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Daily news and analysis about the food tech revolution

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The Wonderful Company Wants New Innovations for Its 50,000 Tons of Pomegranate Husks

The Wonderful Company, best known for its pomegranate juices, is ready to infuse some cash into creative reuses of its pomegranate biomass.  

Today, the company launched its Wonderful Innovation Challenge. The competition will offer “up to $1 million” in funding and development resources to those with “pilot ready solutions for the 50,000 tons of pomegranate husks generated each year by juicing POM Wonderful pomegranates,” according to a press release sent to The Spoon. Food waste nonprofit ReFed will serve as a strategic advisor and managing partner for the competition. 

The pomegranate husk, also known as pomace, consists of the fruit’s pulpy remains after it has been crushed and its juice extracted. On the competition’s website, The Wonderful Company says the pomace is usually sold as dairy feed but “recent shifts in the market have prompted the exploration of new, alternative outlets.”

To find those alternative outlets, Wonderful’s new competition is looking for companies with ideas that are ready to pilot and backed by “a data-driven business model.” The tools, technologies, and processes companies can use is fairly open-ended: the competition only notes that concepts should demonstrate potential for positive environmental or social impact. 

Chosen winners get funding from a $1 million reward pool, as well as assistance in developing their concepts. Applicants should request the amount they will need to develop their pilots when they submit their ideas.

Wonderful is the latest company to join the movement for upcycling the inedible parts of food items, and in the last several months, we’ve seen many creative ideas come out of this movement. It joins companies like Renewal Mill, who is currently making cookies from upcycled okara flour and Harmless Harvest, a company turning leftover salmon skin into snacks. Major corporations are also getting involved. For example, researchers at the University of Toronto Scarborough turning McDonald’s deep-fryer oil into 3D-printing resin.

Innovations in upcycling increase as the conversation around the world’s food waste problem gets louder. As we discussed in a recent Spoon Plus report, solutions for fighting food waste now come in all different shapes and sizes. While Wonderful’s new competition specifically focuses on food scraps that can’t be eaten, it joins other companies and organizations in the urgent fight to keep food out of landfills.

Tech has a potentially big role to play in the process of upcycling inedible food scraps, and we’ll doubtless see some of it surface in Wonderful’s competition. 

The application process is open now and runs to Dec. 7, 2020.

Time to Recirculate the To-Go Cup Debate

Since we now live in a world where the to-go order is the main attraction at restaurants, we need to start treating the issue of excess single-use packaging with a whole lot more urgency.

Clearly I’m not the only one to have that thought, as two major QSR chains made sustainability announcements of their own this week. Both are aimed at reducing the amount of plastic that winds up in landfills and the ocean — no small feat considering the billions of single-use cups, straws, and containers we throw out each year, thanks in no small part to the convenience-driven delivery and to-go craze. 

On Thursday, Starbucks, sent out an update saying its “strawless lids” are now “the standard for iced beverages” at stores in the U.S. and Canada. The lids use roughly 9 percent less plastic than the normal lid-and-straw combo. The rollout of these lids applies to company-owned and licensed Starbucks stores, and is expected to be completed by the end of the month. Straws will still be available upon request. 

It’s an important milestone, especially considering Starbucks is arguably responsible for the populace’s current fixation with fancy drinks in plastic or plastic-coated cups. But it doesn’t actually remove single-use plastics from equation.

The latest initiative from McDonald’s does. This week, the company announced a partnership with zero-waste platform Loop to create a reusable cup program at McDonald’s locations in the UK. Users can opt for a reusable cup, for which they leave a small deposit that’s retrieved when they return the cup. Loop collects the empties, washes and sanitizes them, and puts them back into circulation. The concept is reminiscent of Dishcraft Robotics’ “dishes-as-a-service” model, which recently added reusable takeout containers to the items it collects, washes, and returns to the foodservice loop.

The obvious drawback here is that putting down a deposit at McDonald’s and then taking the time to return the cup is inconvenient. Inconvenience doesn’t sell with many consumers these days (which is another separate issue itself). 

A reusable cup system is, however, a bolder move than simply reducing plastic, and bold moves are what we need right now to get excessive packaging out of the foodservice world. That the McDonald’s pilot is coming from a multi-billion corporation with a $4 billion digital business is encouraging. But to become widespread, the entire restaurant industry is going to have to pitch in, from the major chains and supply companies to delivery services, mom-and-pop stores, and consumers themselves.

That’s no small ask at a time when the restaurant industry is utterly crippled from the pandemic and small chains and independent restaurants are permanently shuttering at an alarming pace. But with off-premises orders being the future of restaurants for the foreseeable future, no one can afford to shelve the glaring issue of single-use packaging for much longer, not without risking further environmental consequences.

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Zomato Raises $100M, Plans IPO

Zomato, one of India’s largest food delivery services, announced this week it has raised $100 million from Tiger Global and is preparing for an IPO in 2021.

The news is just another layer of development to what’s been a very busy year for Zomato. The company bought Uber Eats’ India business in March, raised a $5 million Series J round in April, and unveiled a grocery delivery service in the same month. It had to cut 13 percent of its workforce in May (thanks, pandemic), but things are clearly looking up for the service, as it raised $62 million from Temasek and just days ago said in a blog post that “recovery trends are strong.”

A prospective IPO is another sign of that recovery. In a letter to employees reviewed by TechCrunch, Zomato co-founder and CEO Deepinder Goyal set “sometime in the first half of next year” as a timeline for said IPO. At the moment the company has “no immediate plans” on how it will spend the investment from Tiger Global, if it spends it at all. Goyal called the cash a “war-chest” for future M&A and for fighting price wars from competition.

Given that Zomato competes fiercely with Swiggy for the Indian food delivery market, and given the consolidation the entire third-party delivery industry is undergoing, having a war chest doesn’t seem like a bad move right now.

Restaurant Tech ‘Round the Web

Fast-casual chain Sweetgreen this week launched Collections, a new digital-only menu available through the restaurant’s app and website. According to a press release sent to The Spoon, menu items are curated according to specific themes and dietary preferences/restrictions, and will make recommendations that are unique to each individual customer.

Order-ahead platform Allset has teamed up with digital ordering platform Olo to streamline the pickup order process for participating restaurants. Olo’s system lets restaurants manage menus, pricing, and order fulfillment across multiple third-party platforms, thus creating fewer manual workflows for restaurant staff.

Starting Sept. 30, NYC restaurants will be allowed to operate indoor dining rooms at 25 percent capacity. The announcement, made by Gov. Andrew Cuomo this week, comes just as the city gears up for the colder days ahead that will limit outdoor seating for most businesses.

McDonald’s Partners With Loop to Pilot Reusable Packaging

With the restaurant industry currently being reinvented with to-go-first experiences in mind, there’s cause to worry that the shift will add even more single-use cups, straws, and boxes to our already bulging landfills. So it makes for a small silver lining that McDonald’s today announced a partnership with Terracycle’s zero-waste platform Loop to pilot a reusable cup model.

The program will first be trialed at select McDonald’s in the UK in 2021. For a small deposit, customers will get a reusable Loop cup for their hot beverages. The deposit can be redeemed by returning the cup to any participating McDonald’s location, according to today’s press release. Loop will retrieve the used cups, wash them, and return them to the cycle.

As to whether this reusable cup program will make its way to the States, a McDonald’s spokesperson said, “The feedback collected through these packaging trials will help inform which options are scaled up or adopted in other countries around the world.”

Loop’s main business lets customers shop online for grocery, household, and beauty products from well-known brands, then get them delivered in packaging. Living up to the platform’s name, Loop  retrieves and cleans the empty containers once a customer is finished, and the cycle starts again. The company currently has partnerships with Häagen-Dazs, Tropicana, Nature’s Path Organic, and several well-known personal care brands. The service is available in select U.S. cities and is in the process of expanding to more places, including international locations.

The McDonald’s partnership comes at a time when the fight for a more sustainable restaurant has to co-exist alongside the fight against COVID-19. Some chains, notably Starbucks, have banned reusable cups for the time being, (understandably) citing safety concerns. But the sustainability issue can’t be put on hold for long, particularly since the increase in to-go orders could eventually equal an alarming increase in trash, too.

Whether you love big restaurant chains or fear they’ll be the only ones left after the dust from the restaurant industry upheaval settles, it’s worth acknowledging that they’re typically the ones with the deep enough pockets to invest in new forms of to-go containers. For its part, McDonald’s has already piloted other circular solutions for cups, including the Recup system in Germany and the chain’s participation in the NextGen Cup Challenge in the U.S.

Earlier this year, the company also completed construction on its first “net zero energy-designed restaurant” in Florida. At the time of that news, I wrote that billion-plus-dollar restaurant chains like McDonald’s, Chipotle, etc. are the ones that need to take the lead in writing the playbook for sustainability in the restaurant. Smaller restaurants — the ones that have managed to survive the fallout — still struggle to remain open, so it seems unreasonable right now to ask them to also reinvent the paper cup. 

McDonald’s, on the other hand, has a $4 billion off-premises business and a recent track record that’s heavy on the innovation front. Using some of those dollars and resources to create a more sustainable restaurant experience seem the next logical step. 

Winter Is Coming for Outdoor Dining, So Get Going With Off-Premises

In further proof that you can’t solve the current restaurant industry crisis by flipping a switch, Upserve released new data this week that shows many restaurants are still struggling with off-premises formats.

Upserve’s survey polled 421 players across different types of restaurants, including full-service/dine-in, fast casual, QSRs, and fine dining, among others. The big takeaway? More than half (64 percent) of restaurants feel “optimistic” about the future, but nearly half (47 percent) struggle with shifting their business models to online ordering and the formats that come with it.

We’ve seen this play out in real time for better and for worse throughout the last several months. Restaurants historically focused on dine-in service have had to pivot to delivery and curbside pickup, not to mention find affordable tech solutions that could enable online ordering. Businesses have struggled to master off-premises operations. They’ve gotten really creative with ad hoc tech stacks and worked much harder to communicate with their customers. And most all of them have seen a rise in off-premises orders. Upserve’s report said that as of July, its restaurant customers “have seen a 782.7% increase in Online Order sales volume growth.”

But Upserve also points out that autumn is practically upon us, and once colder weather comes, the option for outdoor seating will go away, not just for its own customers but for everyone. “It’s key that restaurants find an online ordering solution that works for their customers by the fall,” the report said.

The call to action for all restaurants right now is to get their off-premises strategies fine-tuned, streamlined, and operationally efficient, regardless of the trajectory of the pandemic or the future of indoor dining. Even if indoor dining returns in some form close to what we used to know, its chances of unseating off-premises at this point are slim to none.

Here’s Why Delivery Price Hikes By QSRs Could Spike Demand for Drive Thru

Admittedly, I brushed over news from earlier this week that some QSRs are raising their delivery prices more than 15 percent. But the more I’ve thought about it over the last few days, the more I wonder at two things: the chains’ motivations behind the price hikes and whether they’ll prompt more customers to order drive-thru and pickup to save a few bucks. 

Business Insider first wrote about the price hikes, noting that Chick-fil-A’s prices are 30 percent higher for delivery, while Starbucks and McDonald’s prices are about 20 percent higher. My own unscientific analysis compared the costs of McDonald’s double quarter pounder with cheese meal and found it to be $9.19 on Uber Eats versus $7.99 via McDonald’s own app. (Both prices are before taxes, delivery fees, and tip.)

That example is arguably not going to break the bank. But consider that since more people are staying home and ordering for the whole household, delivery orders are likely much bigger than a single meal, which could significantly raise the cost of dinner. 

Of course, part of the reason for these price hikes is that large chains, just like small restaurants, have to pay the third-party delivery piper when it comes to commission fees, which can go as high as 30 percent. Passing some of that burden on to the customer makes sense from a business perspective.

Question is, will customers want to shoulder that delivery burden when they could hop in the car, drive a couple miles, and collect their food via curbside pickup for cheaper? In many cases, probably not. For one thing, a lot of food from QSRs just doesn’t travel well and you typically wind up with soggy fries, watery soda, and lukewarm burgers. For another, we’re in economically uncertain times, y’all. 

Given all that, more customers will be motivated to order their fast food via pickup and drive thru, which may be part of these chains’ longer-term strategies in terms of price hikes. Restaurants make more money off pickup orders (no commission fees), and when orders are funneled through the business’s own digital properties, the customer data remains in-house. Over the last year we’ve seen an uptick in brands encouraging customers to order via in-house apps, while others are even launching their own full-stack delivery services. 

Price hike’s won’t take third-party delivery down, but if customers respond by choosing pickup, curbside, and drive-thru, the loss of business will be another swing of the hammer currently trying to crumble third-party delivery’s chances of profitability. 

Elsewhere in Restaurant Tech . . .

  • Iconic hot dog chain Nathan’s Famous has partnered with REEF to use the latter’s ghost kitchen network to fulfill more off-premises orders. The partnership is now in Manhattan, and Nathan’s has cities like LA, Portland, and Minneapolis on the horizon. 
  • Yum Brands’ digital sales hit an all time high of $3.5 billion in Q2 of 2020. The parent company of Taco Bell, KFC, and Pizza Hut notably said on the call that opening dining rooms was important but not “critical” to the company’s success. 
  • Sonic unveiled a new drive-thru design that’s further proof the drive-thru experience is also being reinvented. Contactless order and payment capabilities, expanded patio areas, and “lawn games” (?!) are all part of the new design.
  • Oakland this week became the latest city to approve a cap on commission fees third-party delivery services charge restaurants. The 15-percent cap is effective immediately and last until 90 days after the COVID-19 health emergency is over. Whenever that is. 

Denny’s Off-Premises Sales Have Almost Doubled Thanks to the Pandemic

Denny’s announced on its Q2 earnings call this week that average weekly sales for off-premises orders have almost doubled since the start of the pandemic, from $4,000/week in February to $7,900/week in July.

Like other restaurants that have historically been known for their in-dining room experiences, Denny’s found itself having to quickly pivot when the pandemic hit. Speaking on the call, John C. Miller, CEO of the Spartanburg, S.C.-based chain, outlined the ways in which his company has adapted to the changes.

Those efforts included continued focus on Denny’s long-established Denny’s on Demand platform, which allows guests to place online orders for pickup and delivery. (The chain’s menu is available through most of the major third-party delivery services.) Like others, it also added curbside pickup and, once stay-at-home restrictions began to loosen, converted areas of its parking lots and sidewalks into outdoor seating.

The reinvention of the restaurant menu is another common theme to emerge from this pandemic. And by reinvention, I mean pared down selections that allow kitchens to work more efficiently. Denny’s was no exception here, having streamlined its own menu to focus on its most popular items, and offering family-style bundles, as well.

If Denny’s story of off-premises orders saving the day sounds familiar, that’s because it’s the state of most major restaurant chains the U.S. right now. McDonald’s said it made 50 operating changes to get “pandemic ready,” many of them around digital ordering and off-premises orders. Starbucks, which saw one of its toughest quarters so far, is completely overhauling some traditional sit-down locations and turning them into to-go-centric stores. 

Denny’s itself has permanently closed some of its sit-down locations due to “unforeseeable business circumstances prompted by COVID-19.”

“This quarter has proven to be one of the most difficult quarters this country and especially the full-service restaurant industry has ever seen,” Miller said on the call. And there’s no telling what Q3 will look like, since the state of the restaurant industry changes practically every day and full recovery is dependent in part on the trajectory of the pandemic.

Black Box Intelligence: Full-Service Restaurant Sales Slumping, Off-Premises Still on the Rise

As the number of COVID-19 cases spikes in multiple states, full-service restaurant recovery has slowed, according to new data from Black Box Intelligence in a story by Nation’s Restaurant News.

Black Box, a Dallas, TX-based restaurant analytics firm, said as COVID-19 cases rise and new restrictions set in place (see California), dine-in sales at restaurants have decreased. 

Part of the reason for that is the number of restaurants actually open for dine-in service. “After a steady climb since the end of April, the percentage of restaurants existing in the pre-COVID era that are now open for dine-in has plateaued around 87% for the last three weeks,”said Black Box.

This shouldn’t surprise too much. In the last few weeks, major chains like McDonald’s have halted their reopening plans for dining rooms and some states have either reduced capacity or ordered in-house service to stop altogether. 

Also not surprising: off-premises sales are increasing for quick-service and fast-casual restaurants. Black Box said that while off-premises sales had been slowing as restaurants reopened, “that trend has now been reversed in the last three weeks.”

This new data comes on the same week Yelp released its latest Economic Average Report, which found that 60 percent of businesses that have closed are now shuttered permanently. 

None of that makes for a very positive outlook for many independent restaurants used to relying on dine-in service that don’t have the dollars of a major chain to invest in off-premises. Starbucks or Chipotle, for example, may have the bucks to pivot their models to new, to-go-friendly formats that ensure sales. The future is much less certain for your favorite mom-and-pop joint, though.

Whether sales at full-service restaurants gain momentum again depends a lot on the trajectory of the pandemic. Judging from the latest numbers around the latter, dining room sales will likely stay down for some time to come.

The Sustainable Restaurant Needs Big Chains Right Now

A worrying point that comes up a lot in conversation these days is that sustainability has taken something of a backseat while food businesses scramble to fight the pandemic. So it was encouraging to read this week that burger chain behemoth McDonald’s is continuing its sustainability initiatives and just completed construction on its first “net zero energy-designed restaurant.” 

An email sent to The Spoon this week outlines what this “net zero energy” restaurant looks like in practice. The store is located on the Disney World property in Orlando, Florida. Among other things, it includes a solar-paneled roof, photovoltaic glass panels around the building, and an automated energy system and passive ventilation dining-room to circulate air and regulate temperature. There are also interactive elements, such as stationary bikes that produce electricity and tablet games for kids to learn more about sustainability.

But hold on. Said bikes and tablets aren’t available just yet. McDonald’s said in its email that the new location is open for drive-thru and delivery, but like other McDonald’s stores in the U.S., its dining room remains closed. Florida being one of the new coronavirus hotspots, this will probably be the case for some time.

The biggest takeaway here, though, is not about the tech-forward energy systems in place or even the giant Golden Arches made of shrubbery (see photo). It’s that McDonald’s pushing forward on sustainability initiatives is even more important right now, during a pandemic, than it would have been a year ago.

Why, you ask? Because at the moment, the restaurant industry is collapsing around us. Data from OpenTable recently suggested that one in four restaurants will go out of business permanently because of coronavirus shutdowns. For the ones that remain open or plan to open, the majority of them are struggling to even pay the rent. One can’t reasonably expect them to also use what little margins they have to develop ways to make the restaurant biz less damaging to the planet. 

But someone’s gotta do it. Otherwise we’re going to emerge from this pandemic only to find ourselves buried in an inescapable pile of to-go containers and with no clear plan on how to make sustainability cheaper and easier for all restaurants. 

That means big chains with billion-plus-dollar digital businesses must continue their sustainability initiatives, pandemic or no. Just like Amazon will invariably influence other, smaller e-commerce retailers, the moves massive chains like McDonald’s, Starbucks, etc. take always have at least some effect on the smaller restaurant players. If the pandemic ever subsides enough to let some of the dust from the fallout settle, a lot of businesses are going to need help pulling their sustainability goals back on track. Those that can afford to need to start writing that playbook now.

Uber Had a Busy Week

On Monday, Uber announced it was buying Postmates for $2.65 billion. The delivery service quickly followed that news with an announcement that it is also is starting grocery delivery in the U.S. as well as parts of Latin America and Canada through its stake in Cornershop. 

Put ‘em together and whad’ya got? A lot more competition for Uber to contend with. 

The pandemic has blurred some lines between grocery and restaurant over the last couple months. But each sector still undoubtedly has its major players. In the world of restaurant food delivery, that includes DoorDash, which still holds the largest marketshare in the U.S. It also includes Grubhub, which Uber tried to acquire but who instead got snapped up by Just Eat Takeaway.com. Combined, Grubub and Just Eat Takeaway.com will form the largest food delivery service in the world outside of China.

Over in grocery, Instacart has raised over $2 billion, and the Big Big guys like Amazon and Walmart have robust online grocery services that got many folks through the pandemic.

Uber’s simultaneous moves to expand its reach with Eats as well as diversify with grocery speak to the boost the company is trying to give its food business now that the pandemic has decimated its rideshare business. Uber posted a loss of $2.94 billion for the first quarter of 2020 and also cut staff in the recent past. But its Eats business is growing, according to first-quarter numbers. The Postmates acquisition will give Eats a bigger footprint in key cities like Los Angeles (where Postmates is the number one service). Meanwhile, online grocery is still in high demand, and with coronavirus cases still hitting new records, that demand is unlikely to change anytime soon. Now we’ll have to see if Uber can handle the competition in both the grocery and food delivery sectors.

Automation’s Next Stop? The Ghost Kitchen

Two things the restaurant industry will see more of in the near future: ghost kitchens and automation. And if The Spoon’s fireside chat yesterday is any indication, we’ll see more of both in the same place.

Yesterday, Spoon Editor Chris Albrecht discussed the state of restaurant robotics with Linda Poulliot, CEO of Dischcraft Robotics, and Clatyon Wood, CEO of Picnic. While the group covered a wide range of topics in terms of when and how we’ll see robots in the restaurant, one of the most interesting takeaways was that these machines could speed up the order fulfillment process for many businesses while also ensuring a higher level of sanitization and better ways to keep workers in the kitchen socially distanced. 

Wood, who indicated the ghost kitchen market is a lucrative one for robotics right now, at one point suggested a hub-and-spoke model where a machine like Picnic’s could prep food in a central kitchen before sending it out to smaller ghost kitchen operations for final fulfillment of orders. 

My bet is that we’ll see more of this kind of efficiency in the near future. While they would never work in a fine-dining setting, where the experience is as much about the food preparation as it is the food, this utilitarian approach to food prep makes sense for quick-service restaurants and delivery-only concepts that are all about making fast food faster.

You can tune into the video from the event by heading over to Spoon Plus. Members get access to this and past fireside chats, as well as premium reports, interviews and exclusive research.  

This is the web version of our newsletter. Sign up today to get updates on the rapidly changing nature of the food tech industry.

ConverseNow Raises $3.25M for Its AI-Driven Restaurant Ordering Platform

Restaurant tech startup ConverseNow announced this week it had raised a $3.25 million seed funding round for its platform that uses AI to automate the process of ordering food. The round was led by Bala Investments with participation from LiveOak Venture Partners, Tensility Venture Partners, Knoll Ventures, 2048 Ventures, Bridge Investments, and Delphi Display Systems’ CEO Ken Neeld. It brings ConverseNow’s total funding to date to $3.3 million. 

ConverseNow’s CEO Vinay Shukla says part of the Austin, TX-based company’s new funds will go towards improving the AI that powers its platform. 

That AI allows restaurants to automate and personalize the ordering process for customers. Restaurants can integrate it across multiple sales channels (drive-thru, mobile app, etc.) to increase things like order accuracy and make better personalized recommendations based on a customer’s order history and other data. The platform integrates with restaurant POS systems as well as back-of-house kitchen displays.

AI is a hot topic when it comes to speeding up service and improving order accuracy in the restaurant. McDonald’s put the conversation squarely in the spotlight last year when it acquired Dynamic Yield and installed the company’s AI tech in its drive-thrus. Starbucks has in the past claimed AI is “a very important part” of its overall strategy. And a survey from the end of 2019 found that 71 percent of customers are “amenable” to having more AI in their restaurant experience.

If the same survey were given now, that figure would probably be higher. The COVID-19 pandemic has forced most restaurants to pivot to off-premises orders, and even as dining rooms slowly reopen, states’ guidelines recommend keeping to-go meals a priority. That in turn will mean more people going to the drive-thru and ordering via off-premises channels such as websites, mobile apps, and even the good old-fashioned telephone.

The other plus of AI right now is its ability to increase contactless ordering and payments. In the restaurant tech stack, it’s the tools that can offer more seamless ways to provide these things that will provide the most value.  

ConverseNow said in the press release that its tech is already being used by “leading QSRs.” In addition to improving its AI platform, the company will also use the new funds to improve customer acquisition. 

Welcome to Burger King. Did You Have a Reservation?

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Things I never thought I’d live to see: a global pandemic shutting down the economy, the McDonald’s snuggie, and fast food restaurants requiring reservations to dine in. But with the restaurant biz on the brink of catastrophic meltdown and businesses slowly reopening under strict social distancing practices, we can expect lots of new versions of the on-premises experience over the next few months — and probably a total redefining of what it means to be a restaurant. 

News landed this week that Burger King is testing an app for dine-in reservations at three stores in Milan, Italy that are expected to fully reopen on June 1. Reuters reports that the app lets customers order food and book a table before ever setting foot in the restaurant, which will operate at less than half its pre-pandemic capacity. During peak hours — 12–2 p.m. and 7–9 p.m. — roughly one-third of those tables will be reserved for customers using the app.

The company says it expects the new booking system to keep its revenue stable in the face of reduced in-house seating. Previously, BK in Italy got about 70 percent of its revenues from dine-in customers. Social distancing won’t allow for that now, and BK said it hopes to make up some of those lost sales with drive-thru.

Reservations are one way to keep crowds at bay in QSRs. Another is to build social distancing features into the actual store layout and operations, as McDonald’s has done in The Netherlands. The mega-chain is trialing a few initiatives at one store in the city of Arnhem, including table service, where burgers are delivered on trolleys, designated waiting spots for the line, and hand sanitizing stations at the store’s entrance. There may also be a host behind a plexiglass-shielded station, directing people where to stand in line.

There’s no word yet on whether this McDonald’s prototype will make its way to the U.S., though I wouldn’t be surprised if some social distancing elements wind up in the chain’s ongoing Experience of the Future store remodels. Burger King, meanwhile, has said if the trial of its app is successful in Italy, it could be used in other countries. 

And while QSRs are busy adopting features we’re most used to seeing at casual dine-in joints, the latter continues to adjust its format to be more to-go friendly. This was already happening B.P. (before pandemic). Now, sit-down restaurants are accelerating the addition of things like drive-thru lanes and self-service kiosks to keep business moving and socially distant at the same time.

All this suggests some seriously blurring lines between the normally siloed types of restaurant experiences. Going to a McDonald’s might suddenly feel like a more formal affair, while family dinner night at The Melting Pot might feel strangely casual without the usual person-to-person formalities. Tech tools that automate the order and pay process, and redistribute the tasks of servers, food runners, and cashiers, will only further change the now-fluid definition of the restaurant. 

We’re only at the start of things when it comes to these new dining out formats. Expect many more iterations of the restaurant to surface in the coming weeks. 

Grubhub Responds to Commission Fee Caps.

Meanwhile, I’d be remiss if I didn’t mention the ongoing smackdown between third-party delivery services and governments mandating caps on the commission fees these tech companies charge restaurants. That was a hot topic this week as more cities joined the list of those either considering caps or already implementing them. 

Grubhub responded this week via its Q1 2020 earnings call. CEO Matt Maloney said these fee caps force the company to increase fees for consumers, lessen marketing spend, and are ultimately resulting in fewer orders for independent restaurants. “Our preliminary data shows that on average, our independent restaurants are seeing over 10% fewer orders since the fee cap and many of these orders have shifted to a large brand or QSR restaurants that were not impacted by the emergency ordinance,” he said.

Note that he said “orders” not “revenues.” There’s no question that being on a platform like Grubhub makes a restaurant more visible to more potential customers. That in turn would hopefully fuel more orders for, say, your local pizzeria instead of Papa John’s.

But with Grubhub et al. taking an up to 30 percent commission of each restaurant transaction, more orders does not translate into significantly more revenues for restaurants. See this gem of a receipt, courtesy of one independent business, as proof of how little restaurants make on third-party platforms. 

On the call, Maloney said one-size-fits-all model “will not work.” And yet one independent restaurant owner who testified at a public hearing last week about NYC fee caps suggested there was virtually no negotiability when it comes to commission fees, suggesting Grubhub runs its own one-size-fits-all model when it comes to food delivery.

The debate around commission fees has been building momentum for some time. The pandemic has effectively stripped any remaining gloss off the facade of third-party food delivery and put its unsavory insides on full display. That the sector will need to make a pivot of its own if it wants to stay relevant seems more and more a question of “when,” not “if.” 

Amazon Returns to Restaurant Delivery. Sort of

But let’s end the week on a less-infuriating note, like Amazon running a makeshift third-party delivery service for restaurants in its corporate buildings. Drivers that used to transport the Seattle tech giant’s corporate employees are now running food from restaurant to customer, according to Eater Seattle.

Deliveries are contactless, meaning the restaurant packages up the order and sets it in the delivery driver’s trunk. Said driver then leaves the food on the customer’s doorstep. 

Once upon a time, Amazon ran a restaurant delivery service, which it shuttered in June of 2019. At the time, Amazon cited competition from the likes of Grubhub, Uber Eats, and other third-party delivery services. The new endeavor doesn’t appear to be a play by the company to get back into that space. Rather, it seems to be a temporary lifeline for local restaurants, not to mention a way to keep drivers who once ran corporate employees around working now that those employees are under stay-at-home orders.

On that note, have a good weekend, and don’t forget to tip your drivers.

Jenn

Most Restaurants Will Mimic Shake Shack’s Digital-Centric Store Format in the Future

Shake Shack is modifying some store formats to be more off-premises friendly as the chain prepares to reopen dining rooms. These “Shack Track” stores, as they’re being dubbed, will include things like walk-up windows and more drive-thru lanes meant to encourage increased digital ordering, according to the company’s Q1 2020 earnings call this week.

Shake Shack CEO Randy Garutti said on the call that the chain will start opening dining rooms regionally, though with reduced capacity to ensure social distancing guidelines are in place. There will also be fewer cashiers and kiosks in stores, and the chain plans to “shift guests to mobile and contactless pre-ordering.”

Hence the new store formats the company will test as it reopens restaurants. On the call Garutti also mentioned interior and exterior pickup windows and, where space permits, curbside pickup and drive-thru lanes, which is new for Shake Shack. The company has been testing these formats over the last several weeks while dining rooms remain shuttered. Garutti said the current pandemic has “reinforced how necessary and beneficial this strategy will be for Shake Shack.” 

It has also reinforced how necessary digital ordering and payments will be to the future restaurant experience in general. On that front, Shake Shack is better prepared than most restaurants. As of April 29, digital channels represent roughly 80 percent of total Shake Shack sales. Garutti said on this week’s call that digital sales are “very literally keeping us in business.”

The new store formats will encourage this digital preordering, and Shake Shack said it will continue to improve its digital properties and eventually integrate delivery into those interfaces, which means less reliance on third-party services Shake Shack currently has partnerships with. 

“Contactless” is definitely the buzzword du jour in the restaurant industry right now as businesses look to reopen while maintaining social distancing requirements. Not every restaurant has the cash or resources to double-down on expensive mobile apps made in-house, and so some are turning to restaurant tech companies for those digital capabilities.

Meanwhile, Shake Shack isn’t the only major chain tweaking its store format to fit our to-go-centric times. Chipotle was testing new store types long before the pandemic and will continue building those out. McDonald’s had to step on the brakes a little in terms of its Experience of the Future stores but will continue building some of those, as well. 

These redesigns matter because they could set standards for the rest of the industry in the future. Smaller chains and independent restaurants have neither the time nor the money to extensively redesign their restaurants. But as states mandate reduced capacity in dining rooms, these smaller businesses may look to the major chains for guidance on how to incorporate off-premises ideas into their business. In time, a new, standardized restaurant format (or several) could emerge that no one would have predicted two years ago — and everyone will expect a decade from now.

Fight Club: Mischief. Mayhem. Third-Party Delivery Fee Caps.

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If you like a good fight, the one around restaurant commission fee caps is worth watching. I spent the better part of three-plus hours the other day tuned into the New York City Council’s Committee on Consumer Affairs and Business Licensing public hearing. One hotly debated topic was around capping commission fees third-party delivery services like Grubhub and Uber Eats charge restaurants.

I’d love to say everything got resolved and NYC will be placing caps on third-party service commission fees for all time. The reality is that this fight was here long before the pandemic and will be around long after it leaves.

I’m sure you’ve heard of the brouhaha brewing around the issue. Restaurant industry advocates and businesses alike had flagged those third-party delivery commission fees — which can go as high as 30 percent per transaction — as prohibitively expensive for restaurants. With dining rooms closed now, most restaurants are left with the options of either shutting down completely or relying on a third-party service like Grubhub to help them execute on delivery orders.

One restauranteur who testified at this week’s hearing explained that for independent restaurants, the fees are more or less non-negotiable. (Side note: he also expressed fear of retaliation from delivery companies for his speaking at the hearing.) Jessica Lappin, a former NYC council member and the President of the Alliance for Downtown New York, said that even if restaurants are doing takeout and delivery right now, they are doing it at a loss. Council member Mark Gjonaj suggested that due to the commission fees, each transaction a restaurant makes is “yielding a net loss.”

Perhaps the most telling moment came when a Grubhub representative took to the mic to “express Grubhub’s strong opposition” to fee caps. You can watch the entire (and rather circular) debate that broke out here, but it more or less boiled down to the idea that if NYC and other cities successfully impose fee caps, Grubhub et al. will have to change their business model.

Therein lies the marrow of the matter in terms of why third-party delivery companies oppose commission fee caps and other changes (e.g., reclassifying workers as employees). Government oversight of those fees cost these companies more money, and further erode their chances of ever becoming profitable. An unprofitable model won’t satisfy investors, and third-party delivery as we know it would then be on the rocks.

Sky-high delivery fees and a faltering economy won’t help the model in terms of its attraction to the average end consumer. And they certainly won’t improve the net-negative returns restaurants are making at the moment.

In some cities, Big Government has already stepped in. San Francisco, Seattle, and Chicago have all introduced fee caps that will last at least as long as dining rooms remain closed. Los Angeles is considering a similar measure. NYC’s proposed 10 percent cap was actually introduced months before the novel coronavirus hit the U.S. in full force. 

As emergency measures, these fee caps feel necessary right now if independent restaurants are to have any kind of shot at keeping the lights on. Longer term, everyone (restaurants, advocates, government, tech companies, and consumers) will have a responsibility to address how much damage the delivery model is actually doing. It seems a global pandemic that’s taking lives and shuttering businesses isn’t enough to make some of these services stop siphoning the livelihood from restaurants. Are those really the businesses we want calling the shots in the restaurant industry in the future?

McDonald’s limited menu is good news for the drive-thru lane.

Among other things, like drive-thru lanes generating more sales, McDonald’s spent quite a bit of its earnings call this week talking about its menu. Since shelter-in-place orders forced the chain to close down dining rooms and rely on off-premises orders, McDonald’s has been offering a limited menu. For example, it doesn’t offer breakfast for the time being.

Cuts like that were made to help the mega-chain manage the operational difficulties restaurants face right now. On this week’s call, CEO Chris Kempczinski suggested customers should not expect every McDonald’s in the nation to immediately revert back to its pre-pandemic menu.

Smaller menus for the long term could work in McDonald’s favor, though. When we looked at the QSR Drive-Thru Study last year, one of the standout points was the steady increase in drive-thru wait times over the last couple decades. Growing right alongside those wait times has been the number of items QSRs offer on their menus.

These complex menus take longer to read, present customers with the tyranny of too many choices, and up the risk of an order being inaccurate when it is ready. None of those things make for speedy service, and with more customers likely going to opt for the drive-thru lane over the dining room now, finding ways to fulfill orders faster is crucial for QSRs.

No one is suggesting we revert back to my favorite picture of all time, this McDonald’s menu from the ’80s. But as restaurants pare down menus and plan to work with reduced capacity and limited staff once they reopen, the bloated mess of choices QSR’s previously offered may become a thing of the past.

Sweetgreen just added dinner options.

One company not paring down its menu is Sweetgreen. On LinkedIn this week, cofounder and Chief Brand Officer Nathaniel Ru unveiled the chain’s new dinner menu, called Plates.

For the last four weeks, the tech-forward fast-casual chain — most widely known for its highly Instagrammable salads — has been testing a Sweetgreen dinner menu. Via a post on Medium, the company said the process has been about “operationalizing an entirely novel concept (normally a year-long process) in just 30 socially distant days.”

That 30-day process looks, from the photos, to have turned up a menu full of plant-centric dishes and lots of legumes, grains, and sauces. If you want more details around how the team put this new concept together, the full Medium post is definitely worth a read.

Sweetgreen had been planning the dinner concept for some time in the hopes of launching it next year. But, as the Medium post notes, “given the current state of uncertainty, the need for warm, familial, and home-cooked food has never felt more important.” 

They’re right on the money. Family-style meals and comfort food are two major trends right now for restaurants as people shelter in place. I’ve never considered couscous and warm leafy greens comfort food, but I’m from rural(ish) Tennessee so what do I know? Plenty of folks are health conscious these days, and with many consumers likely to be wary for some time about going out to eat, a dinner concept is a smart play for Sweetgreen. 

Now if we could just get it delivered without those pesky commission fees. 

McDonald’s Slows Development on Its Tech-Forward Store Remodels

In an effort to reduce capital expenditures by $1 billion, McDonald’s is slowing the development of its Experience of the Future store remodels across the U.S., according to a press statement the company sent out today. 

The move comes in the wake of the mega-chain, not to mention the entire restaurant industry, having to adjust both operations and expectations to serve customers during a global health crisis. Restaurant sales are down 80 percent, and many establishments are having to quickly pivot to delivery and takeout models in order to stay in business. 

Unlike smaller restaurants with shallower pockets, McDonald’s isn’t a newcomer to the off-premises world or the technology that powers it. Up to now, the company was running a $4 billion digital business driven largely by delivery orders. Acquisitions in 2019 of Dynamic Yield (AI tech) and Apprente (voice tech) further enhanced the chain’s to-go-friendly business model, and Experience of the Future stores are meant to encompass all these elements under one roof. They also feature self-service kiosks, curbside pickup areas, improved drive-thru lanes, and many other things meant to make the customer experience at McDonald’s as speedy and efficient as possible.

Then came COVID-19. In addition to closing dining rooms across the U.S., McDonald’s has also halted operations entirely at many stores, including 50 in the U.S., and every single one in the United Kingdom. Those shutdowns also include drive-thru and delivery.

“We entered 2020 in a strong position, but of course the world has since changed,” CEO Chris Kempczinski told Nation’s Restaurant News. “While our January and February global comparable sales were strong, changes in consumer behavior and the various restrictions in place by governments around the world have led to a significant decline in sales.” 

To that end, McDonald’s says it plans to build fewer Experience of the Future stores, whether new locations or remodels of old ones, worldwide.  

Whether this is a sign of things to come from other similar chains depends. One of the major factors of Mickey D’s remodels is how costly they are — over $700,000 per store, in some cases. Not every chain’s digital business reinvention requires an architectural overhaul as well, especially if a brand is more interested in improving things like delivery and loyalty programs. That said, we may see fewer Chipotlanes and Starbucks Express Stores rolling out for the rest of 2020 — and possibly beyond.