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The Digital Restaurant
Unlocking the Deficiencies of Delivery with Travis Kalanick at the Food on Demand conference
Join us in this insightful episode of The Digital Restaurant Podcast from the Food on Demand Conference at the Bellagio in Las Vegas. Dive into the discussions with industry experts like Andrew Custage from Medallia and Deena DePhillips from Red Robin, as they explore pivotal topics ranging from the impacts of delivery versus pickup pricing to the crucial decisions between building versus buying technology. Don’t miss Travis Kalanick's rare appearance at a conference stage, sharing visionary thoughts on the future of meal delivery and automation. Tap into the complexities and strategies behind restaurant technology, third-party platforms, and more. Whether you’re an industry veteran or a curious newcomer, this episode offers valuable perspectives on the evolving landscape of restaurant technology.
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Travis Kalanick speaks to the problems of delivery. We understand about why holistic technology is helping go-to foods take to the future and what would happen if we turned off marketplaces. That's all ahead on this week's special edition of the Food on Demand Digital Restaurant. The Digital Restaurant works like this we're going to ask each other five questions about headlines that affect the worlds of restaurants, off-premise and technology that in some way tie back to our book series. Delivering the Digital Restaurant. Are you ready? Let's go. All right, we're back at Food on Demand 2024 here at the Bellagio in Vegas. Have you had a good time?
Speaker 2:I've had a very good time. This is, of course, one of my favorite conferences. I love having so many restaurants together, all trying to go after the same opportunities, solve the same challenges and share so openly about how they're doing it.
Speaker 1:We are going to go through some of our highlights. There were a lot, probably far more than we can really cover, but let's go into the first one here. One of our favorite sessions to always tune into is the data session, where numerous different insights are pulled together, and Andrew Costage, at Medallia, in particular, talked about the impact of delivery versus pickup and also the way in which the world is perhaps being looked at differently when you think about what would life look like without third-party delivery. You know, is it really worth us putting through all the hassle and the pain? And so a couple of things will touch on with that. First of all, let's watch this video of how Andrew discussed the difference between customers understanding price, between delivery and pickup.
Speaker 3:If it was between pickup, where the total cost of the food would be $18, or, conversely, if they were getting delivery the food cost $18 and there's another $5 fee on top of that. In this case about a quarter would take delivery, the rest would take pickup. The other group saw a different question. They saw what would you rather do, pickup or delivery? Pickup's $18 for the food, delivery the menu price of the food is $23, but there's no additional delivery fee. All the way up to 37% now would take delivery and on a relative basis that's an increase of 50%. So as far as strategy is concerned of how to present the optics in a favorable manner to consumers, it seems that people are, whether they know it or not, more comfortable with just having an incremental cost of delivery built into the menu price, as opposed to seeing it in the form of additional separate fees.
Speaker 1:Okay, so interesting that what were your reflections? I?
Speaker 2:think it makes absolute sense and it completely ties with what we see on the third-party platforms, where they are constantly doing free or reduced delivery promotions, where restaurants will charge, say, a 49-cent fee for delivery or no delivery fee, which of course makes no sense because delivery does have a cost to it right.
Speaker 2:So clearly they're subsidizing it for the consumer. What that tells me, with the ease of A-B testing on the platforms, is that folks, both restaurants and the platforms themselves, have figured out that low or no delivery fees works with consumers, and if that means price has to be high somewhere else to pay for that cost of logistics, consumers don't seem to care.
Speaker 1:Yeah, if you can incorporate your delivery costs into your menu price, that's great. The thing that didn't come up there was to actually reflect on, well, how many people just chose not to choose either because of the menu price.
Speaker 2:That is true. I refused to do either was not one of the answers.
Speaker 1:You're only a few clicks away from another restaurant when you're looking at a marketplace in particular, right? So I think that is always the question and the best way of exploring it as, as you say, is A-B testing it trying to see not only do you see that shift between delivery and pickup volume, but actually what happens to your volume in its entirety. Okay, let's bring up this slide here, meredith, because I know you always like to go through the numbers. This one I particularly liked because it was saying well, what would happen if we were to stop doing third party? What is the incrementality effect? So the fact that you're not getting the incremental orders from a marketplace anymore, what would be the change that you'd need to see to be able to consider doing that? What are your reflections on this?
Speaker 2:This is a very interesting analysis. I think it's a little disheartening at first. When you look at it and you see that total gross margin of the dollars being brought in on third party versus if you're a late third party and take first party orders only, you kind of think to yourself man, that is a lot of effort for not that much more incremental money. Maybe not do it. Now, one thing to note is there's a note on here that says assuming 30% food cost, and so in this analysis, what that means, of course, is that the fictional restaurant in this case is not raising their price. If they were to raise their price, the food cost on platform would be lower. That would change the answer, and Andrew does go through the implications of what that would look like on the far right of the slide where he says okay, what you need to believe about incrementality certainly goes down if the restaurant chooses to raise price on third party versus on first party.
Speaker 1:And, of course, one of the other things that isn't mentioned here is brand discovery right the opportunity that you miss just by not being on a platform. It's a chance to be discovered and to have that chance for a customer to find out about you. And so when we think about marketplaces, it's not just about the order itself. It's also about just getting your brand out there so that customers can understand that that category exists, that perhaps your brand has come into a neighborhood that otherwise they weren't aware of, they liked it from, perhaps somewhere else. They discovered it and now they can actually experience it through delivery.
Speaker 2:Very true. And the way the math is working here, he's charging 30% for the third party platform cost, which, to your point that includes the cost of the fulfillment itself and the delivery driver, that includes a credit card processing fee and that also includes some degree of marketing, because you're in the food court. Of course, the platforms don't break these three things out, so we don't know what if that 30% is being attributed to what. But in the column where we're going through the leaving the third party situation, those would all have to be pickup, takeout or on-prem orders, because there is no fulfillment cost included in that analysis.
Speaker 1:So I think that's a stay on it. What do you?
Speaker 2:think, I do, I do. I think, as much as the third parties have created some headaches for the restaurant industry, they do bring an incremental one okay, so, uh.
Speaker 1:Next one I'd like to touch on is dina de phillips from red robin was in a conversation with joan george and a panel about a common question should we build the technology or should we buy it?
Speaker 6:so let's listen in to her thoughts on this particular subject and a kind of fun analogy about a dog fight we are definitely north of that 12 average provider, so we're probably 20 plus, and the problem with that is we get a lot of best of breeds together, like, I think, some best of breed. The analogy I use is you put some best of breed dogs in a cage, you're gonna get some dog fighting, and so there's a lot of facilitation that is required on us as clients to manage and facilitate, moderate between these different vendors.
Speaker 6:And I'll give you a little quick story. I had two vendors within five miles of each other and I couldn't get them in the same room to solve a biorhythmic problem and I literally had to fly and get them in the room together and they were five miles apart. So it's just a lot of facilitation when you have so many different vendors at play, playing together and integrating together. It takes a lot of energy. Together and integrating together it takes a lot of energy.
Speaker 3:The one thing that I would say the key word for us over the next couple years is consolidation.
Speaker 6:We're still going to be a buy shop. I'll be really honest with you. Build is too expensive for us at this point. We've also maybe there's a little bit of PTSD from our attempts to build, but we do have a strategy and effort to consolidate that tech stack from 20 to maybe 10 to 12 and start reducing it.
Speaker 1:Okay, so reflections on that.
Speaker 2:I love that one. We often say that a really advanced digital restaurant is probably running at least 15 to 20 different pieces of software to make all the magic happen, and that is indeed what she said. She said we're trying to go from 20 different pieces of software down to 12. And that will be a big win for them, because, of course, we love the word sassification, and the sassification of the industry has been incredible for the restaurant industry. I often talk about how there are so many things we built at Yum back in the day before SaaS was really a thing that now every restaurant has access to because of a subscription. It's absolutely incredible. It allows us to share the cost of development across many, many restaurants, which is a great thing. Now, her point, though, is, with so many different point solutions, you end up with a bit of a hot mess, and the fallacy of buy is that you're not just buying and like walking away. You're buying and then working really, really hard to get all of these best of breed solutions to work together.
Speaker 1:The amount of restaurant operators that I speak to that say there are some solutions out there that I absolutely love. I love the functions, the features, everything they can do for my business, but the fact they don't play well or integrate appropriately with the other tech systems is a reason I can now actually work with them. And so to hear that challenge that Dina was referring to about getting two tech vendors into a room to be able to solve the restaurant's problems- that's a pretty funny story.
Speaker 2:It's a very physical example of how difficult the digital world can be right, that was funny. Now, of course, I'm a fan of holistic technology and what we're starting to see in the industry unified commerce platform or consolidation of tech vendors, with them buying each other those are lots of different flavors like the same thing. Hopefully, over time that helps restaurants get the functionality they want and they deserve without having to manage this chaos of vendors.
Speaker 1:Yeah, so I think there's a lesson there for all the tech vendors listening in that it's important to be able to play well with others.
Speaker 2:So you and I hosted a panel together, that's fun. Yes, it was fun With Irvi Patel of GoToFoods and Maria Rivera of Small Sliders talking about the path to digital maturity and how their two restaurants are respectively tackling going along that path. Let's take a look at one quote from Irvi we need that technology, that common platform, to continue to evolve.
Speaker 5:We're going to make things more seamless and we're going to learn from it, because this isn't a simple thing. You have to have that connectivity across all of our brains. Let's think about what those opportunities are. What are the possible options for us in the future? And having a partner like you helps us do that. If we remain static with where we are today, with the traditional POS, we can't accomplish on we Channel, we can't accomplish the things that we really want to do with our customers.
Speaker 2:Okay, so what did you make of what Herbie had to say?
Speaker 1:Well, what I liked about it, quite honestly, was this theme that we talked about in the very last chapter around holistic technology. The value of what comes to a restaurant group when they can actually have technology that supports them not just as a POS but actually across the board, across the entire operating system, is the way at least we frame it. What I think is particularly powerful for go-to foods, given the fact that they have a number of different brands, is the way in which that's going to remove a huge amount of inertia and the way in which Irby was framing it there about how that's going to help them be able to innovate faster to give the customers a better experience, not just for one brand, but across all the brands. I think it's particularly powerful.
Speaker 2:Yeah, and I think being able to weave the data together across all the different brands, I think is going to be very interesting to see what they do with that. Of course, many of the folks come from a travel background, and so you can imagine this becoming something like a Bonvoy, where they have many different brands but one common tech underlying it all, one common consumer experience.
Speaker 1:It's not by chance that when you look at dime brands go to Inspire, that each of their CEOs come from a hotel background. So I think there are a lot of lessons coming from the hotel industry into the restaurant space. But it's also happening, don't forget, at a smaller scale. You think of the likes of Craigworthy, you think of the likes of Savory Fund. A lot of these groups now are starting to acquire smaller brands, but if you can build a technology platform underneath each of them, then those synergies are going to not only help you be able to service your customer better, it's probably going to help you run your restaurant group more efficiently too.
Speaker 1:Hi, carl, here Just to interrupt the show briefly to remind you that if you have yet to get your copy of either of the Delivering the Digital Restaurant books, now is the time to get one. If you head to thedigitalrestaurant, you're going to be able to get the best price available. You can also listen to both books with yours truly talking about them on Audible. You can get a copy off Amazon if you'd prefer to order through them. But if you haven't got the books yet, get them. They really are going to transform the way in which you look at the restaurant industry and the way in which technology is disrupting it. I was coming back from Saudi Arabia, 26-hour flight and I was rushing, rushing, rushing but I couldn't get back for probably the main event of Food on Demand this year, the elusive Travis Kalanick. It's finally come out of stealth mode. It seems to talk about cloud kitchens. You were there, you heard the talk. Let's give a few little snippets here of some of the key points that he was making.
Speaker 4:We have 300 billion total meals in the United States and only 1.9% are online delivered. Well, why is it? We all know that an online delivered meal you might think it's going to be 20 bucks, but it ends up being 35 because the logistics is so expensive. So we have this luxury priced product that has a mediocre sometimes worse than mediocre experience, and the question is can you reverse it? But if we continue to just break the bank every time we are doing an online meal, well, you're gonna get capped out at 2% or 3%.
Speaker 4:Somebody told me when I left Uber that 13% of all San Francisco miles were Uber miles. Can we do that with food? It's gonna take a lot right. The huge opportunity is when you get low price and convenience at the same time. When you do both at the same time. Can you do to the kitchen what Uber did to the car? Can you make the preparation, delivery of a meal so cost, efficient, so high quality, that it approaches the cost of going to the grocery store? If you do, then you start to pay a service to do this thing that we used to do for ourselves. And so what is that destination of where this all goes when a meal is prepared and delivered to you starts to approach the cost of going to the grocery store, when the kitchen becomes more of a hobby over time, versus the main place where all your meals come from that destination.
Speaker 4:I call the internet food court. Destiny shape. I call the internet food court. We have principles of the internet food court. One anything a consumer wants, the internet food court can make. You just lay back, dream of whatever it is you want right now. The internet food court should be able to make it.
Speaker 4:Two those items are going to be highly personalized. But whether it's gluten or how much carbs you have in it, or dietary preferences or you name it, that internet food court is going to be hyper personalized. It's also instant gratification. It's not going to be a situation where I order the food and maybe it comes in a half hour, and maybe it comes in an hour and a half and maybe I get what I'm supposed to, what I actually asked for. It's going to be something where, like, shouldn't this come in 10 minutes? And then it value maximizes for each individual, personalization for what is valuable to me.
Speaker 4:It may be that convenience is the most important thing and I'm willing to pay for it. Okay, let's make that happen. It may be that the quality is what counts, but convenience doesn't matter as much. Each person sort of has their own values and optimizing for them is going to be really important to make this work for them and, of course, to get the cost of that meal down. Production has to be completely automated and logistics needs to get completely automated. There's a road to get there. We call it infrastructure for better food. That's the mission of my company, that sort of less than mediocre burger on the left there. He has aspirations for becoming a better, faster, cheaper burger.
Speaker 1:Okay, so really interesting. I like the analog there between Uber and how that could perhaps transform itself into food.
Speaker 2:I thought it was an excellent problem statement.
Speaker 2:First, of all he did such a good job laying out first, I think, where we're headed as a country. The way I would put it is my grandmother made my mother's clothes. My mother made a few special things for me. I have never once made Lincoln anything Right, and I think as a nation, that's where we're headed.
Speaker 2:You know, food away from home is now larger than food at home spend. In the United States. The fastest growing areas are all convenience areas, whether they're C-stores, qsrs or delivery itself, and that's really showing, I think, that Americans are moving toward a more and more prepared world and doing less and less themselves. Then he said oh wait, there's a problem right Of the 300 billion meals that we consume every year, only 1.9% of them are delivery. And before anyone gets wrapped around the axle the numbers there, if they're used to hearing something more like 10% delivery, he's including all meals, including those that we're currently cooking, right? And he's saying how do we get that number up? Maybe as high as what we had over miles of a percentage of total miles driven in San Francisco to 13. How do we do that? Well, we've got to make the quality better and make the price lower, and that's what's required and that's what he says he's building with his multiple companies inside Citi Storage Solutions, which include, yes, cloud Kitchens, but also Otter and Lab 37, which is working on automation. Now will all of those things coalesce into something that is more affordable and also incredibly convenient? That remains to be seen, but the vision is absolutely there.
Speaker 2:It was great to hear directly from Travis about what it is that he's trying to solve and why he's so passionate about it. That was very interesting. The one thing that I think restaurant people in the room might be a little concerned about is the fear that we've all had Elsewhere. In the speech he said that 15% of delivered meals flow across the Otter network. Otter serves as an aggregator for many restaurants that are not even in clouds, right?
Speaker 2:Yes, if you're a restaurant in cloud, you're using it, but it's also so to many restaurant locations across the US. So he said, 15% of all delivered meals are going through our. So that's a lot of data for anyone who's been tracking the data about who's ordering what and where, right. And then he talks about the only way to bring the price down is to lower the cost of logistics and to automate the kitchen. So now you've got someone who's building these huge facilities. A bunch of robots has all the data At some point does he need the restaurant? I don't know. He did not say that, but I think that is what the industry is sort of secretly afraid of, particularly given the eight years in stealth mode and so little communication coming out of the company.
Speaker 1:Yeah, I think it's interesting. I asked a friend to ask him at a recent dinner are you trying to take on the marketplace as well? Maybe there's an angle here associated to if you can solve all of those things, if you can drive the volume, if you can do it more efficiently, then why wouldn't you also want to be on a marketplace that can offer that as well?
Speaker 1:So, who knows what the Travis is going to come up with Uber Eats 2 at some point in the future. But I think it was great to be able to have him there, to be able to have him share his vision. I think the other thing that was particularly, I think, welcomed was the fact that he also hung around. He was there for our session, he was there for the drinks afterwards at the end of the day.
Speaker 1:So nice to be able to have someone that's been such a fundamental supporter of the digital system that exists for restaurants. To be able to have him there at this conference was super powerful, so I know the organizers were very appreciative of having him.
Speaker 2:Customer data continues to be a big issue in the world of delivery, especially third-party delivery. Big issue in the world of delivery, especially third-party delivery, and two of the different speakers had a lot to say to the third parties about their data.
Speaker 7:We absolutely embrace not only third-party as a channel but as a marketing move. As you said, it's an acquisition piece. It's a really important awareness and consideration channel from a marketing standpoint and true different pivots on it for each brand based on where they are and dynamics like in mall or not, but definitely an important channel. I think the data piece is super critical. Our point of view would be it's a partnership and it should feel that way, because if you get the economics of it right, then it's profitable for everybody the franchisees as well as the dsps and the more information we can get. That is truly about ongoing purchase patterns of customers. That truly takes a customer and follows them through a pipeline that gets a double click around some of the operational metrics. There's just so much more rich data there.
Speaker 2:Okay, so we just heard Danielle Portopara and she was sharing her perspective on partnership. You want to talk a little bit about what you heard there?
Speaker 1:Yeah, look, I think this isn't something that should surprise anyone. The restaurant operators everywhere are saying they'd like to get access to more customer data and they'd like to see marketplaces act with that more partnership-orientated fashion, and we get it right. But there's this conflicting momentum, I think, with regards to what does a marketplace want. Do they want people to come back to their platform? What does a restaurant want? They want them to come back and order from their restaurant, ideally through a direct channel. But, with all that said, what's interesting is how the big guys are getting treated differently to the little guys, and I think when you see Joe Reinstein talk about this and where he says about the difference, not only in the commission rates, which you can understand because of economies of scale, but actually how the big guys also have the ability like you shared in the example here with McDonald's to be able to add on a little checkbox to get customer data just feels like there is this difference between how a small operator is going to be treated to the big enterprise groups, and that, of course, makes it even more challenging, because we brought up a few slides showing restaurants near the Bellagio, which is where we are here in Vegas, and he showed on Yelp a variety of different restaurants, some independent, some small operators, some larger. He showed the same on Google, but then when he brought up a marketplace, everything was an enterprise brand and so, even because of the advertiser spend and the way in which a lot of these larger players are now obviously getting to the top of the listings, it's more difficult for the small guy to stand out. So a number of issues coming up here, not just on the customer data side, but also on just the discoverability.
Speaker 1:A really great show. We had a great time here. Thank you to jared pfeiffer for inviting us, as always Really appreciate the chance to be able to speak to many of the folks that have come to say hello to Meredith and I to talk about the book. We gave a bunch of books away as well, which was great. We'd love to hear your thoughts. If you were at the show, what stood out to you? What were some of the things that really were insightful? What did you learn? And, if you, what questions do you have for us? But hopefully you enjoyed this special edition of the Digital Restaurant and we'll see you next time. The Digital Restaurant podcast is available for you to follow and subscribe. Wherever you listen to your podcasts, watch us, rate us and subscribe to the Digital Restaurant on YouTube and follow along on all our social media Digital Restaurant channels. Thanks for listening.
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