Eating The (Food) World
Software, Delivery Platforms, and Instagram Eating
With Thanksgiving right around the corner, I thought I would write about the most important part of our holiday tradition: Food. With DoorDash dropping their S-1, I’ve seen a fair bit of writing about the food delivery industry, but most of it seems to ignore the food itself.
For the past few years, the media industry been the best perch from which to understand how software or rather technology continues to eat the world. Software ate media first because ultimately media is just information, easily digitized and transformed. But other industries, such as commerce, transportation, and now increasingly the food and restaurant industry are following suit, and seeing much of the same disruption with many of the same outcomes.
Putting COVID aside, the changes to the restaurant business largely follow the same patterns that first appeared in the media business. The fundamental structure of the business is changing, as platforms such as DoorDash enter and grow market share, and as Instagram and other social media become a larger part of the food content ecosystem. These changes in business structure have realigned the value chain and the critical skills needed to succeed. And they have raised the stakes: the winners created are much bigger than before, the number of losers much greater. All of this is driven by, and in turn shapes, new mass cultural behaviors.
Just as in media, aggregation platforms tend to reward two types of suppliers: truly differentiated niche players, and large businesses with entrenched brands and economies of scale. The nature of the platform-mediated delivery or pickup funnel shifts value from qualities such as ambiance (aside from truly high-end outliers), walk-by location, and professional in-person service, to branding, speed, fulfillment, and community building.
Just as we saw in media, this shift is leading to the hollowing out of the middle class. Chain restaurants with well-known brands, economies of scale, and the deep pockets needed to adapt to new funnels are thriving. Meanwhile, truly great restaurants with deep passionate fans, differentiated experiences/food, and devoted communities, COVID aside, are as well. We are also seeing the rise of ghost kitchens, focused entirely on serving a niche with greater cost efficiency. But the average restaurant, with average food and average marketing, is struggling as platform algorithms and economics drive users away from the middle.
COVID, of course, has impacted everyone, but here too it seems to have mostly accelerated existing trends rather than completely creating new behaviors. By accelerating the shift towards delivery platforms, and placing further stress on local mom-and-pop restaurants without the scale of big chains, it seems to be speeding up the hollowing out the middle. It has of course also placed great stress on chain restaurants and in particular on niche and differentiated businesses as well. But it has done so in a manner that will likely create more opportunity for these types of players in the long run, in part by eliminating much of their average competition.
Once we return to a more “normal” state of affairs, I suspect many of these changes will be here to stay, and the business will likely change more in the next 5 years than it has in the previous twenty. Just as in the case of the media and content business, there will be in some ways more opportunity than ever but also less at the same time. Big chains will likely only grow more dominant. Meanwhile, new entrepreneurs, perhaps previously gated by the startup costs needed for full service, sit down restaurants in prime locations, or the need for certain local marketing relationships, will likely see success as well -- though also, due to this very lack of friction, will face a lot of competitors, with only the best winning the day.
Moreover, in a nod to the creator takeover of the digital media space, I’d be surprised if we did not see more food creators and individuals with food audience build great restaurant businesses on top of their communities. By using these new technology platforms, they will be able to scale much faster and further than any dining business before. Imagine your favorite TikTok or Instagram food creator launching a ghost kitchen delivery business on DoorDash to serve their greatest hits.
Meanwhile, we will continue to see more influencer-chain partnerships such as McDonald’s highly successful Travis Scott promotion, or Dunkin’s Charlie D’Amelio promotion. And my bet is that these partnerships will become only more integrated over time, less pure sponsorship and more integrated product creation. Less endorsement, than “collab.” At the very least, there will only be a greater and greater emphasis on the visual and social aspect of what we eat, as food increasingly goes the way of music and fashion as a symbol of our increasingly network-based and visual identities.
This shift will also likely create many positive outcomes for the American eater. It will raise the bar for those competing on food quality from putting out good product at a reasonable price to needing to truly stand out in order to shine. Just as in the media industry, this will lead to greater diversity in cuisines and further specialization, as entrepreneurs focus on delivering to passionate audiences as opposed to serving people more broadly. At the same time, the algorithmic nature of these platforms will also lead to greater concentration in the most popular restaurants and menu items even as their limitless shelf space increases the diversity of choice. (As a proxy, I’d love to see whether the average menu size increases or decreases over the next 5 years; I suspect the real change will be that menus tend towards the two poles even as the average may stay the same.) Either way, we will only see a higher quality bar for non-chain restaurants and a greater focus on unique and diverse dishes.
All of this is likely to serve as a backdrop to the war of consolidation that we are already seeing on the delivery and aggregator side. The outcome of which will likely only accelerate these changes and perhaps in some cases make it more difficult for all suppliers to succeed. And there will be significant and real collateral damage among the middle class of restaurants along the way. Real people will be impacted. The same way they were on the media and commerce side. And of course, there will be nuance, but my bet is it ends up looking a lot like the media business. After all, software really is eating the (food) world.