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"this is fine" | spooky kitchens #...13!
April 8th, 2022. Food delivery companies messed with the prices and got the horns, Chipotle-verse beat Wendy-verse, and all is not well in India for Swiggy & Zomato.
Happy Friday the 13th (edition) y’all!
First thing’s first: you can also read this on the web, with slightly better aesthetics than your inbox. Just FYI.
And just a quick reminder: all green text is linked.* (*not always to anything important)
Lastly, apologies in advance for any Rick Rolls I forgot to delete from last week’s hilarious April Fool’s edition. It’s late. Early. Both.
So what happened this week? (TL;DR)
Food delivery companies finally faced a setback in the courts. As a lawsuit moves forward, we dig into the background of the “no price competition” clause and the choices it’s forced restaurants to make.
Now fire the perfectly solid, stable, flawless food delivery ecosystem!
the restaurants bite back
Food delivery companies may face minor legal comeuppance for driving up food prices (Mike Pomranz, Food & Wine).
Long story short: “A class action lawsuit alleges that delivery apps drove up the price of buying food directly from restaurants.” This week that lawsuit was allowed to move forward by a federal court.
Into the background. If you ever wondered how food delivery companies adjusted to restaurants seemingly across-the-board raising prices on their delivery menus vs their regular direct-order or dine-in menus: the answer is that the delivery companies instituted a “no price competition” clause to their contracts. Meaning, restaurants under that clause are legally obligated to keep their menu prices the same across all channels. From delivery to dine-in, flat prices across the board. Which means if a restaurant does decide to raise their delivery prices, all of their consumers, not just delivery, are paying up.
Why would food deliverers write that in? For years restaurants have been bumping up their delivery menu prices to offset the steep stack of commissions and fees charged by DoorDash, Grubhub, and Uber Eats (Caviar & Postmates acknowledged as the wittle baby siblings they now are) — but also to offer a price incentive to buy direct; whether through a website, over the phone, or in person (even ordering delivery through a restaurant’s website is usually cheaper than via the delivery marketplace or app). Those delivery menu price hikes join the host of other built-in fees heaped onto customers that make food delivery just barely viable for deliverers but also limit the overall market of people who can afford delivery. As more restaurants boosted prices over time, third-party delivery providers decided that they and only they should have the unrestricted power and privilege of passing on costs to customers, and issued their restaurant partners the flat pricing ultimatum.
What options did that leave restaurants? A choice of three (more or less):
Option #1: raise all prices to the delivery menu level (hurts non-delivery customers, makes delivery potentially viable)
Option #2: lower delivery menu prices back to regular levels (customers all happy, but makes delivery totally nonviable for most restaurants)
Option #3: get sneaky with it (or if you’re a big brand, not so sneaky). You could engage in indirect price competition through deals, specials, and coupons (like how Domino’s encourages customer pickup with significant discounts) that point customers to buy direct. Or if you don’t offer online ordering…just don’t put your prices online. Mr. Maloney isn’t exactly circling the block checking paper menus against Grubhub listings. Or you could just keep selling your menus at different price points and hope the 3PDs don’t notice…and they usually don’t.
So did food prices actually go up for everyone? Yes. Well, not really. Sort of. Maybe. Considering how many restaurant partners the 3PDs have, you could pretty safely (I hope) say that many people have subsequently paid more-than-necessary for their non-delivery restaurant meal because of this non-compete clause. Option #1 (raise all prices) is probably the second most followed of restaurants’ three paths after #3 (#2 is a near-total nonstarter; pricing third-party delivery at dine-in or pickup levels is akin to throwing money directly into the trash). Restaurants large and small don’t bother to follow the no price competition clause (look up your favorite delivery restaurant and compare their third-party and web menus) and the 3PDs don’t seem too bothered about enforcing it. So it’s hard to say how many people can benefit from this lawsuit; but it’s not zero.
The lawsuit actually seems like the obvious result of a blanket non-price-compete clause applied to such a large (country-sized) population of restaurants. Like, yeah, of course restaurant prices were going to go up because of that, even if not all restaurants followed it. Who wouldn’t see that coming? Unless the delivery companies bet on most restaurants dropping their delivery prices in response to the clause, but that would be an unfathomably naïve assumption…an unfathomably naïve, but not-unprecedented assumption from companies that also thought building websites for restaurants, “cybersquatting” on domains, and signing them up to platforms and services without consent would all be appreciated by a sea of grateful, tech-ignorant restaurateurs — or so appears the restaurant industry to Big Tech.
And so the lawsuit proceeds; and while the financial hit is undecided but unlikely to be too significant, a victory for restaurants and consumers here would still be far from meaningless. At minimum it’s a pain for the deliverers, and that’s a good thing. We can’t have them thinking they can just clause their partners and increase prices willy-nilly (well, willier-nillier than usual) and get away with it, after all.
We’ll continue watching this lawsuit’s career with great interest.
Related: Swiggy & Zomato face major anti-competition investigation for basic food delivery shenanigans (Manish Singh, TechCrunch). In a case brought by India’s National Restaurant Association, the country’s two biggest food delivery providers are being investigated for such typically-icky delivery business practices as: exorbitant fees, hoarding data, and operating private-label brands on their own marketplace (in competition with their own restaurant customers). Sound familiar? We’ll see if it goes anywhere — but the fact that the investigation exists is a first step. Zomato’s had a rough time of it lately.
We’re still doing this, huh (San Francisco Chronicle). A new food delivery startup in San Francisco is delivering baked goods without businesses’ consent. Ugh.
🌯 Chipotle’s meta-restaurant experience immediately one-ups Wendy’s (Ann-Marie Alcantara, WSJ). As you most definitely remember, last week Wendy’s launched one of the first “real” virtual metaverse restaurants (describing these things is getting to be its own kind of stupid); it’s not just a trademark, or a little concept, it’s an activation that (all 12) people who own Meta’s Quest 2 VR headsets can actually virtually visit. Today. The meta-Wendy’s is basketball-themed for March Madness, there are simple minigames featuring all your favorite Wendy’s canon characters (...mainly Wendy), it’s great. But missing a crucial component — a real-world, tangible incentive. Where the first virtual Wendy’s is all-play no pay — in the sense that you cannot actually order any food from Wendy’s within their virtual restaurant — Chipotle sacrifices a little play to introduce pay (in the form of Burrito Bucks that you can win in-game, and are accepted at real Chipotles), and therefore, a reason for up to 100,000 people to jump into their 2nd Roblox activation. Ultimately the two virtual restaurants are the latest demonstration of the difference between a company that understands the younger, more virtual demographic and the environment they operate in (Chipotle); and a company that is just dabbling in something they read about on the interwebs, with seemingly no real idea what they’re getting into (Wendy’s).*
🦍 Gorillas, the “10-minute” grocer, invests in new dark kitchen company that claims to be changing the way we consume food (emphasis on “claims”) (Oscar Williams-Grut, The Evening Standard). “Within 5 minutes of visiting one of Growth Kitchens’ hubs, I knew I had finally found the team that had cracked the delivery kitchen model,” says Gorillas co-founder Ronny Shibley, despite, by all appearances, Growth Kitchens doing little different than Reef or Kitopi (though in Gorillas’ defense, those companies are not in the UK). But maybe compared to Their Majesty Deliveroo, who reigns with near-absolute supremacy throughout the Kingdom United, Growth Kitchens is a little bit different (to clarify, they license the brand and menu of a restaurant and open up dark kitchens for that brand in multiple locations across the country. Again, we’ve seen this). The Growth Kitchens team also wear their ambition on their sleeve while being oblivious to the fact that it’s more catch-up than innovation: “We’ve accepted cooking as the norm for too long. Building on the success of food delivery apps, we are introducing a step-change in how we eat,” dreams Mate Kun. “A step-change in how we eat?” He sounds like Mr. “Man’s journey started as hunters and gatherers” from Nala Robotics! Do I see another connection on the horizon?
🧑🍳🧑🍳🧑🍳 Ghost kitchens, shared kitchens, more kitchens (Arthur Robert, Food On Demand). Look at all the types of ghost kitchens! There are two major tricks with running ghost kitchens out of shared kitchens: (1) permitting, because health inspectors tend not to love the idea of restaurants operating in shared spaces, and (2) location. While ghost kitchens are often said to be located in warehouses on the periphery of metro areas (and some are), it has become more of a necessity for them to be located centrally; the economics of a ghost kitchen don’t work as well or at all the farther outside of downtown you go. That’s because you tend to not only lower the overall number of customers you’re serving, but also the number of customers who regularly order pickup & delivery (aka a ghost kitchen’s bread & butter). Many shared commercial kitchens are located outside city center (large footprint availability and cheaper leases), and thus serve a smaller, less delivery-oriented population that makes it difficult to sustain a ghost concept. But if you can make that work, all the better.
🎈Krave, a virtual food hall, opens in Dallas (Adele Chapin, Eater). Neat that they’re opening, neat that they’re working with independent restaurants — and operating a similar model (and similar value prop) to Kitchen United, offering the ability to order from multiple restaurants on a single ticket. Welcome to Club Spooky, Krave.
🤑 Ghost Financial displays all the hallmarks of yet another tech play that thinks it has restaurants all figured out (Christine Hall, TechCrunch). The man behind Ghost Financial started and sold two tech companies. He also founded a ghost kitchen (Keto Kitchen). Then he probably couldn’t secure easy funding and got tired of explaining ghost kitchens to banks; so he decided this already deeply-niche industry needed its own niche fintech play that solves all of restaurants’ clearly-overlooked analog problems with an app and a credit card…maybe I’m jaded (maybe?). But it feels very much like I’ve seen this headline and heard this story many times over.
😂 Dessert: There’s trouble on the horizon for the metaverse. Yum!
That’s spooky kitchens.
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 (and frequently updated) to help make sense of this weird and wild west.
*More on what’s wrong with the Wendy’s meta-marketing attempt because I am just annoyed by this: “Wendy’s says it will track engagement metrics, such as how many people visit the virtual restaurant or post about it on social media, and how many people interact with its app to order food as a measure of success, Mr. Loredo said.” All the results-oriented marketers in the house are shaking their heads, because there is no actual trackable connection between the virtual experience and people using the Wendy’s app. They’re tracking how many people interact with the VR experience, and (separately) how many people get on the app while the experience is live. Which, by construction, leaves the results open to the effects of countless other variables. The best you could say if all goes well is, “While meta-Wendy’s was active, more people used our app,” but you could not with any degree of certainty say, “More people used our app because of meta-Wendy’s.” Unless you had astronomically high engagement numbers for the VR activation and astronomically higher-than-average engagement with the app, and no other specials, events, or discounts active at the same time…which is unlikely, to say the least. It is the most basic, basic statistics lesson; correlation is not causation. This marketing experiment is set up to capture only correlation. But to justify a marketing expense and actually learn something, you need causation to say definitively that “this did/did not work,” and why. In the end, does this really matter to anyone else? Probably not. It’s Wendy’s money, after all. But it’s dumb, half-assed, and ignorant, and it bugs me. So there! I need fries and a chocolate Frosty.