FEB 2020
Nearly a month into a new decade, the themes we’ve followed through the 2010's are developing into meaningful change in the restaurant industry. Here’s what’s top of mind for us in 2020.
Business models continue to evolve to capture and retain digitally savvy consumers.
Commissary kitchens (aka ghost kitchens, aka dark kitchens) have exploded in popularity as consumers become conditioned to the convenience of online ordering and delivery.
These capital-intensive business models feel perfectly suited to this moment, but that doesn’t make them sustainable. In the 2010s, several similar businesses launched, backed by millions of dollars in capital, to quick demise.
Past failures haven’t deterred well-funded companies from entering the business. Uber founder Travis Kalanick’s new venture, Cloud Kitchens, has raised hundreds of millions of dollars for its ghost kitchens. DoorDash, currently valued at around $13 billion, opened its own commissary kitchen last year in California.
Today, these spaces are billed as alternatives to the expense of building out a restaurant for concepts of any size. Small or new-to-market concepts a place can use a shared space to launch a delivery-only restaurant business; larger enterprises and established businesses can use them to grow.
The best outcome for the industry now, said Brita Rosenhiem, partner at Better Food Ventures and co-creator of the Restaurant Tech Ecosystem map, are “ghost kitchen concepts that are thoughtful about incorporating technology in order to increase efficiencies and be true partners to brands they’re working with.”
In most cases, the company running the facilities takes a cut of each order, and in some cases, customer data is up for grabs. This is a huge concern, especially given the current state of affairs in third-party delivery — slim margins for restaurants that are getting slimmer.
One interpretation of this that allows a restaurant to have complete control: bring the kitchen to the customer. Washington, D.C.-based &pizza announced last year that it would deploy a fleet of trucks operating as mobile kitchens, raising its brand profile and testing the potential for success in new neighborhoods.
Looking forward, we’re interested to follow more smart ideas like these that allow businesses to diversify their revenue streams without giving away data or profits.
Business braces for a potential economic downturn
The future of the U.S. economy isn’t decided, but the beginning of the decade is already characterized by an urgency among restaurant businesses to own their customer relationships. In the last decade, operators found their margins increasingly eroded by external forces – rising rents and labor costs, third-party delivery providers, and moving forward they’re looking for tech solutions that allow them to maintain control over their own brands and customers.
“This will push success for white labeling. It’ll push for new solutions to help businesses stay in business,” said Rosenhiem. “Businesses should start putting tech building blocks in place now.” We’re keeping an eye on technology that increases high-value customer retention: customer relationship management (CRM), loyalty, rewards, and others that help a business increase its margins. smarter marketing, using personalization to drive increased order value, or simply minimizing third-party fees via white label solutions.
Plenty of tech companies rose to prominence in this space in the 2010s. In the next decade, we expect operators to take a step back and analyze which solutions provide real value. “It’s recognizing that the investment today will pay off tomorrow, which takes trust or sometimes convincing a board or management team,” said Rosenheim. “That’s about insulating the business for this economic downturn and increasingly tech-savvy competitors.”
Technology is no longer niche
...and companies who invested early and often with a clear plan are reaping the benefits. The 2010s were a proving ground for technology in restaurants, some deemed successful, others failed miserably. We’ve watched technology move from a nice-to-have to a core business strategy — businesses large and small are adding chief technology officers to their teams, for example.
There are a lot of reasons that not every restaurant can be Sweetgreen (though many want to!) which, among its tech-forward initiatives, does 55 percent of its order volume via mobile app. Once small or regional chains like Washington, D.C.-based Cava have used technology to expand across the country. Chipotle, which once felt like it would never crawl from beneath months (and months) of negative press around foodborne illness, has executed a complete turnaround, largely based on its technology investments, from order ahead to loyalty to actually revamping restaurants to accommodate digital-only drive-thrus. And speaking of the drive-thru, McDonald’s made one of the largest and most headline-grabbing investments of the last year, with its $300 million acquisition of a technology company specializing in machine learning and personalization, meant to completely change the drive-thru experience.
Investment in technology has already started paying off for those who took big bets early on, leaving others working to quickly make up the difference. Now that the digital playing field has leveled — there are more choices and tools available for every business — we are interested to watch how all businesses integrate technology into their operations. The brands who will continue to integrate the right mix of technology will earn a true 360-degree view of their customers — and success moving forward.