Just When I Thought I Was Out

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Good Morning!?Happy Saturday and I hope everyone had a great week!

When Branded launched its integrated investment and solutions platform about 5 years ago, we established a very simple and direct investment thesis – we would only invest and support emerging technology & innovation companies that were operator-centric. Meaning, companies that were good for owners & operators of foodservice and hospitality venues.

Operators that leveraged our portfolio companies would see margin optimization through increased sales, reduction in costs and our companies would help address operational inefficiencies. These operator-centric companies also had to address the most important and pressing challenges, opportunities and I dare say problems. "Nice to haves" we would say "need not apply" b/c they wouldn’t rank very high on our prioritization list as our?Hospitality Network?insists that Branded helps them address the most immediate and impactful issues.

That was really it. There’s the investment thesis. Tech & innovation that are good for operators and that address the immediate and near-term issues.

This would NOT make for a very good game of Family Feud, but sometimes when the game is going long and needs to be ended, they have a?sudden death?round with only one or two answers on the board. That’s why Team Branded loves the Feud so much, we draw parallels from it every chance we get! ??

Branded highest priority issue:?when we launched our?investment platform?– the issues surrounding the off-premise business for restaurants was our highest priority and we expressed that view with several key investments.

Two of our earliest investments resulted in successful exits (Bbot?to DoorDash ?and?GoParrot?to Square ), another has become one of our most important and highest valued companies (Chowly ) which is now a force in the SMB market. Lastly,?VROMO , is another one of our early partners that continues to address some of the key challenges for operators. Vromo offers a delivery management software solution that increases fulfillment rates by up to 15%, improves the customer experience by reducing delivery times by up to 30% and guarantees the lowest delivery rates from the biggest fleet partners in the USA.

Over 20 years ago (on a cold and rainy night after walking to & from work uphill, just trying to set a stage), I called Schatz to alert him to a new software that was being deployed at the bank I was working at called?SeamlessWeb. Seamless, as it would officially be renamed on June 28th, 2011, was launched in 1999 and provided COMPANIES with a web-based system for ordering food from restaurants and caterers. For my employer, SeamlessWeb represented a solution to reign in weeknight and weekend food orders.

Prior to SeamlessWeb, the process for evening and weekend working-warriors in the financial, legal, consulting and other industries that were famous for stretching the 40-hour work week to more than 2x the standard, was less than organized. I’d dare say it was the wild west and given that those ordering food in the evenings and on weekends tended to be on the younger side of the age range of those employed by these firms, creativity ruled the day.

Meal dollars got pooled, stretched, and covered everything from food to adult-libations to non-perishables. SeamlessWeb was an accounting solution used to limit the places meals could be ordered from and even more importantly, account for the expenses in a far more diligent, as well as auditable and reportable manner.

A senior banker once accused my analyst class of padding our incomes by sticking around for dinner even on nights where we didn’t have pressing work to do. One of the analysts responded that the investment banks tended to hire a certain type of person that possessed certain quantitative skills and was a believer in capitalism. He then asked the senior banker if the firm be happy if the analysts didn’t find the value or even arbitrage in any given situation? (Please note, that young analyst is now the CEO of a Fortune 500 data-centric company…smart and savvy dude!)

But I digress (again).

When our restaurant was introduced to SeamlessWeb, our off-premise business (delivery and takeout) represented about 1% of sales. That meant when SeamlessWeb came knocking, Schatz jumped at the opportunity. A solution that would open the doors to a wealth of corporates in the neighborhood, allow us to be an approved vendor, and all we needed was access to a fax machine and pay a 5% commission on all orders, winner-winner-chicken dinner!

Today, off-premise business represents a far more meaningful percentage of sales and was an important driver in Branded’s making?off-premise?our initial and most important investment vertical (guest engagement?now plays a close second and stands just a smidgen behind the off-premise vertical).

Off-premise business remains one of the industry’s greatest challenges and when both the?Washington Post?and the?New York Post?write articles in the same week trying to figure out how the dollars are divided among the various players in the delivery game, I figured it’s worth diving back into.

For clarity, there will be no bashing of the?Delivery Service Platforms?(“DSPs”) here. I’m a free markets person and I want businesses to sort out stuff on our own. If anything, I’m going to lob a complaint against NYC regulators that are trying to pick winners and put their thumb on the scale with respect selective employment. Regulators, you want to be helpful in regard to the battle for off-premise business? Please stay out and let us solve this without your “help.”

It wasn't so long ago that the airlines and hotels were disintermediated by third-party aggregators until both industries got their respective houses in order and the airlines and hotels caught-up and rebalanced the equation by leveraging technology of their own. While the hospitality industry is FAR more fragmented and I dare say saturated than either the airline and hotel industries, I’d still vastly prefer for the industry and its many players to sort stuff out for ourselves.

What’s an example of the regulators trying to play judge and jury, here you go:?NYC Proposes Paying Delivery App Workers Up To $33 hourly

What?!? Under one plan, the?Department of Consumer and Worker Protection?would like to hike the pay for?GrubHub?(which acquired Seamless back in 2013),?UberEats?and?DoorDash?delivery workers?$33.27?per hour for time spent on active delivery (please note, the current minimum wage is?$15). Under a second plan, these delivery drivers would be paid?$19.96?hourly for the total time spent on active delivery. The article goes on to say that a city-commissioned study said the earlier proposed rate would increase consumers’ cost of delivery by?$5.18?per order, as the DSPs pass the increased costs onto the consumers.

The article references?Sascha Owen, a DoorDash executive, “The extreme pay rate, $33.27 per hour for platforms selecting the trip time pay option, will result in unsustainable new costs for New York City consumers and hundreds of millions in lost revenue for local restaurants and businesses.” The irony of DoorDash, in this case, being on the side of operators isn’t lost on me. It was only a month or so ago that DoorDash was threatening restaurants to do a better job on orders sourced by their platform or risk being dropped from their platform. This is a great example of the expression “strange bedfellows” as this peculiar alliance between the DPSs and restaurants has strengthened in order to align against the passage of this law which would result in delivery drivers making nearly?$70,000?which, as the article highlights, is substantially more than a first-year NYPD offer’s?$42,500?salary.

With respect to restaurants, how are we going to be able to staff our kitchens with an on or about $15 per hour wage when the drivers of the food coming out of the very same kitchen will be getting potentially twice that to deliver the food?

Since I’ve already specifically referenced an article from the?NY Post, I’ll share the article from the?Washington Post?about the state of the delivery market here:?Which delivery apps eat away at your wallet the most .

The article does as good a job as possible to address the complexity of the delivery market and the actual fees being charged and where the money goes. I appreciate this article by?Hamza Shaban ;?Faiz Siddiqui ;?Alexis Arnold ; and?Joe Fox ?and how they specifically called out that the opacity of the delivery fees is NOT a bug in the system, but a key feature. I encourage you to read the article to get some good intel on the state of the delivery market and how the fees you pay are being divided up.

In the spirit of?Billy Crystal?in?When Harry Met Sally, let me give you biggest conclusion from the article right here & right now –?pick-up is the least expensive option for the consumer and the best deal for the restaurant. Every time, no matter which DSP or limited time offer (“LTO”) you’re trying to capture, nothing is less expensive for the guest and more profitable for the restaurant than pick-up.

That’s why Branded continues to lean into the takeaway side of the off-premise market and we’ve done so with a pick-up pod solution platform (Minnow ); a waitlist management solution (Curbit ); and an order accuracy and guest experience tool (Agot.ai ). Had Agot.ai been around in 1989, Joe Pesci’s joke about what they do to you in a drive thru would never have been made b/c Agot.ai eliminates errors that leave the guests, for lack of a better way of saying it, holding the bag.

The pandemic put a spotlight on the criticality of off-premise business and at that time, over 50% of restaurants in the US didn’t have an online offering. Branded likes to say that COVID changed NOTHING, but accelerated EVERYTHING for our industry.

Over the past few years, we felt the industry was moving to a philosophy of “best in suite” as opposed to “best in breed.” But despite the transformation going on and specifically the digitalization of our still still very much analog industry, the existing delivery model continue to plague all parties.

The latest issue or affront to guests, again, reported by our friends at the?NY Post?is about a single deli in NYC that is playing the role of 27 different restaurants across?UberEats,?Postmates,?GrubHub,?Seamless?and?DoorDash. Here’s the article if you’d like to give it a read:?nyc-delis-use-seamless-doordash-grubhub-to-pose-as-restaurants .

To be clear, neither the deli nor the DSPs are doing anything illegal here. This is an example of a people hearing the words “ghost kitchen,” “dark kitchens,” “virtual restaurants,” and other names and not fully understanding what they mean.

This segment of the market has had its fair share of volatility and the Branded Team believed, when this segment of the market was first launched, and we hold that same conviction today, that we already know, who the winners in the “ghost kitchen” market are (spoiler alert: they look like, act like, sound like and have the same names as the winners in the brick & mortar restaurant business).

For the most part, in the world of ghost kitchens, you don’t know exactly where the food is coming from and specifically where it’s being made. With respect to the deli named in this article, their address is listed, it's accurate and it's located at a corner spot with a meaningful kitchen. According to the article, people who ordered from the DSPs from any of the many names this deli goes by online (Wraps on Tap,?The Pancake Snob,?Princess Panini, and?The Sandwich Slut?were among my favorites) feel they were "dupped," “tricked,” and that this practice is “misleading” and “scammy.” Wow! Tough crowd. "Scammy?" Really?

Similar to the many complaints about the “convenience” fees on deliveries being too expensive and now complaints about a panini that sells directly from this deli for $9 costing $16 when it’s ordered through one of the DSP, my strongest recommendation is that you get off your sofa and go pick-up your food!

You’ll see firsthand where your food is coming from, you will save money and you might even enjoy meeting the folks at the venue where all the action is taking place. It should go without saying that if you don’t care where your food is coming from and you're cool with paying more for the convenience of having your food delivered, then we’ve found a perfect equilibrium.

Rosie O’Donnell, as Gina Barrisano in the film?Beautiful Girls, said “G#d is a fair guy” (she actually said much more than that in her speech to?Matt Dillon?and?Timothy Hutton, but this is PG rated newsletter, so I’ll leave the full length of her speech for those that wish to search for it themselves).

The super vast majority of restaurants would prefer to work with you, their guests, directly. That is no longer a reality in the hospitality industry, but as a free-markets person, we all get to make decisions that suit us best.

I order direct from restaurants b/c I know how important that is to the restaurants I enjoy and want to see thrive. I pick-up food from other restaurants I like, but who haven’t embraced a local delivery fleet or where the convenience of the delivery will be outweighed by the additional fee. Plus, it’s nice to stop by a joint and say hello to the folks at the restaurants we like. In the category of TMI, when dining out, my wife and I enjoying dining at the bar and even near the service bar area as it often creates an experience that’s akin to dinner theatre (and you will learn a lot about the restaurant).

We all have choices to make and how, where, when and why we eat are among the most personal.?Don’t hate the players, hate the game.?If you feel the delivery market is failing you, don’t complain, take an action, and address it. You have far more control over your off-premise experiences and how you engage with restaurants than you think. Restauranteurs and those who work in this industry are among the most hospitable people anywhere.

You think hospitality is limited and exclusive to people in the hospitality industry? No, it's NOT.

I read a great quote by my friend?Will Guidara. Not only is Will a tremendous chef, restauranteur, and author, but he and I also share a common interest in showing up at?Columbia Business School?to speak at?Professor Stephen Zagor’s?class on?Food Entrepreneurship?when we’re both fortunate enough to be invited (I think we're both still intimidated by the professor). ??

Will’s quote:?“whatever business you’re in, if you work with people, you can make the choice to be in the hospitality industry. Our ingredients may be different, but the recipe is the same. All it takes is being intentional and creative in the pursuit of connection... being relentless in pursuit of relationships...being unreasonable in pursuit of hospitality.”

I agree with Will and his deep desire to deliver?unreasonable hospitality .

Your experience and joy with restaurants, whether its on-premise or off-premise, is far more up to you than you may realize. The next time you go to restaurant or order from one, try to see it more as a?relationship?than as a?transaction. Try to see the person on the other side as wanting to create an enjoyable experience for you as opposed to a service that they owe you or you're entitled to.

Will this work 100% of the time. Nope, not even close. Will it work more often than you expect, and will you see an almost immediate positive impact and by that, I mean improvement in your experience and engagement with restaurants? Yes, yes it will!

We've got to great deal to cover below as it was a busy week, so let's get after it!

As always, it takes a village.

QUIZ

Which chain introduced the world's first ever drive-thru restaurant?

Ace the quiz here !

BUSINESS

The Fast Lane To Profits

Today, it's hard to imagine a fast-food chain without a drive-thru lane. It was?estimated ?that there were 200,000+ drive-thru operations across the U.S in 2020. Can you imagine pulling up to your favorite burger joint and having to get out of your car? That's sooo old-school! But once you get a taste of that sweet luxury and convenience, you just can't get enough. And guess what? The restaurant industry is hitting the gas pedal to satisfy your drive-thru cravings!

Not only is it great for the consumer though, but operators are also benefiting from this tremendous invention that was born in 1948. (But you didn't really think I'd reveal the answer to the quiz above just yet. You'll have to keep reading to receive that nugget of information.)

Data has proven that restaurant owners can make up to?60%-70% of their sales ?from the drive-thru!?For instance , "a typical?Dunkin’?location without a drive-thru generated $1 million in sales. Add a drive-thru and that location generates nearly $300,000 in additional sales, or about $1.3 million, according to the company’s franchise disclosure document." Doesn't seem like a bad gig for franchisors right? Luckily at Branded, we know the?experts .

But this isn't a shameless plug to our friends at?Fransmart, it's also a shout-out to our friends?Joshua Kobza,?Jose Cil,?Bart Weymeis,?Phil Crawford, and?David Gibbs?whose brands, according to a 2020 drive-thru survey by QSR, are dominating the drive-thru experience.

Some brands are even getting creative with it! For example,?Dunkin Donuts? unveiled its first dual-lane drive-thru system in 2018 and Chipotle even gave its drive-thru a name when it rolled out its first version in 2019 called?Chipotlanes . I'm looking forward to the creativity that is and will continue to be put into these concepts and of course the innovation!

TECHNOLOGY

How your favorite fast food chains plan to use AI

In 1948?In-N-Out Burger, the iconic west coast burger joint, revolutionized the dining experience by introducing?the world's first-ever drive-thru restaurant . For the Headliners who nailed the quiz,?Harry and Esther Snyder astutely identified the convenience and satisfaction of serving hungry customers directly in their cars. They were ahead of their time! It's only fitting for me to note that operators came up with this innovative concept. At Branded, we believe in testing before investing. If an idea works for the operators, it works for us too. And if it's endorsed by Schatzy "The Restaurant Guy," and our team of subject matter experts, it's definitely a winner.

Fast forward to 2023, and we continue to indulge in the unparalleled luxury of this pioneering concept. AKA- the best part of any road trip. But don't be surprised if you're drive-thru experience is going to look a little different moving forward.?

You may have already noticed that some of your favorite chains are harnessing the power of AI in their drive-thrus. For example,?Carl’s Jr. and Hardee’s has partnered with Valyant AI , a voice-based AI intelligence customer service platform, to automate order-taking at the drive-thru with conversational AI. The technology is helping the brand take spoken orders while reducing labor costs.

CKE Restaurants, the parent company of?Carl’s Jr.?and?Hardee’s, recently expanded its partnership with?Presto?who has?reported ?that “95 percent of its drive-thru orders taken are done so without any staff intervention.”

Following their footsteps, industry giant?Wendy’s?has announced a?deal with Google ?to compose their AI drive-thru which will pilot in June. CEO of Wendy’s?Todd Penegor?said, that this new drive-thru feature aims to “take out the slowest point in the order process, ordering at the speaker box.”

For all the skeptics, here are just a few ways AI can better your drive-thru:

1. Reduce Customer Wait Time:?Chatbots instantly take customer orders when they pull up to the drive-thru freeing up employees to focus on other tasks.

2. They Won’t Forget the Ketchup:?AI can free up employees’ time allowing them to focus on order accuracy, food preparation and payment processing.

3. Increase Average Ticket:?Your team will have total control over the up-sell process.

4. Mitigate Labor Shortage:?Quick-serve restaurants are dealing with average labor turnover between 100% and 150%. Drive-thru AI can offset these challenges.

We're well on our way to making the drive-thru process seamless. So if you're still waiting on those long lines, ponder this: where will you be when you order your last meal from an actual human being?

FINANCE & DEALS

Rising Restaurant Prices Spark Surge in Deal Hunting Among Consumers

As inflation continued to rise through the end of 2022 and into 2023, consumers changed spending habits, including, but not limited to, their eagerness to eat in restaurants. Understandably, seeing prices of classically cheap fast-food increase by a few dollars can be alarming and potentially a real deterrent to the average consumer. Whatever happened to the beloved dollar menu? According to the?Bureau of Labor Statistics, quick-service menu prices remain 8.2% higher over last year.

However, as most of our readers can attest to, we love our restaurants and the incredible effort they put into making delicious food. So, this dilemma would seemingly put consumers at a crossroads; spend more money to enjoy the food they love or change spending habits until prices return to normal value?

Instead, consumers found a third option:?deal hunting.?And no, I don't mean the Walmart mayhem that used to happen on Black Friday, when everything was 70% off. Not to venture off, but what happened to Black Friday? Only 20% really? What a shame.

I'm also not talking about the?Grouponners?who are only looking for a quick deal. For the Headliners that reside in NYC, you may remember?City Crab, a restaurant that used to be where the now famous?Union Square Cafe?is located. The first time my partner Schatzy used Groupon the restaurant was swarmed with hungry customers looking to spend 25 bucks on all-you-can-eat lobster. Let me tell you, and I can confirm,?you can't find a deal like that right now! But not only did those customers not hit the loyalty phase, but they didn't tip well either.

So, let's cut to the chase. I'm talking about the type of deals that get consumers excited about racking up points for a free burrito or coffee.

Data from Circana ?showed that consumer deal offerings in restaurants grew by 8% year-over year in Q1, despite the fact that April 2023 was one of the slowest food sales months in over a year. While total visits to QSR’s increased by only 2% and full service declined by 1%, deal visits were up by 7% for QSR and 4% for full service.

As guests become harder to attract, restaurants must continue to get creative in their deal offerings,?loyalty programs , and?digital marketing . It may end up being the difference between the brands that thrive and those that slowly fall behind.

Restaurant Industry Movers in the Market

—Data as of 6/9/2023

PODCAST

Hospitality Hangout

Primanti Bros. , now celebrating its 90th anniversary, began its journey in Pittsburgh back in 1933. Today, the chain has grown significantly, with?41 open restaurants?across?four states?and?four more under construction, projecting?45 locations by year-end. In the latest episode?Adam Golomb, CEO of Primanti Bros., shared valuable insights, shedding light on the brand's expansion, virtual brands, technology integration, and his personal experiences.

Listen on:?Spotify ,?Google Podcast ,?Apple Podcasts , or?Amazon Music

MARKETING

THE BEST PANEL EVER IS AT QSR SUMMIT NEXT WEEK!!!

?? Are you headed to the QSR Summit in Schaumburg, IL next week? I'll be there co-hosting the event with the incredible Sam Stanovich from Big Chicken. If so, hit me up!!

[email protected]

If you'll be in town Monday night, I'm co-hosting a food crawl with Zack Oates, CEO of Ovation. If you would like to enjoy some tasty local eats, reach out for details. Wanna join us?

Check out the video of our food crawl from the NRA show:?https://www.instagram.com/p/Cs6JQhygSqf/

If you're going to the show, I'm hosting a panel that I think you'll be interested in.

Leveraging Social Media to Create New Opportunities to Engage with Guests

WEDNESDAY | JUNE 14, 2023

3:00 p.m.

How are Fast Casuals and QSRs leveraging social media platforms to better connect with Guests?

How do newer players in the social media space differ from legacy platforms, how has your strategy evolved over the last few years?

What type of content typically gets the most attention and garners the most engagement?

How do you envision social media changing over the next year and how do you plan to adapt to that change?

What are the best practices to employ when advertising on the different social media platforms, ie: Facebook / TikTok / Snapchat / Instagram / Google Ads?

?? Casey Tarca, Team Lead- Dining, TikTok

?? Jeff Lin, Director, Media & Growth, sweetgreen

?? Forrest Nettles Head of Brand & Marketing, Groucho's Deli

?? Casey Hilder, Director of Marketing, Starbird

?? Moderators: ????????David "Rev" Ciancio

Discover more about the event:?https://bit.ly/QSRSummit

So, will we see you at the QSR Summit!?!

WHAT DOES REV DO?

*I help restaurants to build guest marketing programs.

*I help hospitality tech companies with lead generation and content marketing.

Need help?

Rev Ciancio

Branded Strategic, Head of Revenue Marketing

IN THE NEWS

We love to highlight Food Service & Hospitality news, especially when it’s Partners & Friends making it!

• Galley:?The Best Food and Menu Costing Software of 2023
• GoTab:?Thinking of Opening a Restaurant? Here’s Your Guide to Choosing the Right Restaurant POS System
• Incentivio:?The Challenges of Restaurant Ownership
• LuckyDiem:?What are Card-Linked Offers? And Why Should Brands be Using Them?
• MarginEdge:?Release Notes June 2023
• Meez:?Jake Kalick of Made In Cookware on Involving Chefs During Product Development
• Mighty Quinns:?Mighty Quinn’s Launches Franchising Initiative
• Ovation:?Strategy That Transcends Industry with Jeff Fenster
• PourMyBeer:?Maximizing Efficiency In High-Volume Drink Service
• Spendgo: How do you determine the value of rewards in your loyalty program?
• Valyant AI:?Paerpay, Valyant AI Form Partnership
• VROMO:?DeliveringMore Episode 49
• Yumpingo:?Olive Tree Brasserie Unlocks the Path to Sustainable Brand Innovation & Growth

And in other News…please see some of the stories that caught our attention and that we’re paying attention to. This week was loaded with headlines and news!!

• Restaurant Dive:?Cava issues IPO, plans to raise over $245M
• Restaurant Dive:?Fat Brands to issue IPO for Twin Peaks brand
• Bloomberg:?Lavo Coming to London in Expansion by Wall Street Favorite Tao Group
• Restaurant Business:?An Applebee's franchisee is buying Corner Bakery for $15M
• Insider:?Starbucks inks deal with Travis Kalanick's CloudKitchens as the coffee giant expands delivery through DoorDash
• The Times:?Bubble tea chain Gong Cha brews up big plans for Britain
• Forbes:?What's The World's Largest Food Company?
• Restaurant Business:?Greg Flynn goes global with Australian Pizza Hut acquisition

Answer: In-N-Out Burger

That’s it for today!

See you next week, (about the) same bat-time, same bat-channel.

It takes a village!

Jimmy Frisch & Julia Suchocki

Branded Hospitality Ventures

[email protected] ?&?[email protected]

235 Park Ave South, 4th Fl | New York, NY 10003

Branded Hospitality Ventures ?("Branded") is an investment and advisory platform at the intersection of food service, technology, innovation and capital. As experienced hospitality owners and operators, Branded brings value to its portfolio companies through investment, strategic counsel, and its deep industry expertise and connections.

Learn more about Branded here:?Branded At-A-Glance June 2023