The digitization of the economy has been actively underway for the last two or so decades. In many regards, though, the digital age of restaurants has caught many restaurateurs off guard. Food is, by nature, a physical experience — so it’s been hard for restaurants to mentally bridge that digital divide.
Kitchen United CEO Jim Collins told Karen Webster that, as the owner-operator of Montrose Town Kitchen & Grill in California, he had a front-row seat to this a few years ago when the Postmates delivery people first started showing up at his door.
“These delivery people would come in with a debit card to pick up an order — and, at first, my hostesses and wait staff were asking ‘what is Postmates?’” he said.
He also noted that the entrance of unexpected delivery services was a friction point more than anything else because of the confusion they caused. However, more delivery people kept coming, and it became clear that the restaurant business was on the verge of a big digital disruption. Marketplaces and platforms were growing larger, and consumer behaviors around eating out in a restaurant and ordering to eat at home were changing.
It was at that same time, he noted, that the opportunity to head up Kitchen United first presented itself.
KU‘s contribution to the digital-dining ecosystem is to offer restaurants of various sizes the opportunity to lease space in “kitchen centers” — large facilities that can house cooking spaces for up to 20 different restaurants. Sometimes referred to as ghost kitchens, they do not have dining rooms, but are spaces where food is prepared and picked up by either delivery people or, in some cases, directly by consumers.
Earlier this year, Kitchen opened its first flagship kitchen center in Pasadena — a 12,000 square-foot hub that houses 15 restaurants. Last month, the firm announced it had raised $10 million in a Series A funding round, led by Alphabet’s venture capital arm GV.
It’s been an educational experience so far, Collins noted, both in terms of the data coming in and what Kitchen has learned from other brands it has met, even from its pre-opening days. The biggest lesson is that restaurants need to rethink what they are in a fundamental way.
“Restaurants have to start thinking of themselves as eCommerce businesses,” Collins said.
Thinking Like An eCommerce Business
There are many things to help restaurants make the jump to digital that harken back to the basic blocking and tackling for eCommerce long-timers. Those things include optimizing a menu down to 30 items or less so they can be easily viewable on a mobile phone, or making sure that higher-profit margin items are heavily favored on the site so that losing money on platform delivery doesn’t become an option. Even things like having a picture with every menu item, Collins said, is important.
“No one would order a pair of shoes from Amazon and, increasingly, that is how consumers are viewing food purchases,” he said.
Beyond the basics, brands that are less diversified in the restaurant environment are suffering the same difficulties that the mediocre middle-retailers have faced in the age of digitization. Just like the retailers with offerings not materially different from others in their category, which found themselves adrift when consumers’ retail paths took them online, restaurants that don’t find a way to use online to differentiate may find themselves suffering the same fate.
“The challenge is really noticeable in restaurants for the less diversified brands,” Collins remarked. “It’s been fascinating to see, even in our early efforts in Pasadena, that the difference between killing it and struggling can really come down to a brand’s online personality. I think restaurants are just beginning to learn about the modern consumer and how they are interested in knowing a little bit more about them.”
The New Journey
In KU’s early days, Collins told Webster, the company came upon a statistic that was so impressive that he found it initially implausible: 92 percent of millennials had placed their first order with a restaurant because of a piece of paper that had been left on their doorstep. After informally questioning his millennial sons, then more formally studying the phenomenon, Collins found the statistic was far from impossible. It was, in fact, broadly reflective of much of the consumer journey in dining.
According to Collins’ research, customers tend to hear about a restaurant (possibly via a flyer), then they go to Google for reviews. Collins said consumers are looking for that first screen and the number of stars. They don’t usually read the reviews, nor do they seem to care how many reviews a restaurant has received. After passing the four- or five-star threshold, consumers move on to the restaurants’ website.
“Consumers don’t want to connect to the ordering marketplace first,” he noted. “They go to find out about the restaurant. What we are seeing is a migration back to more personalization, so that even though we are going to shop online, we now want to know a little bit about who we are buying from.”
That’s where personality comes into play. Pictures, an optimized menu and a story are all part of building and communicating that personality — as it all signals to the consumer that this is the place they want to spend their money.
Building A Better Experience
When restaurants come to work with Kitchen, Collins said, they have one or two objectives.
Some established brands like to test the waters before expanding into new markets. Renting space allows them to do that faster and more cost effectively. Others don’t want to expand; they want to optimize their business by taking delivery out of their full-service restaurant locations. That, Collins said, eliminates the confusion and friction that online ordering and delivery can add to restaurants not designed to handle it.
Before the digital age, he noted, there were a manageable number of touchpoints that fed orders to a kitchen, servers who took orders and handed pieces of paper to the kitchen staff. Once online ordering became plugged in, the number of touchpoints feeding orders to the kitchen jumped from a few to “literally millions.” Most full-service restaurant kitchens weren’t designed to function under that type of demand.
“Bigger, more successful chains want to offload that pressure [from] their dining rooms into operations that are optimized to deal with things like peak order flow,” he said.
Restaurant dining rooms these days, Collins noted, need the additional focus because “how” and “when” consumers dine out are changing. In the same ways that the most successful retail environments are morphing into full-service experience centers and public gathering places, the restaurants most likely to survive and thrive are the ones which understand that eating out is a less regular occurrence — one that people often use as a social outlet and form of entertainment.
The challenge going forward for restaurants is knowing how to build a full-service digital experience that both appeals to the eat-at-home customers and draws them in on the nights they decide to go out. That means, he said, driving the destination of digital dining will likely be a cooperative effort between both restaurants and marketplaces going forward.
What’s Next
The time is rapidly approaching for restaurant brands to have a reality check when it comes to marketplaces, Collins noted, and their place in the growing digital restaurant economy. Even today, he still has conversations with major brands about how they will never be on the delivery marketplaces because they don’t want to be disintermediated and give out their consumer data. Collins said it is increasingly becoming clear that this isn’t productive.
The problem, he noted, is that those chains are officially giving up on a large pool of customers who wouldn’t be eating out that evening anyway.
“What I rapidly realized as a restaurateur is that if I was giving my customers to the marketplace, that was dumb, and I didn’t have to do that. My role was to find the way to work together best with them to deliver food to those who chose to eat at home,” he said.
Sometimes, people would rather stay home in their pajamas and “watch Netflix, eating take out. The best way to reach that not-inconsequential market segment is by working with delivery marketplaces,” he added. From there, restaurants can use that new access to get business that they might otherwise lose.
The systems still need work, Collins said, and both marketplaces and restaurants are still learning to coexist in a digital marketplace that is evolving in real time. Whatever one’s worst fears, though, Collins doesn’t think delivery marketplaces want to compete directly with restaurants by opening their own. They need restaurants to provide food for them to deliver. Likewise, restaurants need marketplaces to help reach customers where they are — and in the way they want to order.
Their goals are broadly aligned and will continue to be, he noted, even if they don’t see it that way today.
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