ghost kitchen facilities, companies like Kitchen United, who provide kitchen infrastructure to other brands, are expanding across the globe, and even non-restaurant food brands are capitalizing on the craze.

It’s still early days for the ghost kitchen concept, and as I noted with The Spoon’s most recent market map, this is a part of the restaurant industry that will change rapidly over the next year as it becomes more commonplace among both restaurants and consumers.

Here are a few things we expect to see happen in 2020.

Ghost kitchens will become the norm for large restaurant chains. 
Last year around this time, I wrote that “where the [ghost kitchen] concept could really shine in 2019 is by taking on delivery orders for existing businesses, so the brick-and-mortar locations of those restaurants don’t have to shoulder the entire burden.”

Without a shadow of a doubt, that began to happen in 2019. In 2020, it will become the norm. Many early adopters of the ghost kitchen concept in 2019 were national or international chain restaurants with the kind of reach and influence that will compel other establishments to take similar steps. Chick-fil-A already rents space from DoorDash’s ghost kitchen facility. Starbucks has teamed up with Alibaba’s Heme supermarkets in China to run ghost kitchens out of the latter’s stores. The coffee giant is also building out its own express stores that will function largely as ghost kitchens for delivery orders. Fat Brands is using its own kitchens to double as ghost kitchens for sister brands.

All of which is to say, many brands will create many iterations of the ghost kitchen concept in 2020. As we move though the next 12 months, which types of ghost kitchens (commissary, in-house, etc.) make the most sense for which brands will become clearer. 

Restaurant brands will compete with their kitchen providers.
Both large chains and virtual restaurant concepts will quite possibly find a new competitor in 2020: the folks renting out the kitchen space they use.

Much like grocery stores display their own brand of pasta on the shelves along side CPG brands (or, for a more web-friendly parallel, Amazon has its own Amazon Basics brand), ghost kitchen providers will start to use their facilities to house their own virtual restaurant concepts that compete with those of their tenants. 

This is already happening. Travis Kalanick’s CloudKitchens startup, which operates a network of ghost kitchen facilities, provides space for brands like Sweetgreen to fulfill off-premises orders. It also houses its own virtual brands like Excuse My French Toast and B*tch Don’t Grill My Cheese. 

Not all kitchen providers will take this route. For example, Kitchen United said recently it did not want to be a restaurant itself.

But for many kitchen providers, offering their own virtual restaurants allows them to own yet-another piece of the restaurant stack and therefore more revenue and the all-important customer data. And as more and more non-restaurant food brands, from diets to celebrity chefs, try out virtual concepts, launching a virtual restaurant will (in theory, at least) get simpler for these kitchen providers to do without incurring much additional overhead. No, B*tch Don’t Grill My Cheese won’t stand a chance against a big brand like Chick-fil-A if a customer is really craving those waffle fries, but in the future, the two entities won’t be working out of the same ghost kitchen facility anyway.

Which leads us to our next point.

Third-party delivery services will open more kitchens. Big brands will follow.
Remember above when I said we’ll see an explosion of big-name restaurant brands adopting the ghost kitchen model? At some point in the future, most of them will be doing it out of kitchens run by third-party delivery services like DoorDash and Uber Eats. That’s not because providers like Kitchen United don’t offer delivery options (they do), but because the delivery companies themselves are approaching the restaurant chains.

DoorDash is a case in point. When the third-party delivery service opened the doors on its own ghost kitchen facility in Redwood City, CA this year, it had four existing restaurant chains onboard — all of whom it approached because the company had user data that said people were looking for that type of food in the California Peninsula area. Chick-fil-A soon signed a lease for exactly the same reason.

This is almost a no-brainer. Restaurants already working with delivery companies use these services for things like marketing, technical fulfillment, and last-mile logistics. Adding kitchen space to the stack seems almost a foregone conclusion.

The other thing ghost kitchens are likely to encounter at some point in 2020 is a reality check. At the moment, optimism is flowing into the sector alongside the millions in capital companies are raising. Soon enough, though, the questions will start pouring in. Who gets to own the customer data? Can ghost kitchens become sustainable or will they just pile more trash into the ocean via takeout boxes? Is the model actually profitable, and for whom? Expect these and many other questions to surface in the next year as the ghost kitchen goes mainstream. 

Food Delivery Got Really, Really Messy in 2019. That’s a Good Thing

Roughly this time last year, talk around the future of restaurant food delivery screamed promise and progress. Funding and acquisitions abounded. Valuations skyrocketed, and by mid-year, third-party food delivery apps were projected to have 44 million U.S. users by 2020. 

That number hasn’t changed, but a heck of a lot else did, and somewhere along the line, the rose-tinted glasses through which the industry viewed food delivery came off and reality set in. In case you hadn’t heard, reality is a messy business. At the close of 2019, food delivery is even messier, mired in regulatory battles, bad press, and questions around profitability that grow louder each week.

None of this means third-party food delivery is dying. All of it plays a crucial role in moving the discussion forward about food delivery — what it is now and what it should become going into 2020.

Before we go forward, here’s a quick look back:

Third-party Delivery Opponents Got Stronger and Fought Harder

Largely speaking, there weren’t many detractors — at least not vocal ones — of third-party delivery services like DoorDash, Grubhub, etc. at the start of 2019. While some chains, notably Jimmy John’s, opted out of third-party delivery, we saw more deals struck in the first half the year than questions raised. 

DoorDash serves as a good example of the sentiment around third-party delivery in the first half the year. DoorDash became the first delivery company to offer service in all 50 U.S. states. It also struck lucrative deals with high-profile restaurant chains left and right. And there was its valuation, which kept ballooning with each new funding round, eventually eclipsing $12 billion. 

The other major services also had their fair share of lucrative deals and high valuations. Uber Eats nabbed a “preferred” delivery partnership with Starbucks. Postmates raised millions ahead of its IPO (more on that in a minute). Grubhub, too, made a slew of deals with high-profile restaurant chains, including Taco Bell and Dunkin’.

Then things started to get tense. In June, an oversight hearing held in NYC called into question the high fees Grubhub and other companies charge restaurants for use of their services.

From there followed one controversy after another: antitrust investigations, ethically questionable tipping policies, plummeting stock. More recently, California passed Assembly Bill 5, which reclassifies gig workers as employees and undercuts the entire model on which third-party delivery is built. DoorDash and Uber, among others, have vowed to fight back in 2020.

We can certainly expect that battle to take place. But if events in 2019 taught us anything, it’s that no matter the front it chooses to fight, third-party delivery companies will find more than one opponent lying in wait. 

IPO Fever Cooled Down

Of the big four third-party food delivery companies, Uber, Postmates, and DoorDash were all said to be moving towards IPOs in 2019. (Grubhub IPO’d back in 2014.) However, Uber was the only one of them to actually follow through and go public — then subsequently racked up billions in financial losses. The company’s most recent earnings call saw some improvement: roughly $1 billion in losses in Q3 versus $5.2 billion in Q2. But it’s still $1 billion in losses.

Postmates, meanwhile, confidentially filed for an IPO in February but was at last check in talks to find a potential buyer after laying off staff and shuttering its Mexico City operations. DoorDash may be pursuing an IPO for 2020. Or it may be pursuing a direct listing, largely to avoid some of the scrutiny that comes with debuting on the public market. After all, profitability remains very much a question mark for third-party delivery companies, and IPOs in general fizzled this year, leaving even more questions about them for next year.

Hybrid Delivery Heated Up

Earlier this year, I wrote that “there are now more ways for restaurants to do delivery than the two extremes of pay for your own fleet or sign up with a third-party service.”

That middle ground gained, eh, ground in 2019 thanks to the rise of hybrid delivery strategies, where delivery orders originate through the restaurant’s own app and third-party services are used only for last-mile fulfillment. Some chains, notably Panera, are using an inverse version of this strategy, sending orders through third-party apps but handling the last mile themselves. 

There are even variations on those variations, but they all hint at the same thing for the future: the delivery stack — tech, operations, the all-important customer data — won’t rest in the hands of one but many for some time yet.

Progress, as George Orwell once wrote, is “slow and invariably disappointing.” The market for third-party delivery may be mired in confusion and controversy (of its own making in some cases), but, as I said before, that doesn’t spell the end for the model. In fact, third-party delivery is still expected to account for 70 percent of delivery orders in 2022.

In the near future, though, expect this area of the food industry to get messier, raise more questions, and incite more regulatory battles as it progresses towards normalization.

Snackpass Raises $21M Series A Round for Its Order-Ahead Food App for Students

Order-ahead food app Snackpass has raised $21 million in Series A funding in a round led by Andreessen Horowitz with participation from First Round, General Catalyst, YCombinator and Inspired Capital. The round brings total funding for Snackpass to $23.7 million.

Snackpass was founded in 2017 at Yale University. Though the company has since relocated headquarters to San Francisco, its focus, for now, remains on college campuses. The app is currently available at 11 schools around the U.S., and Snackpass said in a press release it will use the new funding to expand to 100 campuses over the next two years.

With the app, Snackpass users can order and pay for food then pick it up at the restaurant. (There is no delivery functionality at present.) Where the company sets itself somewhat apart from the food app pack is with its social features and loyalty program. Users earn loyalty points that can be redeemed for free food, either for themselves or friends. The latter highlights the social aspect that’s a major centerpiece of Snackpass’s strategy. Built into the app is a Venmo-like feed where each purchase a user makes shows up and where people can communicate with one another, get restaurant recommendations, and send gifts (i.e., free food).  

This emphasis on creating a community within the app is one of the reasons Snackpass has been able to maintain something other food delivery apps struggle with: a loyal user base. Third-party delivery may be on track to have 44 million U.S. users in 2020, but most of those people hop between apps, more interested in finding the best deals on food than claiming allegiance to, say, DoorDash versus Uber Eats. 

A loyalty program, which is different from subscription models many of the big-name food delivery apps offer, is also key to keeping Snackpass users coming back. The company claims a 75 percent penetration rate among students within six months of being on a college campus. The service can also sync with students’ campus meal plans.

Right now, college campuses are fertile grounds for testing new approaches to food delivery. Though unique, Snackpass is hardly the only app out there catering to students. Earlier this year, food delivery app Good Uncle was acquired by Aramark, a longtime food services provider for colleges and universities. In 2018, Grubhub acquired Tapingo, an order-ahead app for college students that’s at 150-plus schools.

Those are only a couple names in the pack. DoorDash, Allset, and others are also making their way to schools in the U.S., and the competition for college students will intensify as we head into 2020. The new funds, as well as having a name like Andreessen Horowitz in their court, will hopefully give Snackpass enough financial and operational muscle to stay in the center of that competition.  

Newsletter: What Comes Next for Ghost Kitchens? Plus, Third-party Delivery and At-home Agtech

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I’m not gonna lie: putting together our market map on ghost kitchens was hard. The concept as we know it is relatively new, and the lines between the different categories of ghost kitchen might be easy enough to draw in a graphic but are never as solid in real life. For example, CloudKitchens provides kitchen space but it’s also a network of virtual restaurants. Starbucks runs its own kitchens but relies on Alibaba’s Heme supermarkets to provide the space. Grubhub, Uber Eats, and DoorDash deliver food but also operate in other areas of the stack.

That overlap, though, is a big part of what makes this area of the restaurant industry such an interesting one to watch. Not only is the 2019 ghost kitchen redefining the restaurant experience as we know it, it’s also redefining the way restaurants operate, the technology they use to do that, and even what their menus offer in any given area. Fat Brands, for example, uses Fatburger locations on the West Coast to also fulfill delivery-only orders for sister brands that would normally only be available to customers in the East. 

As we head into the next year, we can expect the overlap of companies and categories to increase as more multi-unit chains try their hand at ghost kitchens, more kitchen infrastructure providers try out their own virtual restaurants, and literal mobility (kitchens on wheels) becomes more commonplace. 

Head over to The Spoon for more predictions on what comes next for ghost kitchens (RIP POS?) and to download the map. And since this is such a nascent market that changes weekly, expect more iterations of this map to hit your inbox in the future.

Third-party delivery is staying put. Sort of.
It’s no secret that consumer appetite for delivery is driving the growth of off-premises orders. And while they may be controversial, third-party services like DoorDash and Postmates are a big part of this growth.

The biggest part, by some accounts. This week, CBRE Group noted in a new report that 70 percent of delivery orders will come from third parties by 2022. That’s a no-brainer. These services provide the tech infrastructure, logistics, and actual drivers that are often too expensive for restaurants to operate on their own. Third-party delivery may be expensive for restaurants and paddling through a sea of bad press lately, but it is in many ways necessary for businesses who want (need, actually) to offer off-premises ordering for customers. 

Like ghost kitchens, this is a messy, fast-changing market whose model will continue to evolve as restaurants adopt hybrid strategies and new laws are passed regulating how these companies do business.  

At-home vertical farms: Big convenience or big expense?
If you still prefer the old-fashioned method of actually cooking food for yourself, Miele’s latest news will be of some interest. As my colleague Chris Albrecht reported this week, the German appliance-maker known for everything from washing machines to coffee systems has acquired Agrilution, a Munich, Germany-based agtech startup known for its Plantcube indoor vertical farm. 

As Chris notes, the Plantcube looks like one of those at-home wine fridges, and like any vertical farm uses software to regulate temperature, climate, water levels, and nutrient delivery to crops. The system grows a variety of leafy greens and fits right inside your existing kitchen infrastructure. 

Question is, Do people want vertical farms built into their kitchens?

Potentially.

No, setting up a grow system in your home is not as convenient as buying a bag of kale from the store. For those so inclined, though, an at-home vertical farm like Agrilution’s means being able to pick fresh, better tasting ones right out of their own cabinetry. Those living in dense urban areas, where the fire escape is the closest thing to outdoor space, could have an actual at-home garden.

First, though, we have to get over the cost hurdle. Right now, price points of various at-home vertical farming systems go for anywhere between roughly $500 (Ponix Systems) and $3,000-plus (Miele). What we don’t have is abundant data on how much these farms cost consumers in terms of electricity, water, or repairs if the system breaks down. There is also the issue of space. Agrilution’s Plantcube may fit nicely into the under-counter space of a single-family home in Nashville. Your average New York apartment, on the other hand, would be hard-pressed to accommodate one.

Still, it’s a great sign that a major appliance-maker like Miele is showing interest in getting cabinet-to-table greens to more homes in the future.

Until next time,

Jenn