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The Spoon

Daily news and analysis about the food tech revolution

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Restaurants Hate Third-Party Delivery Services, Actually

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When it comes to talking about the year 2020, one of the things third-party delivery services like to say is that they were “a lifeline” for restaurants that might have otherwise had to shutter permanently due to dining room closures and restrictions. 

Plenty have disputed this over the last several months. But perhaps no one has lately been more to-the-point about the matter than Recode’s Kara Swisher, who hosted Uber CEO Dara Khosrowshahi on her Sway podcast this week.

“You’re not allowed to get away with saying you’ve been a lifeline to restaurants,” she told Khosrowshahi early on.

Swisher noted the oft-cited figure, that delivery services charge restaurants commission fees of up to 30 percent of a single transaction for use of their services. Khosrowshahi countered by saying Swisher’s math was “incomplete” and that the 30 percent is “untruthful” when it comes to representing what restaurants are actually on the hook to pay delivery services. According to his math, restaurants pay Uber Eats 13 percent per transaction “net of the courier.” If restaurants want to use their own couriers, the commission cost is “about 15 percent.”

But as Swisher suggested, even those lower numbers are harmful to restaurants, which typically operate off margins that are about 3 to 5 percent. That irreconcilable math is one of the reasons cities across the U.S. have introduced mandatory caps on commission fees, some as low as 10 percent.

Pre-pandemic, the argument was that if a restaurant took issue with high commission fees, they could simply opt out of doing delivery. That argument holds no water now, though, since the pandemic essentially forced restaurants into doing delivery and most do not have the money or expertise to build an in-house delivery business. Actually, most can’t even afford their own courier fleet.

It’s also worth pointing out that while Khosrowshahi called the 30 percent commission fee “untruthful,” he never actually offered a hard number around how high an Uber Eats commission fee reaches when a restaurant is using a courier, as most are. If anything, his cagey response of “13 percent net of the courier” seems to confirm the 30 percent commission fee’s existence.

Uber Eats had a big year in 2020. It more than doubled its revenues and even acquired a competitor, Postmates, towards the end of the year. Khosrowshahi himself said the service had a $40 billion-plus run rate and would be larger than the company’s mobility business in 2021.

Conversely, the restaurant industry has lost $240 billion in sales and is still 2.5 million jobs below pre-pandemic levels, according to the National Restaurant Association. A total of 110,000 restaurants in the U.S. have closed, which is about 17 percent of the nation’s restaurants total.

Khosrowshahi defended his company’s approach to restaurant commissions, using words like “reasonable” and “fair” to describe them. To which Swisher simply pointed out that most restaurants she speaks with disagree, and only use the Uber Eats and Caviars of the world because the pandemic has forced them to.

“They hate you,” she concluded, flatly, before using the phrase “menace economy” to describe the environment in which restaurants must now operate to stay in business.

Here’s How the Restaurant Biz Survived 2020

I know most of you would rather forget 2020 ever happened, but it never hurts to look back before going forward, which is just what the National Restaurant Association did this week. The trade group published a list of top trends it says kept many restaurants in business last year while the pandemic wreaked havoc on the industry.

The 10 trends that made the list were based on those found in a survey The Association did of more than 6,000 restaurants and 1,000 adults. The majority of the trends on the list are directly related to helping restaurants “keep their businesses open and employees on the payroll,” as The Association puts it.

The full research post is worth a read. This being The Spoon, I’ll highlight a few items that made the list that illustrate how tech-forward the pandemic has made the restaurant biz in recent months:

  • “Streamlined menus.” Part of this is related to the actual food: restaurants needed a way to reduce inventories and fulfill items faster, and “pare down your menu” became a mantra for many early on in the pandemic. However, streamlined menus also have to do with offering food that travels well, for pickup and delivery orders, and not overwhelming digital customers with choice paralysis as they view menus via their own mobile devices.
  • “Off-premises foodservice takes precedence.” The Association noted that before the pandemic, 80 percent of full-service restaurant traffic was on-premises. The change restaurants were forced to make to delivery and takeout formats in March, when shutdowns first started, rippled across the entire industry and is now more or less ingrained in operations. Which is to say, even when restaurants are operating at full dining room capacity once again, off-premises will be an important part of any restaurant’s strategy. 
  • “Selling groceries.” This started early in the pandemic when restaurants began selling inventory unused because of shutdowns, and doing so via off-premises channels like delivery and drive-thru. The Association’s survey found that “more than half of consumers” would consider buying grocery staples (produce, dairy, meat) from restaurants themselves if those items were offered. Little wonder, then, that third-party delivery services like DoorDash and Uber Eats added grocery delivery to their businesses in 2020.

Other trends in the restaurant industry — ghost kitchens, virtual restaurants, better back-of-house tech — are woven into the more general trends on The Association’s list. For example, a shift to off-premises foodservice will inevitably mean more ghost kitchens. Pull up a virtual restaurant menu from just about anyone these days and you’ll find it’s decidedly streamlined. 

“We now know that three things are certain: the pandemic tested the limits of operator creativity and knowhow, accelerated tech adoption and emerging trends, and confirmed that customers sorely miss their restaurant experiences,” says the report.

With a widespread vaccine still months away (at least) and restrictions still in place for the majority of dining rooms, these trends that helped us survive 2020 will also start to shape 2021 and beyond. 

Restaurant Tech ‘Round the Web

Panera is the latest major chain to announce plans to go all-in on ghost kitchens. The brand said this week it also has mobile kitchens, redesigned drive-thru lanes, and a virtual catering business in the works.

Fat Brands, meanwhile, is doubling-down on its existing ghost kitchen strategy. The company said at an ICR presentation this week that it plans to open a dozen ghost kitchens in 2021.

Restaurant tech provider Perfect Company raised $6 million for its solution that brings automation to the front of house, back of house, ghost kitchens, convenience stores, and other foodservice areas. 

COVID-19 Summit: How a Global Pandemic Will Reinvent the Restaurant Menu

For the last few weeks — really since states began mandating dining room closures — one of the most commonly uttered pieces of advice for restaurants has been to rethink their menus. Between a global pandemic, a looming recession, and unprecedented disruption to daily life, it seems the one piece of restaurant operations that’s pretty much never changed suddenly needs a major overhaul.

That point was reiterated yesterday at The Spoon’s COVID-19 virtual summit. In particular, two big points stuck out: the menu needs to teach consumers how to eat healthier and it needs to be redesigned for the off-premises format.

Robert Egger, the founder of LA Kitchen, talked about the need to rethink the menu in times like these and focus on trimming portions down.

“The tyranny of the plate is something we need to reject,” he said on a panel with Spoon Publisher Mike Wolf and chef Mark Brand. He was talking specifically about the four-compartment meal that represents the standard American diet, where “the big piece of meat” is accompanied by vegetables and starches.

Egger’s suggestion is that restaurants and institutional foodservice businesses distance themselves from that format and look to menu models that create more integrated meals that are plant-forward and rely on alternative proteins for sustenance. Think of the grain bowls or falafel bowls served up by chains like Sweetgreen or Tender Greens, two companies Egger referenced in his talk. These, he says, can give customers a “robust, flavorful replacement” for the standard American diet that relies so heavily on animal proteins and gigantic portions.

Brand agreed. “If you continue to feed the beast, which is literal obesity and diabetes, you’re already part of the problem,” he said. “Why are you opening a restaurant to kill people?”

Instead of reacting to what they think customers want to see on the menu, restaurants should instead try to lead customers to choices that will be better for them. That could mean offering an alternative protein to chicken or not serving avocado toast in a region that doesn’t grow avocados. It definitely includes serving smaller portions and getting away from what Eggar called “the groaning plate.”

In many cases, it will also mean preparing food that can travel easily. With restaurant dining rooms closed for now, businesses are having to quickly pivot to off-premises models that serve delivery and takeout meals. One mantra I’ve heard often in my conversations over the last few weeks is “pare down your menu” to make it friendlier to the off-premises format.

Moving your menu to an off-premises setting is more than just a matter of uploading your existing one to Postmates et al. Restaurants have to factor in what food travels well and how they can offer variety without inducing decision paralysis, where a customer sees so many options they freeze up.  

At the event yesterday, Chowly’s Sterling Douglass said there was no magic number of menu items when it comes to offering choice without that decision paralysis. Rather, it’s a matter of simplifying the choices themselves. For example, an item called “Chicago-style Hot Dog” will be selected more than a hot dog that requires customers to take an extra step by selecting “Chicago-style” from a list of styles. 

And, of course, the food has to travel well from the restaurant to a customer’s house. That’s where Eggar’s grain bowls could prove themselves really valuable. A plate of chicken parmesan sliding around a box and getting more lukewarm with every minute doesn’t exactly make for an appetizing to-go order. A bowl of greens, quinoa, and other items that were meant to be mixed together makes a whole lot more sense when it comes to food that travels. My bet is that it’s cheaper to produce, too.

As restaurants continue building and modifying their models to fit in this strange new world or social distancing, paring the menu down to a few simpler, healthier options could prove the most beneficial thing for everyone’s health, not to mention their wallets.

With McDonald’s Dynamic Yield Deal, is the Era of Personalized Menus Upon Us?

Let’s face it, menus are pretty boring. Go into almost any restaurant — fast food, fast casual or that fancy place you take mom once a year — and what you get is a set of food choices that don’t differ from one customer to the next.

And ok, we’ve seen incremental improvements over the past few years through interface technologies such electronic order kiosks and voice ordering, but the reality is a menu today is pretty much the same for us as it was for our parents and grandparents: a one-sized-fits-all list of food choices.

But here’s the good news: judging by recent moves by big restaurants like McDonald’s, that may soon change. Just this week the fast food goliath announced they were buying menu personalization startup Dynamic Yield for $300 million to make their drive thru and in-store menus more technologically dynamic. Chris has the story here.

Here’s an excerpt from the company press release describing what they plan to do with the new technology:

McDonald’s will utilize this decision technology to provide an even more personalized customer experience by varying outdoor digital Drive Thru menu displays to show food based on time of day, weather, current restaurant traffic and trending menu items. The decision technology can also instantly suggest and display additional items to a customer’s order based on their current selections.

Sounds great, right? After all, who wouldn’t want contextualized menu choices based on external environmental factors? Plus, trending items will mean more optimized options than the usual.

But here’s the thing: if that’s the extent of the personalization that a $300 million deal buys you, I’ll be pretty disappointed.

There’s Personalized and Then There’s Personalized

No matter what industry you follow, at this point you probably know personalization is hot. Whether it’s entertainment, nutrition, food or what-have-you, there’s probably more than a dozen startups who want to deliver something highly tailored to you, the end user.

The problem with most of these offerings today is that in most cases, personalized doesn’t really mean personalized, but instead it just means something slightly different based on a set of localized and current environmental factors.

What if instead we were to get truly personalized results tailored specifically for us? What if instead of a menu based on whether it’s hot or cold we got a menu based on what type of food we – you, me, us – like and eat on hot days or cold days?

In short, what if we were to see truly personalized food choices based on specific food profile?

This level of personalization is something we’ve been thinking about at The Spoon for a while. We talked about this exact topic at the Smart Kitchen Summit 2017. Alpha Labs’ Mike Lee had this to say about the idea:

“I’ve always believed there needs to be this interoperable data standard that encapsulates what your food preferences are,” said Lee. “Something that can be used from this app to this app to this grocery store. Much in the same way you have single sign-on with Facebook, I can log in somewhere, and it can show me content that’s sculpted to what I have.”

Think about it: instead of getting just an updated list of food based on what’s trending that day or if it’s hot or cold outside, you would get a menu that was created specifically based on your taste profile, biomarkers, allergies and more. This menu would be an entirely new thing to the world, something made for you and your unique characteristics.

Sounds intriguing.  It also sounds like the future. But is it a future that is near or far? A lot of it depends on how companies like McDonald’s, with Dynamic Yield in the fold, move in that direction.

There are definitely barriers. In a world rampant with data breaches and consumers increasingly worried about their privacy, the idea of more places having information about you and your specific preferences, biomarkers and more can be petrifying (not to mention perilous from both a political and business standpoint).

Still, I think it’s worth pursuing and I’m not the only one. Jim Collins, the CEO of Kitchen United, said menu personalization is one of the biggest opportunities going forward in restaurant. To him, today’s menus are like search engines of the early 2000s: kinda dumb.

“If you’re gluten-free, why do you see menu where 80 percent of the items have gluten?” he asked last fall on our panel about restaurant tech. “Why don’t you see one that only shows the 20 percent that’s not? That’s what I’m looking for.”

I agree and I’m pretty sure McDonald’s (and others) does too: true menu personalization is the holy grail. So while in the near term this deal likely means trending items and McFlurry recommendations when it’s hot out, in the long term I think we’ll see menus created instantly – based on your own McDonald’s or perhaps a more universal profile – for you.