Podcast Summary
Exploring competition in SaaS and food delivery industries: SaaS industry thrives on subscription models, faces intense competition to retain customers, and food delivery market is highly competitive with various players vying for market share
The Software as a Service (SaaS) industry is thriving due to the shift towards subscription-based models, offering flexibility and affordability for users. SaaS companies face intense competition in this free market, as they must consistently provide value to retain customers and bill them monthly. Contrary to popular belief, food delivery is also a highly competitive market, with various players like DoorDash, Postmates, GrubHub, Uber Eats, Amazon, Whole Foods, Dominoes, and even individual restaurants contributing to the landscape. During this week's episode of Rising Stars of SaaS, we'll discuss these topics in depth with Christopher Webb, founder of Chow Now, and explore the misconceptions surrounding competition in both the SaaS and food delivery industries.
Food Delivery Market: The Good Guys and The Bad Guys: The food delivery market is competitive, with major players like Grubhub and smaller niche players. Debate surrounds partnering with restaurants versus disintermediating them, with concerns over transparency and fairness towards restaurants and consumers.
The food delivery market is highly competitive, with various players, big and small, vying for a share. Grubhub and similar platforms like Uber Eats and Postmates are major players, but they make up only a portion of the market. Smaller players, like Slice and Ollo, focus on specific niches, such as local pizzerias or enterprise restaurants. The debate around the "good guys" and "bad guys" in this space centers on the issue of partnering with restaurants versus disintermediating them. Grubhub and its ilk have faced criticism for listing non-partner restaurants without their consent, marking up menus, and adding fees. While this strategy may benefit Grubhub, it raises concerns about transparency and fairness towards restaurants and consumers. The conversation underscores the importance of understanding the business practices of various players in the food delivery landscape.
Grubhub's Unilateral Addition of Restaurant Menus: Grubhub's practice of unilaterally adding restaurant menus raises ethical concerns, potentially resulting in lost business and control for restaurants.
Grubhub and similar food delivery platforms have faced criticism for bypassing the traditional process of obtaining permission from local restaurants to join their platforms. Instead, they have adopted a practice of unilaterally adding menus to their sites and marketing them to customers. This tactic, which some argue increases customer choice, has been defended as a way to provide convenience for consumers. However, it raises ethical concerns, particularly from the perspective of the restaurants, which can result in lost business and control over their own branding. Despite this, Grubhub was initially a pioneer in this practice, but other companies like DoorDash have since moved away from it. Now, Grubhub is trying to catch up. While some may view this as a way to expand consumer choice, it's important to consider the potential negative impacts on small businesses.
Manipulation of Food Delivery Marketplaces: Food delivery marketplaces can deceive consumers by listing outdated or incorrect info about restaurants, potentially diverting business and charging high commissions. Transparency and control over online presence is crucial for restaurants.
Food delivery marketplaces like GrubHub and Postmates can manipulate consumers by listing outdated or incorrect information about restaurants on their platforms, leading to confusion and potential loss of business for the restaurants. These marketplaces may use local brand recognition to lure customers and then direct them to other restaurants, often charging high commissions. This practice, while not necessarily illegal, can be perceived as underhanded and unfair, especially for small, locally-owned restaurants. The use of call centers to place orders on behalf of marketplaces, disguised as regular customers, adds to the deception. It's important for consumers to be aware of these tactics and for restaurants to advocate for transparency and control over their online presence. Recent lawsuits against GrubHub and other delivery services may bring about changes to these practices.
The restaurant industry adapts to online ordering and contactless services: Five Guys leveraged a gap in competition, Postmates' virtual assistant model requires transparency, Toast's white-label platform helps local restaurants compete, and Toast's pricing strategy is competitive with delivery commissions.
The restaurant industry has seen significant changes in customer expectations and business models, particularly in the shift towards online ordering and contactless services. Five Guys, for instance, was founded as a response to In-N-Out's limited geographical reach. Postmates' virtual assistant model can work, but transparency is crucial to avoid confusion and ensure clear lines of responsibility. The pandemic accelerated the need for software solutions like Toast's, which offers a white-label platform for a flat monthly fee. This allows local restaurants to compete with national brands by providing online ordering, customer databases, and loyalty programs. Toast's pricing strategy is designed to be competitive with third-party delivery services' commission fees. The company also offers contactless ordering through QR codes and curbside pickup as responses to COVID-19.
Consumer behavior shift towards curbside pickup and SaaS growth through PIPE: The pandemic drove consumers to prefer curbside pickup for convenience and cost savings, while SaaS companies can grow without debt or dilution via PIPE, with ChowNow partnering with Yelp and Google to increase orders for restaurants.
The pandemic led to a significant shift in consumer behavior, particularly in the food industry, with curbside pickup becoming increasingly popular due to convenience and cost savings. At the same time, SaaS companies have a new way to grow without debt or dilution through PIPE, a marketplace that connects these companies with institutional investors looking to purchase their recurring revenue. ChowNow, a company discussed on the podcast, has also adapted to the changing landscape by partnering with existing traffic generators like Yelp and Google to help restaurants increase orders and grow their businesses. These partnerships account for around 16% of ChowNow's total orders, with the remaining coming directly from the restaurants.
Retaining Repeat Customers Through Digital Channels: Retaining repeat customers through branded mobile apps is crucial as they contribute significantly to a restaurant's revenue, with up to 80% of takeout sales coming from just 20% of the customer base.
For most restaurant partnerships, the company owning the digital marketing platform will retain the customer relationship and repeat business after the initial order. This is particularly true for channels like Yelp, branded mobile apps, and direct website orders. Repeat customers contribute significantly to a restaurant's revenue, with data showing that up to 80% of takeout sales come from just 20% of the customer base. This "80/20 rule" highlights the importance of retaining and engaging these repeat customers through channels like branded mobile apps. During the pandemic, the restaurant industry saw a surge in digital orders as dine-in options were limited. Major cities like New York, Chicago, and Los Angeles were among the hardest hit, with May 2020 seeing the highest volume of orders on record. Despite some recent changes, such as Chicago reinstating indoor dining restrictions and New York City making outdoor dining permanent, the industry continues to adapt to the ongoing pandemic.
DoorDash commission fees putting financial pressure on restaurants: DoorDash commission fees have risen significantly, causing concern among restaurants. Some argue for government intervention while others see it as a free market issue.
The commission fees charged by food delivery platforms like DoorDash have significantly increased over the years, putting financial pressure on restaurants. Initially, DoorDash offered to take over the hassle of delivery for a 14% commission. However, this percentage has since risen to as high as 30%, causing concern among restaurants. While some argue that this is a free market issue between private companies, others believe that government intervention, such as caps on commission fees or bans on non-partner restaurants being added to apps without consent, could help alleviate the burden. The competitive nature of the industry has led to companies like DoorDash and Uber Eats operating at a loss per order, highlighting the intensity of the market.
Simplifying the restaurant software landscape with ODU's customizable and integrated suite: ODU offers a cost-effective, modular and open-source solution for restaurants to build and scale their software stack efficiently, with a free first app and $1,000 credit on the first implementation pack.
The restaurant industry is becoming increasingly competitive, with numerous software solutions vying for market share. ODU aims to simplify this landscape by offering a fully customizable and integrated suite of software products. This modular and open-source solution allows businesses to build and scale their stack efficiently while saving on costs. Olo, a competitor, reported that half of their restaurants use their system exclusively, while the other half utilizes third-party delivery services like DoorDash and GrubHub. This 50-50 split includes restaurants with significant local power and those in smaller towns or cities where convenience may outweigh the quality of the food. The free market is at work, with companies competing to provide the best solutions for restaurants and consumers. ODU's offer of a free first app and a $1,000 credit on the first implementation pack is a testament to their commitment to helping businesses thrive in this competitive landscape.
Strategies for food delivery industry competition: Restaurants use flat rates and turn off third-party orders during peak times to offer best prices and experience, facing high customer acquisition costs from online ads.
The food delivery industry is highly competitive, with restaurants using various strategies to attract and retain customers. Some restaurants opt for third-party delivery services like DoorDash and GrubHub, while others prioritize direct orders to offer the best prices and experience. The use of flat rates and turning off orders from third-party services during peak times is a growing trend. However, these services face high customer acquisition costs due to intense bidding wars for online ads, leading to significant fees for both parties. Despite the financial losses, the constant competition drives innovation and provides consumers with more options. Ultimately, restaurants have the power to build customer loyalty and reduce dependency on third-party services.
Shifting Business Model of Food Delivery Platforms: Food delivery platforms have moved from undercutting prices and charging low fees to restaurants to charging market rates to cover costs associated with legitimizing the gig economy workforce and ensuring they pay taxes.
The food delivery platforms, such as DoorDash and Postmates, have evolved from their early business model of undercutting prices and charging low fees to restaurants, to now charging more competitive market rates. This shift is due to increased competition and the need to cover costs associated with legitimizing the gig economy workforce, which includes Americans and those with green cards, and ensuring they pay taxes. The platforms also face pressure to ensure restaurants are not using illegal workers for deliveries. The example given was a $50 order where $15 went to the delivery person, meaning the restaurant could justify paying market rates for the delivery service. This change in business model is a result of capitalism and the free market at work. However, it's important to note that not all restaurants use the delivery services, and some still do their own deliveries. Despite this, there is still uncertainty and doubt in the marketplace regarding the use of illegal workers in the industry.
Restaurants Adapt to Delivery Demands Amidst Pandemic: Restaurants use multiple delivery marketplaces and repurpose staff to offer consistent customer experience. Delivery-focused 3rd party services thrive, but can be costly. Implementing a loyalty program can help reduce costs and retain customers. Future competition comes from cloud kitchens.
Due to the COVID-19 pandemic, restaurants have had to adapt by using multiple food delivery marketplaces while also repurposing their own staff for order fulfillment. This trend creates a more consistent experience for customers. Delivery-focused third-party services, which handle only the logistics piece, have been around for years and continue to thrive. Companies like Jolt in LA and Relay in New York specialize in picking up food from restaurants and delivering it to customers, often charging a per-order fee. Restaurants often pay too much for delivery services, especially when the value of the food remains the same regardless of the delivery price. Implementing a loyalty program can help convert repeat customers and reduce the need to pay for new customer acquisition. The future of the restaurant industry is uncertain as cloud kitchens, which offer shared commissaries and centralized delivery locations, continue to emerge. Restaurants must adapt to compete in this changing landscape.
Cloud Kitchens: Not a One-Size-Fits-All Solution: Cloud kitchens offer cost savings and efficiency, but not all restaurants can make them profitable. Success depends on unique circumstances and consumer base.
While cloud kitchens offer benefits such as lower costs and increased efficiency for some restaurants, they don't work for every brand. Some local, well-known restaurants have tried and failed to make cloud kitchens profitable. The success stories, like Chick-fil-A, are the exception rather than the rule. The consolidation of the industry may put pressure on commercial real estate rentals, making it harder for traditional restaurants to compete. Ultimately, the free market will determine the fate of cloud kitchens and traditional restaurants, but it's important for restaurants to consider their unique circumstances and consumer base when deciding whether to adopt this model. The shift towards online ordering and delivery will continue to disrupt the industry, and restaurants will need to adapt to stay competitive.
Cloud kitchens and delivery-only models impact on commercial real estate: Shift to cloud kitchens and delivery-only models could lead to lower rents and increased competition in commercial real estate markets, but heavy digital marketing investments are required to maintain visibility and relevance.
The shift towards cloud kitchens and delivery-only models in the food industry could lead to significant changes in commercial real estate markets, with potential for lower rents and increased competition. However, this model also presents challenges, such as the need for heavy digital marketing investments to maintain visibility and relevance. Travis Kalanick and Diego Ocaña's latest company, Cloud Kitchens, could potentially become a platform for aggregating delivery drivers and competing with established players like DoorDash, Postmates, Uber, and Lyft. Amazon's past experiments with restaurant ordering suggest they may also be circling around this space, but their approach has been inconsistent. Ultimately, the success of cloud kitchens and delivery-only models will depend on their ability to effectively navigate these challenges and adapt to the evolving food industry landscape.
Amazon's failed food delivery experiment: Amazon's food delivery foray through Grubhub and others didn't succeed due to poor customer experience, negatively impacting Amazon's core brand. Restaurants will have more leverage post-pandemic, potentially leading to inventory coming off delivery apps and marketplace turnoffs.
Amazon's experiment with food delivery through their acquisition of Grubhub and other services didn't go as planned due to a poor customer experience. This negatively impacted Amazon's core brand, leading to a decrease in sales and eventually their exit from the market. However, Amazon's interest in food delivery remains, and they may re-enter the market once the competition settles down. In the near future, restaurants will have more leverage in negotiations with delivery apps due to the pandemic's impact on their businesses. As a result, we may see inventory coming off these apps and potential marketplace turnoffs. When the pandemic subsides, it's expected that a significant number of restaurants will close, but the rest will survive and potentially be more selective with their partnerships. Our data shows that churn on our platform was at an all-time low in Q3 of this year, suggesting that shutting down would not have been beneficial for us.
Restaurants with takeout capabilities thrived, fine dining struggled: The pandemic hit fine dining establishments hard due to high rents and opulent settings, while takeout-focused restaurants thrived. Political support for the industry was lacking, leading to massive job losses and uncertainty for startups.
Restaurants with existing takeout businesses and online ordering capabilities were well-positioned to thrive during the COVID-19 pandemic. The fine dining establishments with high rents and opulent settings, on the other hand, have struggled to adapt. Politically, a second stimulus package for the restaurant industry was seen as an easy win for Trump ahead of the election, but it didn't happen. The lack of support has led to massive job losses in the industry, which makes up a significant part of the supply chain. Despite the challenges, some startups were able to survive with the help of the first stimulus check, but many are now facing the possibility of going under. As a founder, deciding between staying private or going public through a Special Purpose Acquisition Company (SPAC) is a tough call, but staying private longer might be the safer bet.
From Unwanted to Desirable: The New Face of SPACs: SPACs are now seen as a more elegant and desirable option for companies to go public, especially for those looking to acquire other businesses. Leadership accessibility and approachability are also crucial for successful business outcomes.
The perception of Special Purpose Acquisition Companies (SPACs) has shifted dramatically, and going public through a SPAC is now considered a more elegant and desirable option. The speaker, who once had a negative view of SPACs due to their past reputation, now sees the value in them, especially for companies looking to acquire other businesses and go public. Another significant takeaway from the discussion was the importance of accessibility and approachability in business leadership, which the speaker learned during their time at Lehman Brothers. The speaker shared their experience of feeling disconnected and isolated at Lehman, and how they've made a conscious effort to be approachable and engaged with their team as they've built their own business. The speaker's candid and open approach to business and finance made for an engaging conversation, and their insights into the changing landscape of going public and the importance of leadership accessibility are valuable lessons for anyone in business.
Balancing work and important discussions in the workplace: Socially conscious companies encourage discussions on important topics while maintaining productivity, reducing stress and creating a balanced workplace culture.
Creating a company culture that balances the need to address current issues with maintaining a focus on work is crucial. The extremes displayed by the Expensify CEO's political email and Brian's neutral stance both have their drawbacks. Instead, Chownau aims to provide a safe and inclusive environment where employees can discuss important topics while also ensuring productivity. As a socially conscious company, Chownau encourages voting and even accommodates employees to take time off to do so. By addressing these issues and providing support, Chownau aims to reduce stress and create a more balanced workplace culture.
Importance of face-to-face communication during stressful times: Avoid electronic channels for discussions during stress, opt for in-person or phone conversations. Employers can schedule dedicated times and eliminate distractions for productive, civil discussions. Support local businesses and invest in competition for growth.
During times of stress and charged discussions, it's important to avoid electronic communication channels like Slack and instead opt for in-person or phone conversations. The speaker emphasized the importance of respect and empathy in face-to-face interactions, which can lead to more productive and civil discussions. Additionally, employers can help by scheduling dedicated times for discussions and eliminating non-essential channels to minimize distractions and potential conflicts. The speaker also encouraged supporting local businesses and investing in competition to drive growth and success.
