Will Local Kitchens succeed where others have failed?

Transcript

Speaker 1: 0:00

How does connected TV advertising work? Will DoorDash acquire Deliveroo? And good news for Uber drivers in Massachusetts, but what about the restaurants there? That's all ahead on this week's 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, but in some way tie back to our book series Delivering the Digital Restaurant. Are you ready? Let's go. Happy Monday, meredith. How are you?

Speaker 2: 0:46

So good. How are you Carl?

Speaker 1: 0:48

I'm worried. Have you moved house? What's going on?

Speaker 2: 0:51

I have moved house, actually Just temporarily, though I met my parents.

Speaker 1: 0:56

Ah, there we go. I was going to say that wooden background there doesn't look the usual. I hope you have a fun time wherever you are in the world, but let's get on to this week's headlines. We've got a bunch of things to talk about, as always, and I think I'm the lucky one to go first.

Speaker 2: 1:09

That's right. I have a lot of questions here that are very basic. Just what does this even mean? You wrote CTV for C-K-E and then you end it with CPM. My question is just can you please define this? I'm confused.

Speaker 1: 1:25

Exactly and quite honestly, this article, if I choose to read it probably also, I'm going to feel equally confused, because I had to go through this a few times. Let's start with the middle TLA, the three-letter acronym CKE. Do you know what that stands for? I guess the first thing, because it does stand for a restaurant brand, I'm guessing Carl Kirchner Enterprises. There you go. You see, that's a pop quiz question for anyone out there obviously better known as Carl's Jr, of course, and they were centered in this particular case study about their partnership with iristv. They've been using this advanced marketing technique but I think it's been around for a little bit called Connective TV, c-t-v. There you go, meredith, and these are ads that are shown on streaming platforms that are targeted to specific audiences based on what they're watching, right? So it's basically contextual targeting and they've used artificial intelligence to analyze the content that people watch and then they show the ads that are relevant to their interests. So in the case study, they talk about Carl's Jr. They target folks that perhaps like anime or video games, and so, therefore, if the show or the video that they're watching on the streaming platform has a profile of people that like anime or video games, then that's a great place for them to be able to show a Carl's Jr advert. So pretty interesting.

Speaker 1: 2:55

Now in the book I think it was in the book that we wrote about the idea of watching an Italian cooking show, for example, and wouldn't it be great for in the commercials for you to have, like an Olive Garden ad come up in some way? Because people are watching Italian food, they're seeing all the great things about it, they want to go and perhaps cook Italian, but it'd be great if you could go and visit one of your favorite Italian restaurants soon afterwards. So this is coming to life through CTV. According to the case study, carl's Jr saw a 35% increase in store visits. And not just that, those increase in store visits actually converted into higher sales as well 152% increase in sales. So it's not necessarily about the ads reaching a lot of people, like traditional television advertising where it's just who knows who you may actually reach, but it's actually about targeting the right specific audience that might purchase from Carl's Jr. They have a 2.2 return on ad spend.

Speaker 1: 3:46

What do you think?

Speaker 1: 3:46

Do you think that's a good return?

Speaker 1: 3:48

Because, when I looked into this a little further, the other thing is about the cost of this particular technique, because when we share things here on the Digital Restaurant, we of course want to share it for the big enterprise brands like CKE, but also for the independent.

Speaker 1: 4:03

And if I was to tell you the CPM part final acronym here is cost per thousand impressions, and when you're talking about this particular process, it's typically somewhere between $20 and $50 per thousand impressions. That would tell you if you want to target a million customers, let's say that's going to cost you 50 grand, and how many independents out there are going to perhaps have that available to put on top of what they're currently spending with the third-party marketplaces and the other traditional marketing channels that they use. So hopefully everyone has learned now at least two or three new acronyms, but also something about this approach to how we can use AI to profile customers and then use that data to target them more effectively. But my gut feel is it's probably going to be something that fits the bigger chains more than the little guy.

Speaker 2: 4:50

Well, thanks for explaining that. I was very confused when I first saw the headline. I thought they were talking about CCTV or closed circuit television and I honestly thought why did Carl send me this article? It's from the 90s. As I tried to read it and understand what it was, I thought isn't this just how all ad supported streaming works? I don't understand what's different or special here, why it has a name like that just seems like what ad supported streaming is, and the ability to customize those ads to different people seems like the whole point of it. But then I think you're completely right that cost per thousand and the ROAS they go kind of hand in hand. The cost per thousand is very high and the ROAS is quite low. So even though they saw an uptick in sales, at least based on what they're measuring in the CTV, it doesn't seem that good.

Speaker 1: 5:40

That was my inclination. I think you're right and so it probably works out, relative to other approaches in the past. Right, there are other digital channels that you can do that through and perhaps you can get a better result.

Speaker 2: 5:52

Do you watch any of the free streaming services? Do you guys use them at your house?

Speaker 1: 5:56

Apple TV, hbo all the way in the Osborne household.

Speaker 2: 5:59

Yeah, that's kind of who we are, although here at my parents' house we have been watching Hogan's Heroes a popular favorite and it comes on freebie, so I'm learning all about it.

Speaker 1: 6:07

All right. Second question this week, meredith. Across the pond there's been talk about DoorDash acquiring Deliveroo. So my question here this week are we going to become DoorDash-a-roo in the UK? What do you think?

Speaker 2: 6:20

Probably not, I'm guessing. But yes, there's been speculation that potentially DoorDash would buy Deliveroo. On some announcements it has caused the Deliveroo stock price to shoot up. It's completely sensible. We're not there yet, right? We haven't announced a formal agreement, but I think that you got two issues at play here. One is on the delivery side. They're eking their way toward profitability, but they can't really grow much more, and the world has changed so much that Novi C is going to come and say here's some money to go into, enter another country, right? They're kind of stuck where they're stuck. And meanwhile you have DoorDash, whose growth is slowing in the US and the only way that they can continue to grow is by entering other countries. Enormously expensive. To build out a new delivery network in another country makes a ton of sense just to buy someone who is in that country and stuck there. They did this, of course, previously with Bolt, and I would not be surprised if, in addition to this, there are more to come.

Speaker 1: 7:24

Yeah, I think the idea of DoorDash having some presence over in that market obviously you mentioned Bolt Japan as well was another market that they went into. So these more established markets where customers are used to food delivery, food pickup, I think they're definitely areas where DoorDash can bring all their competencies to the table and also that scale that they've been able to use those resources for over here in the US are going to probably enhance the offering for the guests and customers over in the UK.

Speaker 2: 7:50

What I'm really interested to see is does the commission rate change? Because, believe it or not, restaurant folks commissions are actually even higher in the UK. Restaurants pay upwards of 40% commission in order to use something like Deliveroo. Obviously, we complain here quite a bit about DoorDash being so high anywhere from, I'd say, 12% to 30%, excluding chargebacks and marketing and all the other kinds of costs but literally just in commission, and their take rate, which is a weighted average percentage of what they're getting out of each check, is much lower than the take rate in the UK. So it'll be very interesting to see if, because of this acquisition, does DoorDash learn how to raise commissions here in the US, or does Deliveroo learn how to lower commissions over in the UK, or no change?

Speaker 1: 8:42

Something tells me no change is going to be the answer to that one, Meredith, We'll see. Well, we'll keep an eye on that one. It'll be a big story if it happens. Hi Carl, here Just as a quick reminder, please remember to subscribe, like and give us five star for the Digital Restaurant Podcast. Your reviews matter. They really help us make sure that we're providing the right content that's relevant for you. Thanks for listening. Keep on watching and, as always, leave your comments below with questions, thoughts and recommendations on what we can cover next time.

Speaker 2: 9:14

Got some funding news, which we always love. A company called Local Kitchens has raised $40 million. Tell us about this raise. I think this is their series B what's happened, who invested and why?

Speaker 1: 9:28

Ghost kitchens are dead, meredith, remember, ghost kitchens are dead. Well, maybe not. In fact, you won't see ghost kitchens referenced very much in this particular article that we're referring to here, because Local Kitchens, where there are 12 of them in the San Francisco Bay Area of California. They are trying to position themselves a little differently I think it's fair to say it. They'd rather use the term micro food halls and they're trying to differentiate themselves from the traditional cloud kitchen, ghost kitchen model by focusing on the ability for them to run everything as an entirety. So in that sense, you could say, well, didn't Reef do that? Well, they did, but they were in those small little containers, if you recall. So this is more about a food hall concept. And then you might say, well, didn't Kitchen United do that? Well, yeah, that's right, we did right, we had that kind of same idea.

Speaker 1: 10:18

But the difference is they are focusing very much on pickup, which I think is important, because obviously that has a few mechanics attributed to where they choose to position themselves.

Speaker 1: 10:29

If they are focused on pickup, they need to be in locations where people can easily find them, where you've got perhaps walk-by traffic that can potentially go in for lunch visits and the other thing they're focusing on is families, which is interesting, which means that whole idea of being able to have people being able to choose a variety of different options for what they eat is super powerful too, which, again, I think is very similar to what we've seen in other places.

Speaker 1: 10:53

Costa Truck, I think, is a great example of where you get a variety of different brands, but the other difference here with local kitchens is that they're very much focusing on local brands, right. So I don't see anywhere anything about any of these big established brands that they're working with. So I think that's an interesting piece. Last thing I noticed about it is that some of this 40 million that they've raised into continuing to improve their technology, so everything associated to the preparation and ordering process can be as seamless as possible, so that you've got an expedited experience across all of the different cuisine choices. So I think it's an interesting one. I think it's great news for them, of course, given the negative press that we've seen, and I think if they can double their footprint in the next year, which is what they're trying to do, I think this might be the model we see more of, and I suspect the folks over at Wanda are watching them very closely as well.

Speaker 2: 11:42

They're interesting because they are, I'll say, semi-vertically integrated. You said they do their own operations. I think they have one slightly more consolidated kitchen, as opposed to Reef or Kitchen United that had the independent kitchens for each brand.

Speaker 1: 11:59

But the brands aren't theirs right.

Speaker 2: 12:01

They're partnering, as you said, with the local brands and so they presumably are paying some sort of royalty or licensing fee to use those brands. They have some technology. They talked quite a bit about POS, kds and timing in there. I think also first-party ordering, but they didn't refer to how they work with the third parties, which are such a big and important part of delivery that up with on the front end and the backend. I'm very curious about that.

Speaker 1: 12:30

They do have that. They do have that. I did check on their website deep in the FAQs. I was wondering whether they are represented on the marketplaces, and they are. So there is an option for folks.

Speaker 2: 12:46

So it's like semi-vertically integrated, because they don't quite have everything under their control, but they have a lot of things under their control, which I think is an interesting model and, by the way, starts to look a lot more like pizza. Yep, so back to chapter first book, why Pizza Works. We just end up there all the time, don't we?

Speaker 1: 13:01

We sure do. It's a great chapter. That's it. I have decided California life. I'm finished. I'm going to go move to Massachusetts. It's news I figured that this career as a podcaster that needs to come to an end. I think now the future is driving for Uber and Lyft in Massachusetts $32.50 an hour. Holy cow, tell us about this. What impact is this going to have for the folks that have restaurants over in Massachusetts, and is this going to really quench delivery and drive an uptick in pickup perhaps?

Speaker 2: 13:34

So, first of all, it's $32.50 per active hour, so it's not $32.50 per real hour. According to the clock, it's from the time that you pick someone up to the time that you drop them off, and in a lot of ways, this settlement with the Attorney General seems similar to the outcome of Prop 22. And, in fact, it's notable that Instacart and DoorDash, as well as Uber and Lyft, dropped their efforts to get a bill on the ballot in the fall that is similar to PrEP-22 as part of this settlement. So $32.50, definitely higher than what Prop 22 says in California, which is 20% above prevailing minimum wage and $0.35 a mile, so $32.50 is indeed a pretty high number. I suspect, though, because we've seen bills like this pass in other places like Washington, notably California with Prop 22, we will probably see very similar outcomes.

Speaker 2: 14:37

One of the first things that we see is a lot more batching. I know, at least in our area we both live in California. We order frequently so that we can see what's going on. We have been subject to batching. We've also started to see these priority fees available on the platforms, and what the priority fee means is I'm now going to pay extra as a consumer to make sure that when my order is batched, I get mine first. So we've gone from having you're going to have an item at the restaurant delivered to your home and that's the standard that you expect to the standard that you expect now being they're going to pick several items up at this restaurant, or maybe several restaurants, and deliver them to several different consumers who may or may not live near me, and I am going to pay a priority fee in order to get mine first. So that's the first thing that we see. That's very different.

Speaker 2: 15:35

In California there's also something called the California driver benefits surcharge that both DoorDash and Uber Eats charge. That charge varies depending on the platform. And then, of course, the service fees. So, beyond just the delivery fee, even if you're on Uber One or Dash Pass, you've still got these other fees that are kicking in. So what I suspect will happen, similar to what's happened in California, is that the price will go up a little bit to the consumer, maybe to the restaurant as well, but the service quality will go down a lot. So you'll be kicked in with all these additional fees in order to pay for this, because it is more expensive than what these guys were paying in the past, but the quality of the service will go down. Now, what happens, carl, when something gets more expensive and worse?

Speaker 1: 16:24

Well, volume will fall.

Speaker 2: 16:25

I think that's right. I think that's right. So what's most likely to occur is that consumers will use less delivery in the face of all of these fees and a poor experience. They will still use it. Not to worry, consumers will still order delivery. They probably just won't order as much because it's gotten so expensive and it's not great, right? So I think this creates a huge opportunity. Of course, as I often say, a price umbrella is just a huge, big space for disruption, right? So anyone who can figure out how to do this more efficiently, more effectively and not charge really high prices for bad service is likely to win.

Speaker 1: 17:05

It's a shame, right, because if there's one theme that is affecting the industry, not just in Massachusetts but everywhere right now, it's traffic and volume, and a lot of people are putting it back to value, whether it be driven by the things that you've just discussed or just the after effects of the economic changes since the pandemic, but it's something whereby, ultimately, if eating out or having food delivered, having food to pick up, becomes more and more expensive, I'm going to be really interested over the years ahead, meredith, for us to keep an eye on that food at home and food away from home chart that we see when we're tracking inflation, to see whether we see a crossover again, because how many years was it? Many years, right?

Speaker 2: 17:44

Food away from home or restaurant has been larger than food at home or grocery the exception, of course, being the pandemic. But it does create some risk, especially as the price increases in restaurant have been higher than the price increases in grocery for a little while now and eventually consumers notice that and they could switch back, or again we could have a massive disruption. Someone sneaks in under that price umbrella and just does it better. I think that's likely to happen.

Speaker 1: 18:13

Disruptions are really interesting one in this sense, because when you talk about value, if it can't be done through food costs, if it can't be done through anything associated to labor costs, and so your prime costs are relatively positioned in that regard, how else can you extract value either in terms of doing things faster, cheaper, to be able to run your operation differently, and I think in many ways that needs complete disruption. It almost needs blank page thinking and being able to bring some alternative ways into. How can you run your restaurant differently. Maybe that's the way in which you're trying to position your conversations with folks at Empower.

Speaker 2: 18:47

Yeah, absolutely. I mean, if you can maximize through in your kitchen, that will go a long way, because you'll just have more productivity per labor hour coming out of that kitchen way, because you'll just have more productivity per labor hour coming out of that kitchen. And that's a lot of what the timing and the KDS is all about. And then, same thing, if you can better utilize the drivers so that they are more productive, you're going to get more runs per driver. So those two things together, I think, can massively disrupt the space. All right, last one for you, carl why has American Express bought TOC for $400 million?

Speaker 1: 19:22

It's a pretty penny, isn't it? For those of you that have never heard of TOC, they're a restaurant reservation and event management platform, so I think the acquisition has come from Squarespace for this $400 million and, of course, it's continuing to enhance Amex's offerings in the dining sector. They've been here before, of course. You'll recall that I think it was 2019 that Amex acquired Resi, which is another reservation service, and you might be thinking what on earth is a credit card company doing in this space? Because I'm sure you have an Amex I do as well and, yes, you have the opportunities to order for certain experiences through being an Amex member, and that's great. But I think there's something more than just that right, when you look at this and get into the depths of it, you see that American Express see that a major expenditure category is dining. Maybe it's going down based on the conversation we just had, but it's dining.

Speaker 1: 20:15

People spend a lot of money in food In terms of Amex, $100 billion last year alone. So if you're able to collect let me go that word again the data attributed to what people are spending and how they're spending and when they're spending, then maybe this is actually more about how can Amex empower restaurants with more data to be able to do what they do more effectively. So, by way of example, obviously today one of the biggest players out there for reservations is OpenTable. Right, and of course OpenTable has a great interface. You can reserve, you can send invites to people associated to a particular group booking, but OpenTable have just that data set.

Speaker 1: 20:56

What Amex bring to the table by offering these kind of reservation capabilities, then, is to be able to say to the restaurants that are on their platform to be able to give them information about well, customers in your area are typically purchasing at this level of frequency, or they're buying Italian food at this time of the week, or typically they're spending this amount, and I think Amex certainly navigates towards, I would say, higher net worth individuals.

Speaker 1: 21:21

But in a time when we're talking about value, then actually restaurants wouldn't mind people that have a penny or two in their pocket to pay more of their restaurants, and so therefore, if you can then target those customers to be able to come into your restaurant, then actually you're probably going to get a better bang for your buck in terms of the marketing there as well. So I think this is almost a two-way transaction in the sense of yes, of course it's heightening Amex's ability to provide reservation capabilities, but I think it's also the other side of it, the data and the insights that they're going to be able to bring to their restaurant partners as well.

Speaker 2: 21:58

But why do they need both If they already have Resi?

Speaker 1: 21:59

why do they also need TOC? What do you make of that? Really good question? I think the reason for that is the difference between a Resi and a TOC is TOC has a slightly different representation of the ways and folks that they have on their platform, so it's a little bit more events-based. You have more experiential elements, so it's almost leaning a little bit into that dinotainment space. So I think it's about targeting more restaurants that perhaps aren't currently on their platform through Resi in a way to be able to have a higher breadth of access, and with that extra access, of course, you get extra data.

Speaker 1: 22:28

All right, that is it for this week's Digital Restaurant. Would be curious as to what you think is the reason for why Amex have spent $400 million. Are you going to be doing any CTVing yourself anytime soon? Does the CPM scare you? Do you remember what those acronyms are? Let us know in the comments below and, as ever, if you have any thoughts about what you'd like us to cover on the next Digital Restaurant, please reach out. But until next time, thanks for listening. 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.