Friends of Branded!
Happy Saturday and I hope everyone had a great week.
Last week, after moving my explanation for the theme for the Top of the Fold to the beginning of the section, I witnessed enthusiastic embracement, so I figured I’d try to run that play again.
The title, “Speed Kills” is what’s been on my mind this week (for reasons that you know I’m going to jump into below) as I read and a saw a great deal of information about the importance of speed in connection with the hospitality and foodservice industry.
There is of course a film of the same name that stars Mr. John Travolta, but I don’t think anyone would disagree that when it comes to movies and the word “Speed” that it’s the film, starring Keanu Reeves and Sandra Bullock that first comes to mind.
So, in fairness to the film “Speed Kills,” I’m giving it a shoutout and an image below, but respectfully, it didn’t earn the image for this week’s edition (sorry, not sorry).
First and foremost, I want readers to know that I fully understand why people are enamored with speed.
Speed makes us feel alive, its exciting and gives us a sense of direction, purpose, and accomplishment. Speed is often associated with efficiency. We like to get our work done fast and ideally that gives us more time to do more pleasurable things. Tasks don’t feel as onerous or overwhelming when we can speed them up.
Think about the last time you took a drive from point A to point B. Upon your arrival, the first question you were asked, “how long did it take you to get there?”
Everyone is obsessed with speed.
With all the above in mind, why do I have an issue with speed?
B/c sometimes, speed kills and specifically b/c it can run the risk of missing the mark as it focuses on the wrong goal or prioritizes the wrong things.
When Ghost Kitchens and Ultra-Fast Grocery Delivery were all the rage, too many technicians and investors ranked speed above things such as food quality, value, and consistency (as well as the chance of even having a remote possibility of a profitable business model).
Schatz and I attended more meetings than I care to mention where the speed of getting the food & beverage from point A to point B was core to business plan, but where food quality and guest experience was completely secondary. We even had a tech company CEO discard us when we mentioned the importance of food quality & consistency and he responded by telling us that the food didn’t matter, so long as it could be delivered in less than 10 minutes (spoiler alert, that company is no longer operating).
The obsession with speed and shaving minutes off delivery makes me think of the scene from the film “There’s Something About Mary” and the battle among 8-minute, 7-minute and possibly even 6-minute abs.
We attended conferences dedicated to Ghost Kitchens where the participants seemed to be void of any restaurant experience and didn’t seem to even care about that part of the business. You know, the food, beverage and service side of the business.
Much has been written about Ghost Kitchens and to be clear, Branded believes in the digital restaurant and foodservice offering. Just b/c there was a segment of the Ghost Kitchen market that failed miserably doesn’t mean that we’re not fully on-board with the criticality of leveraging kitchen capacity and using such capacity and lower CapEx along with the opportunity to test and try new things in the off-premise world. The digital restaurant is absolutely here to stay, just don’t ignore the food & service aspect of the business.
The explosion of off-premise business and the need to meet the guests where they desire to be is an awesome advancement and represents meaningful value proposition for the hospitality industry. From an operator’s perspective, think about how the demand for off-premise dining expands the capacity of the front of house exponentially. These off-premise guests are also not taxing the physical dining rooms and with the right balance of first-party & third-party delivery along with a meaningful emphasis on pick-up / takeaway, off-premise dining represents a most meaningful and valuable revenue stream for brands.
While speed is a nice and maybe even an important thing to have, the table stakes for earning a guest’s share of wallet is the value of the food & service. A guest will forgive a restaurant for taking a little bit more time but will be unforgiving if the meal disappoints or fails to meet expectations.
This week we saw a great deal of press that highlighted some industry leaders that remain committed to the off-premise market. Here are the links to two such articles:
(i) Sam Nazarian's SBE buys assets of ghost kitchen startup Kitchen United; and (ii) Marc Lore Is Trying to Build the Amazon of Food Delivery.
To be clear, Branded is cheering for these industry titans to succeed and help create value for brands and guests. Branded is obsessed with margin optimization for operators and if SBE, Wonder and other companies committed to creating efficiencies and improving the market for off-premise dining win, that will be a win for the industry!
My concern and maybe warning continues to be that the hospitality and foodservice industry is NOT a technology business (despite over 80% of Branded portfolio companies being B2B SaaS companies).
To the contrary, the hospitality & foodservice industry is about the food, service, and people. Don’t get me wrong, this industry is a most antiquated and analogue one and the importance of technology and the digital transformation that’s underway is critical for the success of the industry. But tech & innovation is the side dish, not the entree (I thought a restaurant analogy was appropriate here). 😊
The hospitality and foodservice business can be a tech-enabled business and a tech-supported business, but it’s NOT a technology business.
Dominos’s Pizza former CEO Patrick Doyle famously talked about his company being a tech-company that sells pizza. It’s not. It’s a pizza company that is succeeding in a most meaningful way b/c of its commitment to having the most advanced technology infrastructure in the market. They have been a trailblazer when it comes to delivery and digital orders. The company is on a path to take all orders digitally and believes doing so will result in a better guest experience, higher check averages and superior operational efficiency.
That’s an awesome objective and as Domino’s continues to win with its industry leading tech-stack, Branded is certain that others will continue to follow and continue to invest in their own respective tech-stacks.
There is no doubt that the consumer has enthusiasm for and rewards brands who can deliver (pun intended) convenience. The hospitality industry is comprised of an incredibly collaborative community, but that shouldn’t suggest that competition for the guests’ share of wallet is anything other than fierce.
Going back to the aforementioned articles, Mr. Nazarian is focused on restaurant brands as intellectual property (“IP”) and creating concepts for targeted demographics. SBE also loves to leverage celebrity partners who can ideally create instant demand and ideally create brand credibility.
When it comes to Mr. Lore’s, he’s embracing speed and an aggressive growth plan for Wonder’s locations with the goal of reaching an enterprise valuation of $30 billion within 5-years. The NY Times article points out that it took Chipotle, one of the restaurant industry’s biggest success stories, 30-years to achieve a $30 billion valuation.
Despite Wonder’s aggressive growth plan, one only needs to point to the speed and success of Kim Kardashian’s company Skims and its sprint to a company valuation of $4 billion in a fraction of the time it took Sarah Blakely and her company Spanx to reach a valuation above $1 billion.
My point is that the well-embraced rule in the world of investment management is that past performance is not indicative of future performance. What took Chipotle nearly 30-years to create (with respect to enterprise value) may prove attainable in a far shorter period of time for Wonder. Maybe.
Wonder, identifying as a “A New Kind of Food Hall,” is focused on optimizing its delivery operations and its hyper-efficient culinary processes. The article points out that maintaining the food quality needed to keep customers coming back wasn’t a topic that was mentioned by Mr. Lore.
And that’s my overarching takeaway from two articles, a heavy emphasis on the celebrities, technology, and speed of the delivery service versus a focus on food quality, consistency, and the guest experience.
In short (and I recognize that these H^2 are NEVER short), speed is most certainly helpful, but never at the expense of the food quality and the overall guest experience. Remember, this is the hospitality industry!
It takes a village.
This week’s Shoutout Section is dedicated to two of our portfolio companies and the tremendous “wins” these operator-centric companies have put up on the board.
Let’s kick off with Branded’s friends and partners at Copia and the announcement that Rite Aid has partnered with this food redistribution company that simplifies food donations.
Rite Aid will donate food items for Copia’s platform to track inventory, prove compliance, and record impact in real time across the state of California. Rite Aid states that the partnership aligns with its corporate responsibility program, which involves managing its carbon footprint and reducing the amount of food that ends up in landfills.
Rite Aid senior vice president and chief corporate affairs and communications officer Joy Errico commented: “The health and wellness of others is at the center of everything we do, and Copia is empowering us to deliver on that promise in another deeply meaningful way.”
Copia will match Rite Aid with local nonprofit organizations focused on combatting food insecurity. Friend of Branded and Copia’s CEO, Kimberly Smith added: “Food waste is one of the largest contributors to methane emissions from landfills. By choosing to donate surplus, Rite Aid is reducing their impact on the planet.”
Branded is super excited to see Rite Aid not only embrace the industry’s single best platform for making donations easy so that operators can focus on their business. Donating is of course good for the planet and the community, but it’s also good for the donator’s bottom line. Why isn’t every business doing it? Because doing it by yourself is hard. Copia makes it easy, scalable, worthy of celebration, and financially beneficial.
Branded is celebrating this coming together between Copia and Rite Aid. Now that’s a village I can get behind! 😊
This week’s second shoutout goes out to our friend and partner, Zack Oates, the CEO at Ovation. Mr. Oates had a most special week - he not only won a strong new customer, but it was a brand that’s near and dear to his heart that: Friendly's | Family Restaurant & Ice Cream.
In the category of potentially TMI, Zack’s first job was at Friendly’s, and he credits the company for introducing and teaching him about hospitality and the guest experience. How much of those learnings led to Zack and Ovation being a leader in the guest engagement and feedback space is something I’ll leave for Mr. Oates himself to opine or comment on.
For me, the Friendly’s Fribble was single greatest treat and dessert I had a child and for avoidance of any doubt, that last comment is limited to areas south of Exit 25 on I-87 North b/c once at Exit 25, the infamous Dairy Queen owns the greatest dessert title. 😊
Friendly’s, the iconic family diner, and ice cream shop known for its sundaes and burgers announced this week a partnership with Ovation, the market’s leading guest feedback platform.
Branded applauds restaurant groups that are leveraging the tools now available in the market in order to better measure and act on guest feedback and we’re thrilled when brands such as Friendly’s embrace Ovation’s real-time chat, short surveys, long surveys, powerful reporting and AI-powered recovery systems to connect with guests and improve operators.
Friend of Branded and now customer in Carissa De Santis, the CTO of BRIX Holdings (the parent company of Friendly’s) shared that she’s been “blown away by the platform.“ She went on to add, “we’re getting 24x more feedback than we were with our old survey system. But in actuality, we’re spending less time handling that feedback and reaching back out to the guests than we were previously…it’s been a game changer.”
Readers of the Hospitality Headline, that are interested in learning more about Branded’s portfolio companies, investment strategies and future opportunities, are invited to explore becoming part of our Access Hospitality Network.
In today’s episode of Hospitality Hangout, Michael Schatzberg “The Restaurant Guy” and Jimmy Frischling “The Finance Guy” are joined by Steven Song, Chief Financial Officer at Luke’s Lobster, and Kathi Turner, Executive at Turner’s Seafood. This "shellabratory" episode was recorded LIVE from the Restaurant365 Studios at the Restaurant Transformation Tour in Boston!
You can tune in on Spotify, Apple, Amazon, iHeart, or your favorite listening platform!
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That’s it for today!
See you next week, (about the) same bat-time, same bat-channel.
It takes a village!
Jimmy Frischling
Branded Hospitality Ventures
jimmy@brandedstrategic.com
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