"absolutely ******* unhinged" | spooky kitchens #32

September 2nd, 2022. The golden $1T number that never existed, Grab's dour outlook, and a DoorDash "hack."

Happy Friday y’all,

First thing’s first: it’s actually Friday. Hallelujah.

And as a quick reminder, all green text is linked.* (*not always to anything important)

So what happened this week? (TL;DR)

• Actually, a couple weeks ago, Joe Guzkowski over at Restaurant Business wrote a piece on Euromonitor’s oft-cited $1T market figure. Let’s talk about it.

• Also, Grab downplayed delivery, restaurants discovered white-label delivery, & GoPuff asked for more money.

ghost kitchens aren’t worth $(h)1T

“Ghost kitchens’ trillion dollar dream is fading” (Joe Guzkowski, Restaurant Business).

When I looked at my AM digest from our PR firm one morning in July 2020 and read a headline that went something like, “Analysis: Ghost kitchens are a ‘$1 trillion global opportunity,’” I knew I had a stat for every deck and every press release we’d put out for the next year. It’s from a recognized market research firm and analyst. It had the word “global” in it, giving scope as well as scale. And the number was perfectly, succinctly huge. We knew it was bullshit, even then – but we also knew it was exactly the kind of figure every investor on both seaboards wanted to see in a pitch deck. So it went in.

It’s been over two years since then and, of course, we were hardly the only ones to use that figure to inject botox into the face of the ghost kitchen industry. Just this week I saw it in another article. That got me thinking about how much the industry has changed since the report came out, in one of the worst months the world has seen in my lifetime (call it 30 years), and one of the best for ghost kitchens. Food delivery was on the map before then, but in July 2020 it was the map for the restaurant business. Suddenly-ish, over just a few months and one little extraordinarily widespread, deadly virus, ghost kitchens were the talk of the town, the zeitgeist, the future. They were tomorrow for restaurants. And still they weren’t worth a trillion dollars.

Don’t get me wrong; as I say in practically every issue of this rag, ghost kitchens are an indelible part of the restaurant industry. But “indelible” doesn’t mean “big.” A space has been carved out for this to-go-first model that is unlikely to ever disappear. Yet ghost kitchens were never going to conquer the restaurant world in the way many tech gurus, visionaries, and crystal-ball peering analysts (and our pitch deck) said they would. Joe Guzkowski, in a moment of high coincidence, recently wrote the great piece linked above about why the $1T number makes little sense when applied to the industry today, and should be dropped from reporters’ and companies’ grab-bag of stats altogether.

Here I’ll focus on why the number was a stretch even in 2020, when ghost kitchens were the wave of the future. The underlying assumptions of this figure were, to put it gently…absolutely f***ing unhinged. Ghost kitchens were projected to capture:

• 50% of drive thru (What.)

• 30% of packaged cooking ingredients (A swing and a miss for multiple subsequent reasons.)

• 35% of ready meals (Nope.)

• 50% of all takeaway foodservice (The closest fitting, but still, not quite.)

They are generous projections, to say the least. Obviously so, looking back now. Even then they were a hop, skip, and a jump away from reality, and both we and the analyst probably should have known better than to run with this particular ball. Delivery is a demanded, but losing, business. In a frictionless world where delivery was the “cheap, fast, and reliable” service the report purported ghost kitchens would enable it to be, maybe it could achieve some of those goals and capture a significant fraction of that estimated market value. But today, as Joe recognizes in his piece, ghost kitchens are hedging against the delivery angle that once defined them by refocusing on takeout and even dine-in, calling into question their “ghostliness” altogether and throwing many of those market capture projections even further out the door. It’s also made for a healthier business model, and one still worth a pretty penny. How much exactly? I have no idea.

Just not a trillion dollars.

sides

☹️ Delivery may be on the downswing for some time, according to Grab (“Singapore-based Grab Says Food-Delivery Business Is Softening” NACS). Asian markets have been a harbinger for food delivery developments since the business’s early days. What happens here in the US often happened there first…somewhere. Asia isn’t a monolith – whether it’s India inventing (modern) ghost kitchens, China’s Meituan Danping demonstrating the enormous potential scope of a delivery apparatus, or Singapore’s debut of Deliveroo’s early virtual food halls, the region is a trendsetter of this particular industry and its many niches, especially ghost kitchens.

So when Grab, one of SE Asia’s biggest delivery & ride-share companies, publicly states that delivery is losing wallet share to grocery, and looks to continue that way — “Customers want to save money … they may actually show a preference to order groceries to cook for themselves” — it’s worth paying attention. Grab operates its own grocery delivery arm, so it may have some incentive to up-play that business to save face as restaurant delivery diminishes. But it reads to me like a forthright assessment of the market climate as they see it.

It’s also worth noting this: “To cut costs, Grab will…drop unprofitable businesses such as its “dark stores” in some countries and decrease hiring.” The bellwether also appears dour for ghost kitchens, judging by Grab’s hunkering signals.

🤳 Meet the hacker who’s storming Castle DoorDash (...it’s not a hack) (“How New York food-delivery operator Relay found a way to 'hack' DoorDash and Grubhub to save restaurants big on last-mile delivery fees” Nancy Luna, Insider). It’s just a local white-label delivery fleet, gang. That’s it.

If you’re unfamiliar with the term, a “white-label delivery company” is a fleet of delivery vehicles whose services can be hired by another business to fulfill their deliveries, be it food or another product. DoorDash and the other big food delivery marketplaces have long-since offered the option to restaurants to accept orders via their marketplaces, but fulfill delivery via a first-party or alternate third-party service (i.e. not Dashers). This “hack” is just that. The difference between Relay and other white-labels is that they’ve successfully marketed themselves to the New York market as a better delivery fulfillment partner to DoorDash than the Dasher fleet, and helped their restaurant clients set that up within DD’s notoriously labyrinthian ecosystem. Have they hacked anything? No. Is this an “untold secret” or “secret system” as purported in the article? Truly, it’s not. It’s been an under-publicized feature for sure, but Relay did not discover or invent this workaround. It was intended from the beginning. DoorDash mainly built self-delivery for first-party (and it still makes the most sense for first-party delivery like Jimmy John’s, whose delivery costs are built into their business model and kept at a reasonable fee for the customer), but it’s very clearly been an open-ended system for any alternate delivery partner since the feature debuted. In any case, it’s a good workaround for some restaurants, and a not-so-good one for others. At least it’s an option besides third-party delivery fulfillment, and restaurants need every option they can get.

You want to know what the ultimate hack is? Pick-up. No fees. No partners. The customer is the delivery driver. 🤯

🅱️ Zomato sees big opportunity in B2B (“Zomato says B2B vertical Hyperpure could be bigger than food delivery” The Economic Times). Zomato’s been around for a minute (a “pre-most US food delivery companies” minute) and they’re still “on the path” to profitability. Their next strategy to that end involves B2B food deliveries — that is, restaurant (+ other food vendor) supply delivery. Most restaurants today order food the old fashioned way; at the end of the night, the chef, or manager, grabs a bottle of whiskey, pours themself a generous drink, pulls out a handwritten list of needed ingredients, then calls their supplier (who is staffing someone to take this call at 11pm or later) to read them their order. The supplier then sends a truck the next day to deliver a close approximation of what the restaurant ordered — never an exact order. The restaurant makes do with whatever they receive, even if it’s shrimp when they ordered fish (hence, daily specials). It’s a business ripe for modernization. Maybe Zomato’s figured it out in India?

🤌 GoPuff asks for more money, please (“Gopuff Seeks To Borrow As Much As $300M—Report” Chris Metinko, Crunchbase). “Money pweeeeease!” GoPuff has already raised over $2B. But you know, it’s been a tough year for the “next big food delivery player.” They just cut a chunk of their workforce and the convenience delivery market is looking less and less convenient for its participants. Certainly this extra $300M will get them back on track, though. Last time they ask for more, they promise. Definitely.

🎉 Dessert: Another restaurant technology glossary, from Expedite. This is the only restaurant tech newsletter I consistently read, and it’s growing. Expedite covers a much broader range of subjects than I do, and is overall a much more reputable source of food-tech news than my raging little rag. Kristen’s insights are on point, and while she’s not as antagonistic as I am (another plus), she definitely doesn’t reserve her opinions. A worthy subscription for anyone in the greater restaurant-tech world (so says I, Arbiter of Worthy Restaurant Writing Subscriptions).

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That’s spooky kitchens.

Boo ✌️,

Mitch

P.S. If you’re just jumping into ghost kitchens and want to learn more, check out my ghostly glossary and spooky kitchens ghost kitchen cheat sheet. They’re there to help make sense of this weird and wild west.

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