Close Ad

The Spoon

Daily news and analysis about the food tech revolution

Ordermark

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.”

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.

2020: The Year the Ghost Kitchen Got Complicated

As an old saying goes, “Anything can happen, and most usually does.”

And it sure did happen in 2020 for the restaurant industry. Pandemic. Dining room shutdowns. Permanent closures at alarming rates. A seismic shift to takeout and delivery formats. More shutdowns. Complete uncertainty over the state of indoor dining coupled with growing panic over the state of the independent restaurant. 

Personally, I think it’s foolhardy to try and meaningfully condense what happened to restaurants in 2020 into a few hundred words. So as we close out this dumpster-fire of a year and head to 2021, I’ll pinpoint one part of the biz that’s been talked of constantly these last several months: ghost kitchens.

Right around the end of 2019, we were already fixated on the ghost kitchen. In a predictions piece I wrote at the time, I said, “This is part of the restaurant industry that will change rapidly over the next year as it becomes more commonplace among both restaurants and consumers.”

All that wound up being true in 2020, not because I’m some predictions wizard but because a global health crisis forced the restaurant industry into off-premises formats like takeout, delivery, and drive-thru. Because these formats don’t require a dining room to function, they are inherently suited to the ghost kitchen setting. Ghost kitchens, after all, were designed to serve to-go customers, typically those ordering through mobile apps and other digital properties. 

But one thing that was made clear in 2020: ghost kitchens are not the end-all, be-all savior of the restaurant industry. In fact, throughout the year, multiple restaurant industry figures raised questions about the commissary model in particular.  

Back in March, when COVID numbers were initially rising, former Kitchen United CEO Jim Collins cautioned restaurants to think hard about whether their business generated enough demand to justify the cost of a ghost kitchen operation. Similarly, Andy Wiederhorn CEO of Fat Brands, said in July that ghost kitchens “simply work better for brands that have existing fanbases” (a point he repeated at our ghost kitchen event earlier this month).

I bring up these reservations not to further cast a cynical shadow but to illustrate another important takeaway from 2020: that because there are still so many uncertainties for restaurants over the traditional commissary model, other forms of the ghost kitchen concept have emerged that make running an off-premises business more feasible for more types of restaurants. 

Over the last year, we saw the growing popularity of the so-called “dark kitchens.” These are underutilized kitchen spaces restaurants are using to fulfill their delivery and off-premises orders. Fat Brands is one notable example of a company using its own restaurants as dark kitchens for sister brands. Ordermark/NextBite, meanwhile, built out its business this year of pairing restaurants with unused kitchen space in order to deliver (literally and metaphorically) more meals from virtual restaurant concepts. Another great example is Hi Neighbor, a San Francisco restaurant group that had to close because of the pandemic. Its response was to use one of its shuttered kitchens to accept and fulfill delivery orders for its own virtual concepts. Hi Neighbor is just one local example of a trend happening nationwide.

In the second half of 2020 (right after Euromonitor predicted the ghost kitchen market would be worth $1 trillion by 2030), we saw massive amounts of investment dollars flow into the space, from Zuul’s $9 million fundraise to a $120 million investment in the aforementioned Ordermark to the $700 million raised by Reef. There were plenty of other financial milestones in between those figures.

Alongside those investments, even more formats emerged of what a ghost kitchen might look like and how it could become more efficient. ClusterTruck, which has operated a vertically integrated delivery business for years, teamed up with Kroger to turn the latter’s deli counters into a kind of ghost kitchen. More recently, Crave Collective opened in Boise, Idaho to show us what a fine-dining take on a ghost kitchen looks like. And the QSRs, finally got onboard, with everyone from Chipotle to McDonald’s unveiling new store formats that minimize or eradicate the dining room and are in effect their own version of a ghost kitchen.

The most unanimous takeaway of the year was this: the ghost kitchen, in its various forms, is here to stay. We may be inching closer to a widespread vaccine for COVID, but the restaurant industry has already completed the shift to off-premises-centric businesses. There’s no going back at this point.

Even so, we leave 2020 and enter 2021 with plenty more questions when it comes to how one best runs a ghost kitchen. What is the role of the chef — an artist, by rights — in this off-premise-centric new world? How long will ghost kitchen operations be tied to third-party delivery services increasingly bent on calling the shots for restaurants? What about the mounds and mounds of packaging waste being generated by all this innovation?

If 2020 was a year about making the ghost kitchen more efficient, 2021 should be about the role the ghost kitchen plays when it comes to the restaurants, chefs, drivers, and other people whose livelihoods are now tied to it.

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.

The Food Tech Show: Lab-Grown Meat vs. The Internet

Happy Friday!

Heading out early for the final weekend before election day? Listen to The Food Tech Show podcast on your way!

In this week’s editor roundtable episode of The Food Tech Show, we talk about whether lab-grown meat can scale like the Internet, Ordermark’s massive new funding round earmarked to help them build out their ghost kitchen and virtual restaurant strategy, Coca Cola’s acquisition of a coffee robot startup, and whether or not the term “veggie burger” has a future in Europe.

As always, you can find The Food Tech Show on Apple Podcasts or Spotify, or just play directly below.

Ordermark Raises $120M to Build More Virtual Restaurants

Restaurant tech company Ordermark announced today it has raised a $120 million Series C round led by the Softbank Vision Fund with participation from existing investor Act One Ventures. According to a press release sent to The Spoon, Ordermark will use the new funds to “help more restaurants transition to online ordering during the COVID-19 pandemic and beyond.”

Ordermark has been helping restaurants incorporate off-premises orders into their operations since long before the pandemic. The company’s hardware-software combo consolidates all order tickets (delivery, takeout, in-house, etc.) into a single channel to make the management of these tickets easier for restaurant staff.

The company has also been something of a trailblazer in the world of virtual restaurants through its Nextbite platform, which is Ordermark’s portfolio of delivery-only brands. Most recently, Nextbite launched rapper Wiz Khalifa’s Hotbox restaurant concept, much to the delight of munchies fans everywhere.

Ordermark/Nextbite relies on underutilized kitchen space in restaurants to fulfill orders for these virtual brands, which gives the restaurants themselves a chance to build up some incremental revenue. While today’s press release did not specifically name new brands or restaurant partners, the company is clearly looking to build out this virtual restaurant portfolio. Jeff Housenbold, Managing Partner at SoftBank Investment Advisers, said in the release that Softbank will “support [Ordermark’s] mission to help independent restaurants optimize online ordering and generate incremental revenue from under-utilized kitchens.”

Alex Canter, Ordermark’s cofounder and CEO, added that restaurants “must get creative by embracing technology and new sources of revenue generation to reach customers outside of their four walls.”

Ordermark said that since the start of the COVID-19 pandemic, Nextbite has launched 15 brands and has added over 1,000 delivery-only restaurants nationwide.

From Wiz Khalifa to Tyga, Are Celebrity Ghost Kitchens the Next Big Thing?

Throughout the latter half of 2019, a prediction that came up repeatedly here at The Spoon was celebrity chefs launching their own virtual restaurant concepts. What we didn’t anticipate was just plain ol’ celebrities getting onboard the trend, but that’s exactly what’s happening now.

An announcement this week from delivery integrator Ordermark added more momentum to the celebrity-as-virtual restauranteur trend: rapper Wiz Khalifa forthcoming Hotbox concept.

Wiz Khalifa’s Hotbox restaurant, which is slated to open October 1, will feature a “top-shelf munchie menu” curated by the rapper and powered by Ordermark. The full menu is not available yet, though a couple featured items — the “Taylor Gang Turkey Burger” and “Blazed Ends” dishes — give a pretty good idea of what to expect once the restaurant launches.

Restaurant owners wanting to cook and deliver the forthcoming Hotbox menu from their own kitchens can do so by becoming a fulfillment partner via Nextbite, the delivery-only restaurant company owned by Ordermark. In other words, your local mom-and-pop can now become a ghost kitchen for the Wiz Khalifa brand. That in turn could provide restaurants with some much-needed incremental revenue that might keep some from completely going under during this strange and challenging time for restaurants. 

Cooking someone else’s menu from your own restaurant kitchen isn’t a brand-new concept. As I said, it’s a form of a ghost kitchen that’s employed by the likes of well-known chains like Fatburger and Wow Bao. Tacking a celebrity name to the concept is an intriguing twist on this. A virtual Wiz Khalifa restaurant will generate a certain amount of interest inherently because of the rapper’s status. And if the food winds up being tasty and affordable, there’s potential for restaurants to tap into a Khalifa’s huge fanbase. 

The celebrity-turned-restauranteur thing isn’t brand-new, either, though it’s only been in the last several months we’ve seen this concept go virtual. Rapper Tyga operates a delivery-only restaurant featuring chicken bites. Steve Aoki has a virtual pizza joint called Pizzaoki. Rachel Ray, launched a limited-time virtual restaurant with Uber Eats last year.

And with off-premises orders still the main sales channel for restaurants, delivery companies looking to diversify, and ghost kitchens becoming the norm, the above examples are just the tip of the proverbial iceberg. 

Here’s a Rundown of Restaurant Tech Deals Available to Struggling Businesses

As more restaurants are forced to pivot to off-premises models in the fight to stay alive, it seems more tech companies are coming to market with hardware and/or software meant to speed up, simplify, automate, and more efficiently manage delivery. And in the spirit of simplifying things, I’ve rounded up a number of those solutions here that address different parts of the off-premises model. 

Just remember: there are tech solutions that solve problems and, as a friend of mine once said, tech solutions in search of problems. Reduced fees or no, not every product or service is going to be useful, and what improves one restaurant’s business could be a total distraction for another.

Order-ahead app Allset has a contactless pickup option at participating restaurants. For all existing restaurant partners that provide the contactless pickup option at their stores, the company is waiving commission fees.

Delivery orchestration platform Bringg launched its BringgNow feature months ahead of schedule. The new feature helps larger chain restaurants, among other businesses, manage delivery orders, track drivers, make last-minute adjustments, and integrate with third-party platforms. BringgNow is free to new users at this time.

Chowly, whose tech helps manage delivery orders, is offering a “no cost” starter package to businesses needing to quickly pivot to delivery models as more cities and states shut down dining rooms.

DailyPay, an app that lets restaurant workers access their earnings immediately, has waived all access fees so that individuals using the service can get their earned income immediately. 

POS and guest management software platform Epicuri is waiving set up fees and offering a 60-day free trial with no commitment for restaurants right now.

Paytronix just launched a new cloud-based solution that lets restaurants add online ordering and delivery to their existing POS systems and, for those who want to conduct delivery in-house, integrate with DoorDash.

Presto is giving away free self-service kiosks that at this point can be used for pickup orders. In an email to The Spoon, the company also said it is also “offering Presto Quick Serve drive-thru kiosks, staff handhelds, and smartwatches completely free.”

Ordermark, a software-hardware platform that streamlines the process of accepting, managing, and fulfilling delivery orders, is waiving all setup fees right now, according to an email sent to The Spoon.

Restaurant order management platform Revention is offering an Online Ordering and Delivery Starter Bundle for a reduced price. It includes a POS terminal, optional DoorDash on-demand delivery service, and remote installation.

Guest management platform Sevenrooms now offers a feature called Direct Delivery that gives restaurants more ownership over their customer data on delivery and takeout orders. For the next 90 days, existing and prospective Sevenrooms customers can add the feature on at no extra cost. 

End-to-end platform Toast has eliminated software fees for restaurant customers for the next month and will provide those customers with free access to its digital ordering, marketing, and gift card programs for three months. 

Operations platform Zenput says it is “offering operators that are new to Zenput – at no charge or obligation through the end of June 2020 – the ability to use our platform to build-out, communicate, and ensure compliance with their COVID-19 processes.”

Online food ordering platform Zuppler is offering free setup and reduced pricing for restaurants and caterers who want to add online or Google ordering to their websites.

Over the coming weeks, we’ll know more about which products and services are most beneficial to restaurants trying to survive the current situation in which the industry finds itself. In the meantime, drop us a line if you know a company or product you think should be on this list.

‘Pare Down Your Menu’ and Other Advice for Restaurants Forced Into Delivery

States continue to mandate that restaurants shut down their dining rooms, and across the U.S. major chains are voluntarily switching to off-premises-only models. Those measures are necessary right now as we try to slow the spread of COVID-19. But where does that leave smaller businesses with less robust delivery programs or no off-premises strategies at all?

Plenty of restaurant tech solutions exist that can speed up and/or simplify a delivery strategy. However, I talked with several individuals this week who own and/or manage such solutions, and they made it clear that right now, there’s a whole lot restaurants can do to improve their delivery operations without forking over thousands of dollars on technology.

“Before you even get to the technology, what you really have to figure out is if you’re equipped to do off premises,” says Sterling Douglass, cofounder and CEO of Chowly. “What kind of food? What’s the menu going to look like? How are you going to staff it? Can you afford to staff it?”

Douglass, along with Alex Canter and Charlie Jeffers of Ordermark, and Jim Collins of Kitchen United, took time this week to chat with me and offer some simple steps restaurants can take today to kickstart their off-premises strategy right now.

1. Pare down your menu.

Pivoting to delivery doesn’t mean necessarily mean throwing your existing menu online and dishing up the same meals in to-go boxes. There’s a reason pizza was a delivery item long before any other kind of food went mobile: it travels well and it’s relatively simple to make. 

Thinking along those lines, restaurants should assess their existing menus and decide which items best translate to a to-go scenario. “What they need to do is trim down their menu, look at the items that are easy to procure and produce, so they can make a menu and put it up online and make easy items they can get out that are going to travel well,” says Jeffers. Fried chicken, for example, tends to hold up in transit. Scrambled eggs: not so much.

Jim Collins, who in addition to being CEO of Kitchen United also runs his own restaurant, suggests restaurants create things like family-style options and, if possible, include beer and wine options. “These things will help you stay relevant to the consumer as we move forward.”  

And if there’s leftover inventory from items you can’t make right now? Canter suggests getting creative about how you can repurpose and sell it:  “[Restaurants are] selling frozen items on Postmates. You can sell frozen soup or frozen take-home pizzas and cookie dough.”

2. Consider using multiple delivery platforms.

Unless you have the funds to power your own delivery operation (marketing, drivers, technical logistics), the reality for most restaurants right now is that they need to partner with third-party platforms like DoorDash and Postmates. If possible, they should partner with all of them.

“More and more, restaurants are realizing that to sustain a business solely based on delivery, they need to increase their volume and that typically means being on as many platforms as possible. Instead of picking one or two it’s really critical for restaurants to be thinking about an omni-channel strategy,” Canter says.

An eMarketer forecast said much the same thing a while back, noting that “more options for customers” would be a key growth driver for delivery in the future.

Companies like Ordermark and Chowly, and others legitimately do come in handy here: they will set a restaurant up on multiple different delivery platforms as part of a single package deal. Otherwise, the restaurant owner or operator would have to go through the same lengthy process for each service. “Opt in to all of the marketplaces but work with someone like ChowNow to get direct ordering working as well,” suggests Collins.

3. Adjust your staffing.

This one is honestly hard to write about, especially since earlier this week, the National Restaurant Association estimated the loss of 5–7 million restaurant industry jobs. “At my family’s restaurant, we’ve had to tell the bulk of our staff to not come in,” says Canter. “That means for us, we’re a sit-down restaurant [with] waiters, bus boys that are no longer needed to support a delivery-only situation.”

He adds that running a delivery-only business requires “a very minimal skeleton crew,” which sadly means owners and operators are going to have to make some hard decisions around staffing in the near future. “This is unfortunately the situation at hand. It really comes down to repurposing your best employees to shift them to focus on the takeout and delivery side of the business.”

4. Accept that delivery is “a must” right now.

We can’t have a discussion about restaurant food delivery without at least acknowledging how controversial and frustrating third-party platforms are for restaurants. I’ll spare you yet-another rant, though, because right now, the unfortunate reality is that the majority of restaurants need to partner with these platforms right now.

“At this point, when restaurants are no longer able to provide a dine-in experience, the only way to stay open is by having a delivery program,” says Jeffers. “Most restaurants don’t have the marketing spend or the following to survive on their own.”

“If you’re a restaurant and you’re not doing delivery, you need to immediately implement a program. Just being on DoorDash and Postmates, you now exist to the people who use these apps. It’s not just worth it, it’s a must,” Canter adds.

Right now, the restaurant industry is banding together to help restaurants accept and implement this new reality of off-premises business, whether its by offering tech solutions, support for workers, and help hotlines to answer questions.

“You’re not alone,” Canter says to businesses. “Every restaurant is trying to figure out the best way to get through this.”

 

Uber Eats Using Discounts and Ad Space to Entice More Restaurants

Uber Eats and Ordermark announced a partnership this week that will offer service discounts to Ordermark restaurant customers who also leverage the Eats platform for their delivery needs. According to a press release sent to The Spoon by Ordermark, the partnership will make it “easy for restaurants to participate and manage off-premise orders.” It could also help Uber Eats woo more restaurants into becoming more loyal and longtime partners.

Ordermark’s technology helps restaurants centralize incoming orders from the many different channels in which they originate nowadays — in-house, delivery, takeout, etc. The technology pushes orders placed via Uber Eats directly to the kitchen without restaurant staff having to use an extra device or manually input the orders into the main POS system.

According to the press release, restaurants that sign up with Ordermark and request to use Uber Eats as a delivery partner can get their initial setup fees waived by Ordermark and are also eligible to receive a discounted rate on Ordermark services (actual discount numbers were not disclosed). While not the most earth-shattering news of the week, it’s also not insignificant, given the ongoing battle between delivery services and restaurants over sky-high commission fees and the fact that we’re seeing more companies like Ordermark come to market with solutions that promise to simplify both operations and financials for restaurants when it comes to delivery.

In another bid to entice more restaurant partners, Uber Eats is also reportedly selling ad space inside the Eats platform to restaurants. TechCrunch reported a job listing for an Uber Eats Ad Lead, which was confirmed by Uber. “There’s a bunch of different ways we can work with restaurants over time. If we have all the restaurants on the marketplace and we give them tools to help them grow, then this will be a very efficient marketplace,” Uber told TechCrunch.

Both developments come on the heels of Uber’s most recent earnings stats which, while not quite as abysmal as the previous quarter’s numbers still show the company posting more than $1 billion in losses. Losses for the Eats business grew to $316 million, up from $198 million one year ago.

Like Grubhub, who just saw its sharpest one-day decline in its entire history as a publicly traded company, Uber Eats is struggling to show investors it can be a profitable business. Firmly entrenching more restaurants into its ecosystem with discounts and ads could help Eats. Unfortunately, it’s a wait-and-see scenario as to whether that will be enough.

The Week in Restaurant Tech: Ordermark and Omnivore Team Up, Employees Get On-Demand Pay

The restaurant biz may have once been seen as slow to adopt technology, but that’s less and less the case these days. In fact, between all the apps, kiosks, back-of-house systems, front-of-house software, automated pickup cubbies and enough other developments to fill a 600-word post, restaurant tech is a bit of a juggling act to keep up with lately.

A bird’s eye view of the scene every once in a while helps, so with that in mind, here’s a quick look at some highlights from this week in restaurant tech:

Ordermark and Omnivore team up for POS integration.
Los Angeles-based Ordermark, whose hardware-software package streamlines third-party delivery orders into a single dashboard, announced this week it has partnered with POS integration company Omnivore. The deal will allow any restaurant using certain POS systems, including Oracle Micros, Brink, and Dinerware, to integrate with Ordermark and aggregate orders from popular third-party delivery services like DoorDash and Grubhub.

Ordermark, who recently raised $18 million in Series B funding, serves major chains across the U.S., including TGI Friday’s and Subway, while Omnivore works with some of the biggest POS systems (see above). According to the press release, the combined integration “addresses over 85% of [restaurant] venues in North America.”

Waitbusters integrates with Postmates.
Waitbusters is one of those restaurant-tech companies that started with a narrow focus (getting rid of wait times at restaurants) and has since expanded to offer more features, including table-management features and some marketing. This week, the company also delved into the delivery world by adding a Postmates integration that’s aimed at restaurants that don’t have their own delivery fleet and may not be able to afford commission fees for third-party delivery services.

Restaurants are offering on-demand pay for employees.
With so much of the restaurant biz going “on demand” these days, it was only a matter of time before employee paychecks did likewise. QSRs are now offering ways for workers to instantly access their earnings. Third-party payment company DailyPay offers this feature via patent-pending technology that tracks employee earnings and lets them transfer funds, for a small service fee, instantly to their bank accounts. This week, NRN reported that Burger King franchisee TOMS King and LA-based chain Sprinkles Cupcakes both use the service in the hopes of curbing employee turnover and appealing to Gen Z workers accustomed to on-demand, uh, everything.

Backyard Burgers modernizes its chain with Qu’s POS.
The popular burger chain Back Yard Burgers announced this week it has teamed with POS company Qu to replace the legacy tech still hanging around its 28 locations. Back Yard Burgers, who is headquartered in Nashville, TN and has stores around the Southeast U.S., is on a quest to modernize its operations, particularly when it comes to standardizing and centralizing orders from disparate sales channels. Qu’s platform specializes in just that, integrating orders from web, mobile, and kiosks as well as those made in house.

Paytronix buys Open Dining.
Customer engagement company Paytronix this week completed its acquisition of food-ordering platform Open Dining. According to a press release, the new solution will let customers “use online ordering with integrations to point of sale (POS) and third-party delivery partners such as DoorDash and Grubhub.” Ohio-based Open Dining focuses mainly on small- to mid-sized businesses. With the acquisition, it will rebrand as Paytronix Order & Delivery.