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Daily news and analysis about the food tech revolution

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This Restaurant Tech Founder Thinks The Value of Virtual Brands is Bottom Line Savings, Not Top Line Growth

If you ask Michael Jacobs what he thinks of virtual restaurants, you might expect an enthusiastic declaration of support for the concept. After all, as a co-founder and the original CEO of Ordermark and someone who helped conceive of the idea behind Nextbite, he helped create one of the highest-profile startups powering a wave of virtual restaurant brands launched in recent years.

But in reality, his answer is decidedly more circumspect.

“I don’t think restaurants need virtual brands,” Jacobs told me in a recent phone interview. “It’s a nice to have, and it’s not bad for the restaurant, but it’s not anything that will save a restaurant.”

In other words, Jacobs believes that while restaurants can get ok top-line growth running a virtual brand out of their kitchen, it’s often not a game changer for the overall business.

Where he thinks digital-powered business models can make a difference is by helping restaurants with another part of their P&L: expenses. In particular, the cost of food and materials required to run a restaurant.

This realization dawned on Jacobs over time, first as the founder of Tapin2, a company that made software running multi-brand digital restaurants at stadiums, and later as the CEO of Team Kitchens, a facilities-based ghost kitchen company he started after selling his shares in Ordermark/Nextbite in 2019 (after his separation from Ordermark, he and the company engaged in a round of litigation that, according to Jacobs, has since been settled).

During these stints, Jacobs realized that while there are some benefits to tapping into a collective brand to gain customers and garner incremental sales a la a traditional virtual restaurant, the real power in a collectively powered brand lies in the cost savings of pooled purchasing.

“While working with some of the enterprise brands, I realized that they were saving as much as 50 to 60% on every item they were purchasing,” he said.

In contrast, independently owned restaurants and smaller chains utilizing a virtual brand concept aren’t getting the same scaled purchasing savings as large enterprise restaurant brands. But according to Jacobs, if these smaller organizations leverage pooled purchasing through a virtual collective, it can make a huge difference to margin-constrained businesses.

“The important thing is like during this time where restaurants are hurting from inflation, we have a solution where they can save 15 to 25% give or take on what they’re purchasing right now,” Jacobs said. “And as we scale, I think the numbers will get even better.”

“What I wanted to build was a network of restaurants that work together,” Jacobs said of his new company KitchData. “Where it’s a bunch of small to medium-sized businesses who collaborate through these virtual brands on their purchasing.”

By doing this, Jacobs believes the restaurants can collectively work together to create a virtual brand with a purchasing power similar to that of an enterprise business. Sure, it’s a virtual restaurant, only one where the focus is on the bottom line rather than the top.

KitchData also pairs its technology with concept and brand development consulting, where it helps operators develop a brand they fully own, something Jacobs sees as another significant differentiator.

“It’s theirs to do with as they wish,” Jacobs said. “Ric Flair owns Woo Wings (the virtual chicken wing brand the famed pro wrestler launched recently). Powerbomb Pizza is owned by Pro Wrestling Tees. DaMandyz Donutz is owned by (pro wrestlers) Daria and Amanda.”

KitchData is getting going just as some in the broader restaurant tech space – including Jacob’s former employer – are restructuring as part of a broad pullback of the easy money invested into the space over the past few years. Jacobs, who managed to raise $3 million in seed funding for KitchData despite investor cooling, has high hopes for his company.

“I think it’s the best thing invented for the restaurant industry itself in decades,” Jacobs said. “And we’re going to do a good job at saving the bottom line for restaurants.”

Podcast: A Challenging Time for Restaurant Tech

In this episode of The Spoon, we are joined by long-time restaurant and restaurant tech journalist Nancy Luna of Insider to compare notes about what’s been a challenging few months for restaurant tech startups.

Some stories we discuss on the show include:

Click play below or find The Spoon podcast on Apple Podcasts, Spotify or wherever you get your podcasts.

Nextbite’s Alex Canter Shares Insight on Virtual Kitchen Trends in 2022

This week I spoke with Alex Canter, the CEO and a co-founder of virtual restaurant company Nextbite, to hear his perspective on what 2022 holds for virtual kitchens and restaurants.

Nextbite, based in Denver, Colorado, uses a host kitchen model where it licenses a portfolio of delivery-only restaurant brands to restaurants with excess kitchen capacity. Restaurant partners can fulfill orders under these virtual brands to augment their restaurant’s dine-in and off-premise revenue. By taking on an additional restaurant brand, a restaurant can take advantage of their slowest hours, or even when they might not be open (such as the early morning or late night).

According to Canter, while many restaurants are slowly making their way back from the challenges of COVID-19, most are still not operating at full capacity. “Out of all the restaurants in the U.S., the only restaurant I can say confidently is operating at its full potential is In-and-Out,” said Canter. “They have a line out the door from the moment they open to the moment that they close.”

But this could all change in 2022, in part to new opportunities created by virtual brands. In 2022, “restaurants are really starting to understand their potential,” said Canter. “If you think about the kitchen as a manufacturing facility for food, I would say the average kitchen is probably operating at 30% output of what it could what it can do at peak.” After seeing the spike in virtual kitchens and delivery-only brands, restaurant establishments realize that they can cash in on this too. By streamlining online ordering and offering multiple menus and concepts, restaurants can reach new customers and different demographics.

In total, Nextbite has 17 brands that Canter said have been carefully created to consider emerging dining trends both inside and outside the U.S. People’s tastes and cravings change quickly, and can be easily influenced by social platforms like Tik Tok.

So what food categories and concepts will be successful in the virtual kitchen space in 2022? According to Canter, Pizza and Chinese food – the original delivery food categories – remain very popular. He also said breakfast foods for delivery are on the rise as illustrated by Nextbite’s survey which showed that forty-five percent of consumers ranked breakfast sandwiches as one of their favorite breakfast items to order. Nextbite’s celebrity taco concept, George Lopez Taco, does really well in suburban areas where it can be difficult to find an authentic street taco.

Wiz Khalifa and Nextbite’s restaurant concept, “Hot Box”

According to Canter, Nextbite works with celebrities like Wiz Khalifa and George Lopez because a small independent restaurant would never be able to connect with a high-profile celebrity. By using one of Nextbite’s celebrity-driven brands, they can tap into a celebrity brand’s following and demand.

Finally, Canter says food preferences vary depending on where you sell and who the consumer is.

Food preference and demand “change a lot when you go from major cities to the suburbs to college campuses. Depending on the demographic, some of our brands absolutely crush it on college campus markets and some do just okay in the suburbs. There’s a lot of variety happening, but I think people’s tastes are changing so faster than ever and we’re keeping up with that by constantly innovating and launching new concepts that are meeting that demand.”

In 2022, Consumers Want to Order Healthier Delivery Food

At the beginning of every year, millions of people set intentions to better themselves, and many of their resolutions revolve around health and wellness. Of course, food plays a crucial part in health, so it’s no surprise that many resolutions end up being specific to food. This year, Nextbite, a virtual restaurant company, conducted a survey to understand what exactly customers want when it comes to delivery food and their diet goals.

The company surveyed 1,046 US consumers aged 13-54 years old in December 2021. One key takeaway from the survey was that 49 percent of the consumers plan on ordering healthier delivery food in 2022. Of these consumers, 59 percent of them order food for delivery at least once a month or more, while 41 percent plan on ordering more food for delivery this year.

Eating healthier is not a surprising resolution, as it is one that often makes it in the top three most common resolutions. In the survey, 49 percent reported that they desired to eat healthier this year, and this was a top goal of consumers aged 18-34 years old. Eating healthier does not necessarily mean following a specific diet; only 6 percent of consumers said they planned on trying to follow a trend diet like Whole360 or keto.

In 2020 and 2021, we turned to comfort food to deal with the emotional and mental impacts of the COVID-19 pandemic. Yelp gathered up data in 2020 to determine what the most popular delivery items in different states were during the COVID-19 pandemic and created the map above. As you can see, many of the items, such as donuts, pizza, nachos, Belgian fries, and hot wings, would not be classified as health foods. According to DoorDash, the top two popular items ordered in 2020 were chicken sandwiches with a side of fries and mac and cheese.

Often reliant on quick-service chains, delivery food is traditionally viewed as unhealthy. However, by adding fresh and nutritious food dishes to delivery menus, restaurants, and ghost kitchens can change that perception while encouraging health-motivated customers to keep ordering food for delivery.

February is the month where upwards of 80 percent of New Year’s resolutions fail. Consumers may want to commit to vegan grain bowls and green smoothies now, but later this year, revert back to ordering hot chicken wings and deep-dish pizza. Despite the surge in the new COVID-19 variant at the moment, 2022 looks promising due to the fact children are returning back to school, adults are working in-person, and events are being held again. The way 2022 plays out may be a determining factor if consumers turn back to comfort food or stick to wholesome options.

Meet The Spoon’s Restaurant Tech 10

The restaurant industry has changed drastically over the last 18 months when it comes to tech. What was once a sector slow to change and reticent to embrace digital is now practically at bursting point in terms of the many technological solutions available to restaurants. As food tech investor Brita Rosenheim recently wrote, “the past 18 months, technology solutions across the restaurant and hospitality industry evolved at such a fast pace that keeping up with changes proved challenging, even for those of us who work in the space. This rapid rate of adoption in the industry caused even the technophobes in hospitality to rapidly embrace tech solutions. “

Picking just 10 companies from the hundreds out there was a Herculean challenge when it came time to make this list. From virtual restaurants to maintenance management solutions to making better use of data, there’s no end of innovation in the restaurant tech sector these days. Our list is a tiny sliver of that innovation, showcasing what we believe are some of the most unique and intriguing companies shaking up and rethinking the restaurant business. Some of these companies will be at our upcoming Restaurant Tech Summit (make sure to get your ticket!), some we’ve written about recently, and some we are just getting to know.

It goes without saying, of course, that this isn’t an exhaustive list, and if you have a restaurant tech company you’d like to get on our radar, drop us a line anytime.

In no particular order, here are The Spoon’s Top 10 Restaurant Tech Companies:

Too Good to Go

When it comes to eliminating food waste, Too Good to Go was too good to not include on this list. The Denmark-based company partners with hotels, restaurants, supermarkets, and other businesses that have surplus food items at the end of each day and sells that food at a discount to consumers, who pick up the food at a designated time. Too Good to Go started in Europe, but raised $31 million and expanded into the U.S. this year. Businesses win because it turns leftover foods into revenue. Consumers win because they get good food at a discount. And the world at large wins because there is less food waste going into landfills. 

86 Repairs

You can’t run a restaurant without a fridge (or stove, or electricity), which means maintenance and repair management will always be relevant in the biz, no matter how many pandemics you throw at it. Chicago, Illinois-based 86 Repairs is leading a new generation of companies helping to make the management of maintenance and repair tasks a little less burdensome on restaurants. The platform digitizes information about all a restaurant’s equipment and coordinates troubleshooting, warranty checks, booking technicians, and other tasks. The idea is to give restaurants one central location at which to view all data about all maintenance, even for large, multi-unit chains with thousands of units.

Bite Ninja

The restaurant labor shortage will go down as one of the major issues — probably the major issue — restaurants faced in 2021. One of the most intriguing solutions to the issue comes from a company called Bite Ninja. In essence, the Bite Ninja platform lets restaurants outsource their staffing needs for the drive-thru lane to gig workers that take orders remotely. Drive-thru customers see a face on a screen and order as they would normally. They may not even know the person taking the order is probably sitting at their kitchen table instead of standing inside the restaurant. Bite Ninja’s founders say the platform can increase order accuracy and upsell rates for restaurants, while workers don’t actually have to report to a physical location to clock in. In the future, the tech will be available for more uses than just the drive-thru, including front-of-house kiosks, curbside pickup, and phone orders.

ConverseNow

ConverseNow currently creates conversational AI assistants for restaurant drive-thrus. In use at 750 restaurant locations in the U.S, ConverseNow says its AI achieves 85 percent order accruacy and bumps check sizes up by 25 percent. But ConverseNow is about so much more than just helping automate the drive-thru. The company wants its software to be the virtual plumbing for all of a restaurant’s digital ordering, connecting the drive-thru, mobile ordering, phones, kiosks and more. If it can achieve this, ConverseNow will convert many restaurant operators over to AI. 

Crave Collective

When The Spoon got a virtual tour last year of the Crave facility in Boise, Idaho that serves 16 virtual restaurant concepts, it felt like a look into the future of what restaurant/food delivery design could look in Metro areas. Not only were the physical attributes like a conveyor belt system that shuttled meals towards the front for delivery and a customer pick up area interesting, but Crave’s custom-built tech stack and in-house delivery drivers were indications that the company had built a facility and business model tailored towards the virtual brand era. The company wants to take it’s concept to four additional locations this year, and 10 by 2022.

Slice

While it’s easy to think most pizza restaurant shops are savvy at online ordering, the reality is that the typical independent sees only about one in five pizzas ordered online compared with three out of four for Dominos. Slice saw this as an opportunity and created a consumer app to help put independent pizza shops (16,000 of them so far) on solid digital footing to compete with the 800 pound gorillas in Dominos and Little Caesar’s. But what helped Slice make this list was their acquisition of POS startup InStore. Before Instore, Slice helped indies enter into the world of online ordering. Now, Slice Register (the POS based on Instore) enables the small guys to level up to the big guys and create a true multichannel pizza business with loyalty programs and integrated online/offline marketing programs.

Qu POS

The past decade saw restaurant point of sale move into the cloud and adapt features like pay-at-table and integrated online ordering, but the virtual brand explosion may be the biggest test yet for these systems. Qu POS is betting big on a virtual restaurant future with their KitchenUP platform, which acts as a lightweight operating system for ghost kitchen/virtual brands with unified management of multichannel order management, reporting, third-party delivery integration and other features built into an API-first architecture. FranklinJunction is utilizing KitchenUp across its network of 500 “host kitchens” to help power virtual concepts for such brands as Nathan’s and Frisch’s Big Boy.

Ordermark/NextBite

An arguably bigger trend than ghost kitchens this year has been restaurants finding and leveraging underutilized kitchen space in which to run delivery-only restaurant concepts. NextBite, a company created by restaurant tech company Ordermark, helps restaurants find that space and launch those concepts. The platform operates a number of virtual/delivery-only brands restaurants can add to their existing business and in the process make some incremental revenue. The company raised a whopping $120 million for this concept at the end of 2020, and has since launched more than 15 virtual brands in thousands of kitchens around the country. 

Manna

Look! Up in the sky! It’s your latte! Drone food delivery seems like sci-fi, but Manna is making it a reality right now. Earlier this year, the company was doing 50 to 100 drone deliveries a day and it’s prepping to launch service in a second Irish city. Though there are still regulatory hurdles to overcome, drone delivery could be a boon for restaurants because it delivers meals in minutes without needing to put a full-sized delivery car on the road. Drones are starting to take flight around the world, and Manna is helping the industry take flight. 

Delivery Hero

Delivery is table stakes at this point for the restaurant industry, but we pub Delivery Hero on this list because of all the big-name services out there today, it has one of the more noteworthy approaches to the concept. In addition to operating restaurant food delivery services around the world (via a bunch of different subsidiary brands), the Berlin, Germany-based company has also launched its own VC fund to foster food tech innovation, opened an education program to teach coding to underserved individuals, and, most recently, kicked off a new initiative to provide its restaurant partners with sustainable packaging. All these efforts point towards the possibility of a food delivery industry that’s not only faster and more efficient, but also more inclusive and sustainable.

C3’s 10,000 New Kitchen Partners

Unless you make a point of regularly ordering from virtual restaurants, you may not yet have heard of names like Sam’s Krispy Chicken or Plant Nation. They, along with many others, are delivery-only brands created by C3 (Creating Culinary Communities), a restaurant company that’s lately been on a mission to get these brands into seemingly ever pocket of America. The company’s virtual restaurants are in hotels, residential buildings, and even brick-and-mortar food halls. And thanks to a recent deal, they’ll soon be available via a lot more restaurants, too. 

C3 announced last week it had struck a partnership with point-of-sale integration company Chowly, whose technology platform makes it easier for restaurants to manage online orders coming from multiple sales channels. Through the deal, Chowly’s restaurant customers will get the option to be a “host kitchen” for C3’s virtual restaurants and share in the revenue from those sales. 

Host kitchens, as the name suggests, are spaces within existing restaurant kitchens that are dedicated to fulfilling orders from virtual, delivery-only brands. Companies like Fat Brands and Wow Bao have popularized the concept among restaurants, giving underutilized kitchen space a purpose and hopefully making the business incremental revenue in the process.

In the last year, we’ve also seen the rise of companies whose main business is to come up with new restaurant concepts and license them out to existing restaurants. Besides C3, Ordermark launched its NextBite business based on this idea, and Virtual Restaurant Concepts (best known for Mr. Beast Burgers) offers a similar concept.

C3’s deal with Chowly will give restaurant customers that use the Chowly platform an easier way to sell delivery-only restaurant brands than they could do on their own. Rather than having to conceptualize and figure out how to market and deliver wholly new virtual brands, Chowly’s restaurant partners can simply license a turnkey solution from C3, who handles the marketing, branding, and technical logistics of the operation via its exclusive ordering/delivery app, Citizens Go. The restaurant just has to cook the food and get it out the door.

These restaurants could also potentially reach a wider demographic by offering more food types on top of their own menus. I never thought I’d write “Captain D’s” and “high-end plant-based burger” in the same sentence, but that scenario’s entirely possible since Captain D’s is an enterprise customer of Chowly and C3 has a plant-based brand called Plant Nation. A Captain D’s location also offering Plant Nation for delivery could reach new and different customers and add more revenues through such a deal.

For C3, the deal is arguably even more lucrative. Chowly has more than 10,000 kitchen partners across the U.S., all of whom will eventually be able to licenses C3’s brands. That’s a major jump from the 250 kitchens in which C3 is currently in. The company says it will reach 1,000 locations by the end of the year and be in 12,000 kitchens by 2023.

The Chowly deal will be a huge help to that process — and enable C3 to expand more rapidly than it would if it had to forge each new individual kitchen partnership. Chowly’s enterprise brands include the aforementioned Captain D’s, Clean Juice, and Dickey’s Barbecue Pit, all of which give C3 and automatic sizable reach. 

The partnership will launch with these enterprise brands before branching out to include smaller restaurants within the Chowly network. The goal is to make all of C3’s brands available to all of Chowly’s 10,000 restaurants at some point in the nearish future.

As C3, Virtual Restaurant Concepts, NextBite and other virtual restaurant companies scale up, one question to keep in mind is how these companies are ensuring quality control across tens of thousands of restaurant partners. In other words, Sam’s Krispy Chicken will need to taste the same in Seattle, Washington as it does in Atlanta, Georgia in order to become popular on a large scale over time. An overnight sensation like Mr. Beast is one thing. Sustained, long-term loyalty from customers is another challenge altogether, and one for which consistency and high quality are crucial.

More Headlines

OpenTable Launches New Tools to Discourage Diners From ‘Ghosting’ on Their Reservations – The initiative will take the form of forthcoming new digital tools as well as “blog and social content educating diners on the impact of ghosting a reservation.”

South Korea: Lounge Lab Opens Brown Bana Robot Ice Cream Shop – South Korean robotics company Lounge Lab announced today that it has opened Brown Bana, a robot-powered ice cream store in Seoul.

Deliveroo Is Running a Reusable Container Program in Paris – Deliveroo France and circular-packaging company barePack have started offering customers of the delivery service the option to get their food delivered in reusable containers.

Anatomy of a Digital Restaurant

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When Taster, a virtual restaurant company headquartered in London, announced its $37 million fundraise last week, co-founder and CEO Anton Soulier made clear that his company is trying to “redefine what it means to be a restaurant group in the 21st century.”

The company, founded in 2017, started out cooking food for its virtual restaurant brands from its own dedicated kitchen spaces then selling items via third-party delivery platforms like Uber Eats. Previously, Soulier was an early team member at Deliveroo, so he knows a thing or two about doing a delivery business — most importantly, how delivery has to continue to evolve.

Along those lines, Taster is taking a slightly different approach to the virtual restaurant nowadays. Instead of making the food itself, Taster licenses its five brands out to existing restaurants. The setup brings benefits to both sides. Restaurants can to make extra revenue by selling more delivery orders to not just their existing customers but fans of the virtual brands. Taster gets to expand faster, since it’s no longer having to handle every single order itself or build out kitchen infrastructure. As of last check, the company, which also has teams in Paris and Madrid, has more than 60 restaurant sites in nine cities acorss the UK, France, and Spain. The new funding, a series B round led by Octopus Ventures, will ensure further expansion for Taster’s brands.

In many ways, Taster could be seen as something of a blueprint for the digital-age restaurant chain, because it gathers a few different concepts that are popular into a single platform:

Underutilized Kitchen Space

Taster’s current model is built on helping restaurants put underutilized kitchen space to work. Businesses with extra kitchen space can license one or more of Taster’s restaurant brands and run it out of their own properties. It’s a way of offering a delivery brand without incurring the expense of a long lease with a traditional commissary space, which is too expensive for many restaurants. 

This “license a virtual restaurant” approach has become more commonplace over the last several months. Chicago-based Wow Bao started licensing a delivery-only version of its menu to other restaurants in 2020. Ordermark created an entire sister business around connecting restaurants with underutilized space to virtual brands. Restaurant company C3 has taken the concept beyond restaurants and is licensing its virtual food brands to hotels and luxury apartment properties.

Menus Designed for Delivery

From its inception, Taster has billed itself as a digital food court, serving up street food reimagined for delivery. In other words, the food is supposed to travel well. The company also involved Michelin-star chefs in the design of all its restaurant brands’ menus. 

In theory, at least, that ensures a certain level of quality stays intact throughout the entire journey the food takes from the kitchen to the customer. Even before the pandemic turned most of the restaurant biz into one giant takeout operation, issues with food quality were a major problem for delivery. This is another reason restaurants are now creating or licensing virtual brands instead of trying to repurpose their existing menus for to-go boxes. Under this arrangement, dining room food gets to stay where it belongs, in the dining room, and delivery orders are comprised of food that was built for travel.

Versatile Tech

Good food is the single most important part of any virtual restaurant. Arguably, the runner up is technology. It’s not enough anymore for a system to be simply be able to process digital orders and payments. Because of the growing order volume, delivery tech also needs to integrate with the back of house operations, track inventory and drivers, communicate with customers and integrate with the restaurant’s main POS system. It also needs to be able to integrate with third-party delivery services a la Uber Eats or Deliveroo.

To run a virtual restaurant out of their own kitchens, restaurants could cobble together various third-party solutions to get the above features under one roof. Or they could attempt to build an in-house system from the ground up. Both approaches have their drawbacks, from time and money to compatibility issues between different pieces of software. 

It’s another reason licensing a brand from a company like Taster or C3 or NextBite seems more practical at this point. Taster’s system, for example, can process orders and payments, help manage the kitchen, and track quality control, among other things. Users can also choose whether they want to order Taster brands via third-party delivery apps or Taster’s in-house app. Restaurants licensing Taster’s brands need not actually concern themselves with any of these logistical puzzles — the company handles all of the technology itself. C3’s tech is very similar, and there will doubtless be plenty of other such systems emerging in the near future.   

There’s little chance this “license a virtual restaurant” model will go out of vogue once lockdown restrictions ease and more cities around the world reopen their economies. Off-premises meal formats like delivery are at this point a normal part of doing business for restaurants. And as Taster’s recent fundraise suggests, interest in the evolution of the virtual restaurant is higher than ever.

Landry’s a restaurant group that owns Morton’s The Steakhouse and Bubba Gump’s Shrimp, said in a recent interview that most of the company’s restaurant brands will start accepting bitcoin as payment in the coming months. CEO Tilman Fertitta cited “the next 90 days” as a timeframe.

Starbucks is using its AI technology, Deep Brew, to further improve personalization for customers but also to track vaccination progress throughout the world, the company said on its recent earnings call.

Uber recently announced a new feature,  Pickup and Go, that lets rideshare users see nearby restaurants and order/pickup food while they are in transit.

Tracking the Next Generation of To-Go Concepts for Restaurants

This shift towards delivery and other off-premises formats was already underway. Back in 2019, the National Restaurant Association predicted that by 2030 off-premises would drive most of the growth for restaurant sales. 

Suffice to say, the pandemic sped that timeline up. In the words of Ordermark’s cofounder and CEO Alex Canter (whose family also owns famed L.A. restaurant Canter’s Deli), “10 years of progress maybe happened in a couple of months, not out desire, but really out of necessity.”

Out of that progress have come many different ways and tactics to approach delivery and takeout formats, from iterating on the virtual restaurant concept to altering the cooking process of the meal itself. This intelligence briefing for Spoon Plus will look at some some off-premises success stories to come out of the pandemic-era restaurant industry.

This content is exclusive to Spoon Plus. To learn more about membership, click here.

Video: Alex Canter on the Evolution of Restaurant Tech Before, During, and After the Pandemic

Among the things in the restaurant industry COVID-19 changed forever, businesses’ relationship to technology is a big one.

Historically, many restaurants have been slow to adopt much, if any, technology for their day-to-day operations. That worked so long as the bulk meals served were going out to dining rooms. When the pandemic shut those down, businesses were suddenly scrambling to accommodate the sudden demand for takeout and delivery formats as well as the industry-wide shift towards digital ordering. 

Of restaurant tech’s evolution over the last year, Ordermark cofounder and CEO Alex Canter says, “10 years of progress maybe happened in a couple of months, not out desire, but really out of necessity.” 

I recently got the opportunity to chat with Canter over Zoom. A longtime restaurant industry veteran (his family owns Los Angeles’ famous Canter’s Deli), he’s no stranger to the concept of either running a restaurant or improving its operations and margins through technology. Ordermark, meanwhile, was helping restaurants manage their delivery orders long before Covid-19 hit, and NextBite, the newest entrant to the family, assists businesses with launching virtual restaurant concepts.

All of which is to say, if you want a glimpse into the concepts and technologies that will matter moving forward for restaurants, Cater’s brain is a good one to pick. Below you can watch our full conversation, and also read along with the transcript.

The Spoon Interview: Alex Canter of Ordermark from The Spoon on Vimeo.

Jenn Marston
Hi, everybody, I’m Jenn Marston with The Spoon. I’m here today with Alex Cantor from Ordermark and NextBite, and we’re going to talk some restaurant tech today.

About the middle of March in 2020, restaurants had to close because of state regulations and health and safety concerns. Over the last year, we’ve seen the most incredible shift towards new technologies towards new dining formats. Alex and I are going to have a conversation about that evolution and specifically, what’s the technology driving these changes? What can we really expect to be around for the long term? So, Alex, thanks for joining me today. And before we get into all that, why don’t you give us a little bit of what happened and what it’s like now for you and your companies.

Alex Canter:
Yeah, well, first of all, thank you for having me. I’m happy to share my thoughts here. And I think everything is moving so quickly that, you know, it just feels like we’re in this the fastest changing market we’ve been in as a restaurant industry. And I want to start by just saying this has been a devastating year for restaurants. There’s no denying how challenging this has been for restaurants, from mom and pops to large chains and everything in between. We’ve already seen over 120,000 restaurants go out of business in the last 12 months, which is a crazy large number.

There are a lot of predictions around what was coming over the next 10 years in terms of technology and advancements shifted digital ordering. And COVID really accelerated a lot of that shift forward. I think, you know, 10 years of progress maybe happened in a couple of months, not out desire, but really out of necessity. And it was because restaurants had to really scramble to figure out, How am I going to keep up? How am I going to have to change my business to accommodate this new reality where dining rooms are shut down, and cities are going into lockdown. There are a lot of restaurants that were set up well for [that]. Think the Wingstop world that already had so much of their digital tech stack figured out and already had a very solid plan in motion and team members dedicated to the digital experience.

But for the majority of the industry and particularly most of the mom and pops, it feels like it was an all-out scramble to try to very quickly get creative, figure out new ways to reach customers rethink menus, rethink technology in general. And that has been a very fascinating thing to watch happen in such a short amount of time because there’s so much to learn for a lot of these restaurants that were newer to this experience.

We started Ordermark four years ago to help provide technology solutions to restaurants to be able to adapt to this new digital off-premise diamond world that we live in. And Ordermark has worked with thousands of restaurants to aggregate all of their incoming online orders, giving restaurants the single device in their kitchen to power orders from Doordash and Postmates and all the channels that they’re utilizing.

But since Day One, Ordermark has always been in the business of helping restaurants drive incremental orders into their underutilized kitchen. And we at the end of 2019 we started developing and bringing to market a newer product offering that we launched called NextBite, which is our portfolio of delivery-only turnkey brains, virtual restaurant brands. So we’ve basically created [the platform] from scratch based on you know data of what’s performing well in which markets and what time of day. We’ve really built these menus that are designed for an off-premise experience and we’ve been working with restaurants to to basically train them on how to become a facility partner for for additional menus and drive an extra 10, 20, 30 orders a day. [Many of] these kitchens are underutilized. They have extra capacity [and] fixed costs already running. Like, the rent is fixed, the lights are already on, the staff is already in the kitchen of these hundreds of thousands of restaurants across the U.S. Why not do more out of one kitchen by launching three to five additional virtual restaurant brands.

That was really the premise for NextBite. We built it with a with a in a pre-COVID world with full dining rooms in mind. And the operational complexity of running the restaurant is already very challenging that we knew when we were building these concepts and these menus, we didn’t want to build anything that was going to come in and disrupt the restaurants existing operation. But rather, you know, be incremental and additional in a way that that’s lighter for the restaurant to adopt.

In a post-COVID world, there’s been a massive adoption of restaurants who need these additional orders more than ever. And as a company, we’ve been able to make a very big impact for these restaurants when we come in and layer on top of their existing business a couple extra $100,000 a year in annualized gross sales. So we you know, we’ve been really focused as a company on what can we be doing right now to help make sure that our restaurant customers and partners that we’re working with can make it through and come out even stronger. And you know, we have gotten love letters, restaurants saying these orders really [make the difference of] keeping the doors open or not. And I think that’s really been motivating for our team specifically. And it’s helped bring a lot of business into our company and attract a lot of investor attention, which is why we at the end of last year, we ended up raising a Series C led by SoftBank, which was $120 million financing to do what we’re doing on a much bigger scale. I’m trying to really advance more restaurants forward into this new digital era.

So it’s been a roller coaster of a year, we’re incredibly grateful that as a business, we ended up on the right side of all of this, to be in a position to really help these restaurants. Because I know that there, there are a lot of restaurant technology companies that, you know, unfortunately ended up on the wrong side of this as well. And a lot of what was happening from you know, in-store applications like reservations and catering businesses that that just became irrelevant overnight in such a short amount of time with no notice. It’s really hard when things are moving so fast. But we did see a lot of new technologies emerge such as the QR code making a massive comeback in the restaurant industry. Just just a lot of experimentation with curbside and restaurants turning their menus into grocery shops, which are like restaurants that offer groceries and obviously the old versions of virtual restaurants. It’s been a really crazy last 12 months. So there’s so much to talk about. I have a lot of ideas for where things are headed as well. But but that’s that’s basically an overview of what what we’ve seen happen over the last 12 months.

Jenn Marston: I’ll echo that it’s been really devastating for a lot of restaurants out there. To me, one of the really attractive things about what you all are doing with NextBite is it, it seems like you’re in some way showing restaurants that there can be digital options, there can be strategies for doing delivery, and takeout and virtual restaurants without them having to go off and invest a bunch of upfront capital or sign, you know, really long leases with traditional commissary kitchens. But this seems like a, for lack of a better word, a more frictionless way for your average restaurant to be able to introduce another revenue stream without having to really overhaul what they’re already doing.

Alex Canter: I think you’re thinking about it correctly. When I think about what’s happening right now I see these vacant dining rooms that are that are way too large. You think about fine dining restaurants, full service restaurants. I felt this way even pre-COVID, but I felt like the restaurant market in general was already very oversaturated and very difficult to even be successful. First place because there are so many options. And as more and more people enjoy the convenience of delivery, the need for those large seating capacity diminishes over time. And the need for larger kitchen spaces actually is even more in demand than ever.

In order to produce food for both in-store and takeout, you need to have the means to have more kitchen space to have more staff to be able to produce work in the back of the house from the front of the house. And so I think over time, we’re going to see dining rooms getting smaller with a bigger emphasis on the size of the kitchen, which I think we’re starting to see a little bit with these new ghost kitchen facilities and commissary kitchens that are designed specifically for an off-premise and delivery and takeout experience.

But the desire to dine out at restaurants will never go away. People will always want to enjoy restaurants and hospitality, in the experience of celebrating a birthday going on a date, going out to eat with friends, that’s something that will never go away. But it’s tough for restaurants to even hit three to 5 percent margins on an annual basis. And that’s why a lot of restaurants fail in their first or second year. Even in a pre-COVID world, there was there were too many options. And now, you know, I’m hoping that this, this is somewhat of a market correction that’s happening, we’re coming out of this, the restaurants that do survive and make it out will be stronger. And, you know, it’s hard to know how long that’s going to take. But there’s still a very exciting restaurant market ahead of us that, you know, is gonna just be a little bit more advanced for from a tech perspective, from a digital family perspective. We saw a lot of restaurants, resisting off-premise and delivery for a long time. And now, you know, it’s their lifeline. It’s where more than 50 percent of their orders are happening. And even as they open up their dining rooms and make shift back a little bit, [off-premises] will be a strong part of the off the experience. I don’t see there being many restaurants who don’t have some sort of off-premises experience coming out of this.

Jenn Marston: Yeah, I would I would agree with that. Let’s talk for a minute about those big dining rooms that are currently sitting empty, because we were seeing some, there is some trickling back to the dining rooms, I mean, different states have different relax different regulations. At the same time, obviously, vaccines are slowly but surely getting distributed. So at some point in the near(ish) future, the option to go out and eat at a restaurant is going to be less less scary for folks, basically. But where do you see? And you could you kind of already alluded to this, but you don’t see this need for delivery, and takeout and curbside, and all these other formats going away.

Alex Canter: You know, I think I think the ordering demographic has really shifted over the last year. It used to be a lot of 18- to 34-year olds who were using these apps and placing orders on Doordash. That has really expanded to all generations, from teenagers to you know, my grandparents [use] Doordash because they can’t go out and don’t feel safe going to restaurants anymore. But now that they’ve gotten used to this platform, they have the Dashpass they have their address saved on file, their favorite order restaurants are order history. This is a convenience that’s not going away anytime soon.

That larger demographic is naturally going to mean that a larger percentage of orders volumes can happen [off-premises]. Also with business travel changing. You know, many offices have committed to hiring remotely and not going back to centralized workplaces. And therefore I think, you know, opportunities with catering are going to permanently shift. And I foresee more of the happening through delivery and takeout. Restaurants have to adjust and get used to that. There were so many restaurants that were that were largely dependent on big catering orders. I think the event spaces will return your weddings, large parties, stuff like that will start to open back up again, but probably not the same levels that we’ve seen in the past.

Depending on what type of business you are, you’re probably coming out of this a little bit different. You have to rethink the consumer experience. And you see companies like Sweetgreen implementing drive-thru [and] examples of restaurants understanding that their customer base wants to interact with them differently than maybe before. And that that’s where it’s really hard to adjust and make those changes, I think, you know, many, many SMB operators and mom-and-pop restaurants don’t have digital teams. People have marketing teams, traditionally, sometimes maybe the owners do need some of the marketing themselves. But there’s so much technology that’s available now. And it’s up to the restaurants to figure out, to experiment and figure out what works and what doesn’t work in a very quick way. And we’ve seen some really, really impressive restaurants, you know, very quickly understand that they can’t just sit around and wait for things to get better and change. But they have to go out and make the really hard adjustments. So their business models to their staffing to their to their tech stack to really embrace what’s happening rather than sitting idly by hoping that things are gonna get better.

Jenn Marston: I know you and your family obviously are in the restaurant industry. I don’t think we’ve mentioned that yet. But, and I know Canter’s was already pretty savvy before the pandemic, you all were doing the ghost kitchens and the off-premise and things like that. But just from your own personal experience and your family’s experience, you know, what is Cantor has had to kind of deal with in terms of this adjustment you’re talking about?

Alex Canter: Yeah, so Canter’s is one of the largest and oldest restaurants in Los Angeles. And we had a very devastating start to this whole COVID experience where we had to lay off almost 90 full-time employees, from from waiters, the busboys, dishwashers, some that have been working in the restaurant for 30, 40, 50 years. It was, you know, incredibly challenging to make that that common decision and we as a, as a restaurant, we knew that this was not going to be a sustainable operation in a delivery-only format. Until, you know, until we start to get more creative. Luckily, funding definitely helped, we probably would not be open today without it. But that’s kind of a short-lived solution.

We ended up having to rethink many reasons pricing rethink the the entire physical experience when you walk in, to cater to an off-premise-only demographic and, and you know, we luckily were able to make those pivots and changes very quickly. LA did allow outdoor dining, but we decided not to invest in converting our space to accommodate that because it was quite an investment for so much uncertainty of like, how long is this gonna last? And luckily, we didn’t because shortly after outdoor dining became that thing, they actually pulled it back again. And it’s it’s been an emotional roller coaster for all these restaurants trying to figure out how to make this work.

Especially in the beginning, there was so little notice [around when] these changes were going to go into effect. From an inventory standpoint, we prepared for full dine in service and then we’d get a notification tonight at midnight [about closing].

Luckily, you know, Canter’s is a very big name that has a big following in LA. And so we’ve done very well on a delivery only capacity. But it’s because we’re getting a couple 100 orders a day through these third party marketplaces. Not every restaurant has that kind of volume to be able to generate enough through these platforms to sustain a delivery-only operation. And I think, the sooner that more of these cities will open up person, even if it’s just for outdoor dining, 25 percent capacity, the more likely restaurants will come out of this. But I think there’s also something to be said for, you know, the staff and feeling safe. And I’m glad that I think as of today, people who work in the food industry, at least in LA County, can now get the vaccine, which I’m sure is happening more and more cities. And I’m, I’m hopeful that that will happen. That rollout will happen faster than anticipated. Because, you know, if if these restaurant employees were showing up every day and putting themselves at risk, aren’t feeling safe at work, it’s a very hard situation to navigate for an owner to try to, you know, keep the doors open. Restaurant staff is like family, and you don’t want to put anyone at risk or expose anyone to any dangerous situation. So even even in the beginning, when we wanted to stay open for delivery and takeout, there was some hesitation.

It’s been a journey to get to this point. But for my family’s restaurant, I think we’ll come out stronger again, just like we have for the last nine years, we’ve survived wars and recessions. It’s all because of this mentality of like, we have to adapt or die, we’ll have to make changes, embrace change, embrace new technology. And, you know, I think that’s been the key to our success over the years.

Jenn Marston: I think that’s a great point. What would you say to restaurants out there in terms of what are some of the most important things that they can do for themselves right now, to continue adapting, or if they haven’t done that much to get the ball rolling?

Alex Canter: First and foremost, if you have extra capacity in your kitchen, you should absolutely be experimenting with creating virtual brands, licensing other people’s virtual brands, but really trying to maximize the output of your kitchen. That’s a very low-hanging fruit in my opinion, which we’re seeing a lot of the chains starting to embrace now. We’ve seen announcements from everyone from Chili’s to Bloomin’ Brands to Applebee’s. Denny’s have experimented with luxury, several different menus, several different concepts running out of their kitchens, and those incremental orders are so critical right now. And you know, whether you try to do a virtual restaurant brand yourself or you partner with a company like NextBite or any others in the space, I think that is that is such an obvious way to to drive more orders into your restaurant every single day. So if you’re not doing that, or you’re hesitant for any reason, I highly suggest you try it and just see what happens. You know that there is a big learning curve to understanding how to get it right. And how to, you know, create the right menu and price it and promote it and optimize the placement within the platforms. It’s not as simple as just lighting up a menu on these platforms. But you know, start that process of understanding what works and what doesn’t work, because there’s a lot of opportunity just sitting there. And if you’re not, if you’re only running one, your own restaurant, every kitchen, I think you’re probably you probably have a lot more need for growth, unless you’re in and out of alignment your door every moment of every hour of every day. I think virtual restaurants can benefit everyone who doesn’t have that situation.

Jenn Marston: Any any thing else in terms of I know, we’ve talked in the past about? Also, it’s not a matter of just taking your existing menu and plunking it online, right? It’s, you know, maybe thinking about scaling it back or thinking about which foods might be best suited to this, these kind of newer formats and things like that.

Alex Canter: Yeah, well, you know, one, one strategy that I think every restaurant should be focusing on is shifting as much of your order volume from off-premise from third-party delivery to your own website or your own app. It’s easier said than done, for sure. But at a baseline, you should have an ordering button link on your website, whether it’s powered by ChowNow or Lunchbox or any of these companies that that allow restaurants to take orders directly. It is, you know, every order that’s happening on those platforms, you don’t have to give up as much of a percentage is it’s better. But the reality of the situation is that a disproportionate amount of the volume will still happen on third-party marketplaces. But there are a lot of companies focusing on restaurants creating their own digital strategy to get people to convert through their own service platform. So that’s something that everyone should be looking into as well.

Jenn Marston: I wanted to end just by asking a question, you put it really well, at the beginning of this conversation, we you talked about the just the sheer pace of acceleration and how we’ve, you know, in, what did you say we basically did 10 years in two months, in terms of just adoption and these changes. So as we move away from these widespread lockdowns and dining room closures and things like that, do you see this pace of tech adoption and delivery and takeout adoption slowing down significantly in the near future? Do you think we’ll kind of continue quickly for some time?

Alex Canter: Well, from pace perspective, I don’t think the percentages will remain the same. Look at the third-party marketplaces, all the ordering channels, they grew their businesses in some situations three to 5x last year. I don’t think any of those companies will experience the same kind of growth in 2021, just because so many restaurants were scrambling to implement delivery last year. But I see all of these these companies continuing their growth, just not the same pieces as maybe what happened last year.

You think back maybe 15 years ago, most restaurants didn’t even have a point of sale system. There was like maybe a credit card terminal and a cash register. And, you know, the, the evolution of this space has historically been slow. But now, it’s not a choice anymore. It’s something you have to really embrace and take on and and experiment with. And luckily, there are hundreds of great restaurant-tech companies out there that are helping businesses in different ways. And I think it’s really important right now to be experimenting with, with as much as we can handle from a bandwidth perspective. Because there’s a lot [of technology], as a restaurant owner, I probably was pitched by over 500 different restaurant tech companies trying to bring in new services. And some some of those technologies were game changing for us way back in the early days of Groupon or Yelp, or even a third party marketplaces themselves, these were companies that really carried a lot of volume for us. And, you know, without them, I don’t know if we would have made it this far. So it’s really, really hard to navigate this space, because there’s so much happening. It’s like drinking from a firehose and when you think about your tech stack and your strategy, especially as it’s moving so quickly, but I definitely am encouraging as many restaurants to embrace that experimentation.

Jenn Marston: Excellent. Well, thank you for chatting with me, Alex. And for those of you watching and listening, hope this has been helpful and we’ll be running quite a few of these videos and pieces over the next couple of weeks on the spoon. So thanks again, Alex. And Take care everybody.

Event Wrap: Restaurants Still Need Brand Equity, Brick and Mortar in a Ghost Kitchen Strategy

This week, The Spoon gathered a wide variety of restaurant industry players together to discuss the most pressing questions the restaurant biz faces right now around ghost kitchen adoption. Throughout the day-long virtual event, restaurant operators, tech companies, virtual restaurant owners, and ghost kitchen providers themselves weighed in on a range of topics, from the economics of going the ghost kitchen route to building a delivery-friendly menu to the tech powering the concept.

One of the most recurring questions to surface during the event was this: Do you still need a physical restaurant in order to make the economics of a ghost kitchen operation work?

Panelists almost unanimously agreed that, at least right now, you do.

“If you go on a delivery app only and you don’t have a brick-and-mortar presence, you better have brand equity,” Andy Wiederhorn, CEO of Fat Brands, emphatically stated during the event. And that brand equity is not easy to build. (More on that in a minute.)

Others pointed to the industry’s reliance on third-party delivery apps (DoorDash, Uber Eats, etc.) as a huge hurdle to running a 100 percent delivery-only restaurant that actually makes money. “When you move 100 percent delivery only, the economics you have with third-party platforms is going to matter more,” said Kristin Barnett, Head of Strategy for NYC-based Zuul Kitchens. On the same panel, Kitopi cofounder and chief revenue officer Bader Atul agreed there is a “strain on profitability” when you attempt to limit a restaurant’s entire existence to third-party delivery apps. This is because it’s difficult to offset the sky-high and highly controversial commission fees delivery services charge restaurants (up to 30 percent per transaction, in some cases).

For now, at least, restaurants should consider what multiple panelists called the “omnichannel” approach. Some ghost kitchens, like those of Kitchen United and Boise’s recently opened Crave Collective facility, offer pickup options in addition to delivery. Big brands, meanwhile, have the obvious advantage here, since they have deep pockets and a long history of brick-and-mortar business to go alongside delivery. If they’re not already in a certain market, as Chick-fil-a wasn’t when it started serving the California Peninsula area via its DoorDash Kitchens operation, existing brick-and-mortar presence elsewhere can offset the cost.  However, Zuul’s Barnett pointed out that smaller restaurant chains, such as those that operate out of Zuul, can also take advantage of the omnichannel approach. 

Other ghost kitchen providers, including Kitopi and Reef, operate off an entirely different model from the normal commissary kitchen by handling all of the operations of fulfilling an order and the restaurant gets a royalty fee. This method provides restaurants the opportunity of trying a ghost kitchen operation out without having to commit their own labor to the process.

Still others, including Alex Canter of Ordermark and Nextbite, suggested we are fast-headed towards a day when running a 100-percent delivery-only restaurant will be not just feasible but the norm. Nextbite, one of his companies, operates a portfolio of delivery-only brands and helps restaurants add these brands to their own operations. During this week’s event, Canter referenced one Nextbite client that had incorporated five of those virtual concepts into their restaurant and were doing “10 to 15 times more revenue through those brands” than via their own. He said more and more, his company hears clients ask whether they even need their brick-and-mortar stores anymore.

But part of the success of a virtual brand will depend on how well it can build the aforementioned brand equity—another major takeaway from this week’s event.

Multiple panelists agreed that running a restaurant out of a ghost kitchen is more than simply sticking a menu online and waiting for the customers to come. They won’t, if an online menu is the long and short of your branding efforts. Just as with brick-and-mortar restaurants, virtual eateries in ghost kitchens and/or dark kitchens need their own “brand identity,” to use a marketing cliche, something that sets it apart from the dozens of other similar options out there.

We returned to a chicken wings example again and again throughout the day. Your virtual chicken wings joint needs a compelling story around its origins, ingredients, and even basic marketing components like name and visual representation. Without those brand identity elements, your virtual chicken wings restaurant has little chance of standing out amid the dozens of other chicken wing offerings on delivery marketplaces. See ClusterTruck, who was at our event, as an example of a company that has mastered the art and science of branding a virtual restaurant.

Our event covered dozens of other topics outside of these two big takeaways. To watch videos of the panels and access more content, head over to our Spoon Plus channel and become a subscriber.