May 11, 2024 16 min read

Everything Old is New Again

Everything Old is New Again
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Friends of Branded!

Happy Saturday and I hope everyone had a great week.

Coming out of the 7th annual Food on Demand conference in Vegas, there are a few truths that remains unfettered: (i) the food delivery business is hard; and (ii) the food delivery business is here to stay.

While I was in Chicago at a family office event, Branded was fortunate to have key members of the team on the ground at FOD and over a dozen of our portfolio companies attended this annual gathering and it's my understanding that FOD 2024 may have been its strongest conference!

The Branded team has big love and respect for the crew at Food on Demand and I’ll give a Top of the Fold shoutout to its publisher and editors, Jared Pfeifer, Bernadette Heier, Adam Wahlberg, along with the conference team that includes Gayle Strawn, Rachel Tegethoff, and Alie Leonard for a job well done.

One of the keynote speakers at this year's event was Mr. Travis Kalanick, the co-founder and former CEO of Uber.

This was a truly incredible "get" for FOD given how stealth Mr. Kalanick has been since he purchased a controlling stake in 2018 of the company City Storage Systems, which operates as the parent company of CloudKitchens.

CloudKitchens offers food preparation facilities for delivery-only restaurants and food service venues. Affectionately known as a "ghost" or "dark" kitchens, these facilities allow the kitchen space to operate as a commissary to others, which lets costs be shared and can exist in lower-overhead spaces than standard restaurants.

Mr. Kalanick’s business model and strategy for CloudKitchens is to do for kitchens what Uber did for cars. Travis is on a mission to "digitize the physical world," and having him take the main stage at FOD set the tone for a tremendous industry event.

When it comes to the restaurant industry, Mr. Kalanick envisions an “internet food court,” where the guests can order anything online, the food experience is “hype-personalized” and the desire for instant gratification is met by 15-minute delivery times.

This mission requires a balance of lowering the cost of meal delivery while still ensuring its convenience. To succeed in this ambitious endeavor, food production has to be completely automated, and logistics has to get completely automated.”

This week’s Top of the Fold is NOT intended or going to be a recap of the Food on Demand conference.

As I wrote above, the food delivery business is hard, and the food delivery business is here to stay. I’ll add that I expect food delivery will also continue to be expensive b/c by definition, convenience and “instant gratification” are luxuries or a ‘nice-to-haves’ and therefore can't be inexpensive.

I would venture that readers of the H^2 are familiar with the “Value Triangle” and the simple and powerful concept about the relationships among (i) speed; (ii) cost; and (iii) quality.

For those not familiar with the “Value Triangle,” while we desire to have all three of its components (speed, cost, and quality), the reality is that you can only have two at any given time. I believe the below diagram simply captures what many of us know to be true:

I’m sharing the “Value Triangle” in connection with food delivery in an effort to set or maybe manage expectations for the various stakeholders and parties involved in the restaurant and off-premises industry. This includes our guests, hospitality venues and technologists. I’ll also include and caution investors to be mindful of and respect the “Value Triangle” b/c the most recent obsession with ultra-fast grocery delivery seemed to suggest that there was a belief (and about a $30 billion evisceration of capital) that technology would allow us to achieve a perfect triangle (meaning the holy grail of getting all three components at the same time), but so far, the “Value Triangle” remains undefeated and you can have only two of its components.

When I read the "holy grail" I think of either Monty Python or Indiana Jones

I promise (always a dangerous word) that I’m going to move away from the Food on Demand conference, but not before sharing what I did hear was an important theme when it comes to delivery and that was the criticality of guest engagement, the customer experience and as friend of Branded, Wade Allen, Costa Vidas' Executive VP of Strategic Growth, said, “metrics that matter.”

On a panel discussing Off-premises Operations, Mr. Allen talked about the importance of creating a manageable off-premises operation with an omni-channel presence. For Costa Vida, which has an arsenal of off-premises channels including delivery, pick-up, drive-thru and catering options, Mr. Allen said the company works on the “metrics that matter.”

Wade went on to share that “the metric [Costa Vida] found that influenced all of [its] channels to be successful wasguests with a problem.’ We wanted to find out how many guests had a problem across these channels, vs. the number of transactions we’re conducting. We started measuring that and were able to find out where the problems were.”

Note to self, this would make a great quote for Zack Oates and the team at Ovation to utilize given their status as the industry’s #1 Guest Feedback Platform. Just saying. 😊

 I’ll emphasize one last time, the food delivery business is hard, and the food delivery business is here to stay.

Branded is a believer in content and in the hospitality industry, we believe the content is the food, the experience, and the people. The distribution channels, by comparison, are supporting actors, important supporting actors, but still supporting actors.  We’re a tech-enabled industry, a tech-supported industry and the digital transformation and the embracement in the right technology for your business will be a key factoid when it comes to winning vs losing.

Was there ever a better supporting actor crew than this in duo?

I’m old enough to remember a time when the third-party delivery service providers (aka the “3DPs” or “DSPs”) had some differentiation among them, but that now seems no longer to be the case.

To me, the food delivery companies appear to offer an undifferentiated service and despite their market prowess and its embracement by customers, a profitable business model remains elusive.

To be crystal clear, there will never be DSP bashing here in the H^2.

Branded’s restaurants are customers and users of the DSPs. These are important players for our restaurants, but real success in the food delivery business will require that we find a balance among the different constituents. I know brands that are finding success with the DSPs, but we need that to be the norm as opposed to the exception.

In the category of too much information (is that really such a thing in this newsletter?), if it weren’t for Branded Restaurants' embracement of many of the DSPs, we would never have experienced the tablet-hell (defined as the pain, costs, and need for human capital to manage these disparate delivery platforms and the need to manually enter orders into the point of sales (“POS”) system which captures the orders and sends them to the kitchen for preparation).

This most meaningful pain-point is what led Schatzy to seek a technology solution to address this issue and the associated costs, which led to our embracement and becoming a customer of Chowly (and for those paying attention, Chowly is one of Branded Hospitality Ventures investments and now strongest portfolio companies).

Thank you for your help and for being on this journey with us Sterling, Justin, Joe, and Tom).

A restaurant can generate revenues from each DSP, but that can have other consequences

For the DSPs, I expect continued consolidation (yes, I’m hammering the M&A and consolidation drum again) b/c only with fewer players, will the DSPs be able to raise prices to actually cover the costs of running their businesses. At present, customer acquisition costs are too expensive for the DSPs and aggressive pricing tactics are akin to a race to the bottom.

For clarity (if it wasn’t obvious), the DPS are losing money, so the cost of delivery needs to be increased for them to be profitable (please refer to the “Value Triangle” above) so this idea that delivery will become cheaper for guests is a fairy tale.

One area of the delivery business Branded remains extremely excited about is catering and this is a domain where I believe all parties can not only be satisfied, but where we can win together.

Delivering a single food order or meal is expensive and will only become more expensive, but delivering a large order of meals, that comes with advanced notice and is motivated by a myriad of factors, is where Branded believes the off-premises business can succeed.

In a recent poll conducted by ezCater, the data reveals that more than 50% of food-at-work buyers plan to increase their food spend in 2024. This may well represent a perfect storm for catering as businesses desire bringing employees back to the office and adding an expanded food-for-work offering is one of the perks the business community is embracing.

Again, according to ezCater, an average business catering order serves 23 people. Remember, a single food order is uneconomical for the parties, but an order for 23 people represents a different value proposition and profitable opportunity.

Branded is proud to share its partnership with Erle Dardick, Bill Holleman, and the team at the Off Premises Growth Academy (“OPGA”). More will be shared on this partnership, but the commitment the OPGA has made to acting as an ally to restaurant operators and to helping them deliver (pun intended) value to restaurants by driving sales, increasing profits and becoming experts at feeding their guests where they live, work and play is why Branded has joined forces with this team.

In addition to sharing the partnership between Branded and the OPGA, I also want to highlight the upcoming Restaurant Catering Workshop that will take place on October 15th & 16th in Denver. This is a collaboration between our friends at Fast Casual & Networld Media Group and our partners at the OPGA.

Branded finds the events hosted by Fast Casual to be among the most informative, content-rich and truly hospitable events for the industry. Similar to Branded and the OPGA, Fast Casual prides itself on being an ally and advocate for operators and that’s why we’re so excited to see the Restaurant Catering Workshop come together.

Operators, this workshop will provide a blueprint for you catapult your catering sales. Of course, technology plays an important part of a solid catering framework, but it’s only one piece of an overall business strategy. This workshop is designed to help you choose the right platforms and also how to work them into our operational models.

This workshop will take place immediately following the conclusion of the Fast Casual Executive Summit. I love the action that will be taking place at the start of Q4 in Denver this year! 😊

Delivery-as-a-Service continues to be a money losing business for the delivery companies and it’s not a good business for restaurants. This isn’t sustainable and at present, despite the challenges the DSPs and restaurants are having, the guests and government feel the costs of delivery is already too high (and while I know I don’t have a vote here, I’d like to see the government step out of this and let the market work this out for ourselves and that includes our working with our customers, employees, contractors, etc).

You can expect to hear a great deal more from Branded about catering and this will have a lot to do with food-for-work. Offices maintaining cafeterias and other inhouse and self-managed dining facilities seem as antiquated to me right now as an encyclopedia and in-house library.

Food-for-work won’t just be viewed as a nice perk to have, but rather as a key driver of employee engagement, collaboration, recruitment and retention.

It’s not lost on me, and I find some irony that it was a corporate and accounting-driven decision by a bank I was working at in the early-2000s to reign-in and bring order to the chaos that was evening and weekend meals at work that led to the introduction of SeamlessWeb to Branded Restaurants.

SeamlessWeb started as a corporate accounting solution to track meals at work and allocate the expenses to clients. For restaurants that engaged with SeamlessWeb, the cost was a 5% commission on orders and only required you to have a fax machine and be able to self-deliver the food to the office. This was a gift and win for restaurants.

Times have changed, as has the importance of off-premises solutions, but maybe what was old will prove to be new again. The birth of the DSPs started with food-for-work and maybe that’s where the DSPs, restaurants and guests will find success going forward in the battle to make delivery work for all parties.

It takes a village.

I’ve been having fun with the Shoutouts section and using it to highlight the value our portfolio companies are bringing to the industry as well as some thought leadership these companies are creating.

Last week and I teased and this week I have the privilege of announcing the newest additions to Branded’s portfolio.

First up, it’s with unbridled enthusiasm that I get to share Branded’s investment in one of the fastest growing and most exciting emerging quick serve restaurant companies around, Dr. Shaquille O’Neil’s Big Chicken.

This is a company Branded met at its nascent stage and began working with when Josh Halpern took the reigns as CEO and Sam Stanovich joined as SVP of Development of Alliances. Our working relationship initially focused on Big Chicken’s pursuit of a modern tech stack for its emerging QSR company, and the work Branded was doing in the emerging technology space. Like all good things, the relationship continued, expanded and we’re now super excited to be an investor in this company and aspire to being a contributor to their growth and success.

Mr. Halpern likes to do his best impersonation of Ariana Grande when he shares the 99 problems (and advantages), he gets from having Dr. O’Neil as one of his bosses. On both sides of that coin are the unconventional opportunities and doors that open for this emerging brand as a result of it having a legendary basketball hall of famer, iconic entertainer and celebrated entrepreneur, as its founder.

In addition to the Diesel, Shaq Daddy, The Big Agave, and Dr. Shaq (to use but just a few of his nicknames), you also have the outstanding professionals from JRS Hospitality and Authentic Brands Group as part of the founding team.

Most recently, the CEO Craveworthy Brands and former CEO at Jimmy John’s, Gregg Majewski, has joined the board of the company as its independent director and now Branded has joined as an LP.

All the above would be enough, but I also get to share today that Big Chicken is now going global with its first international location opening this spring in Manchester, England. The next stop on this brand’s world tour will be in Canada as it works with partner Oak View Group (“OVG”) to enter arenas there later this year.

I’d stop if I could, but Big Chicken has inked a multi-national franchise agreement for Central America. The group will develop locations across Honduras, Costa Rica, El Salvador, Guatemala, and Panama. The brand plans to continue its expansion throughout Europe, Asia, the Middle East and beyond.

Last year Big Chicken doubled the total number of units of restaurants it opened compared to 2022, six of them in new states, while the other 12 further expanded its presence in Nevada, Washington. Texas and Arizona. Growth in 2023 also included the brand’s first casino location at The Queen in Baton Rouge, its first MLB stadium at Busch Stadium, and its first NBA stadium at the Footprint Center in Phoenix.

So far in 2024, Big Chicken has made its debut in three new states (Florida, Tennessee, and Michigan) and will be introduced to a handful of new states and two military bases before the year is out.

When you see our friends and now partners Josh, Sam, Gregg, and the entire team at Big Chicken, please buy them an adult libation, this team has been busy!

Next up, and again with sheer excitement, Branded has invested in Supply Caddy a leading global manufacturer and supplier of packaging and disposables for the food service industry.

This company is making packaging sexy (yes, I went there), is headquartered in Miami, Florida and has manufacturing facilities in North America and Europe. Supply Caddy takes on the projects that the traditional players often shy away from and can provide high-quality, affordable products for restaurants, chains and food service brands.

Supply Caddy launched in March of 2020 at the onset of the COVID-19 pandemic and if you want to know how gritty this crew is, they started sourcing PPE for large corporations including FedEx, Morgan Stanley, Petco, and Lyft.

Their very first customer in the food packaging space was Popeyes Louisiana Kitchen in May of 2020. Today, the company has over 20 unique customers including Carl’s Jr., and Dave’s Hot Chicken that they deliver to monthly ranging from 5 locations to 3,500 locations.

Old school operators typically associate packaging with catalogues and item numbers, but Supply Caddy is innovating and looking at packaging not just as white space for marketing and branding, but for operational efficiencies as well.

With the continued growth and importance of off-premises business, QSR restaurants are being remodeled to outfit and account for off-premises orders. As the industry is adapting for pick-up orders, it's only natural that the aesthetics and packaging for these brands needs to look good as well.

Branded thinks and acts differently and we love emerging technology, innovation and brands that do the same. Supply Caddy manufactures in Turkey, and this "geographical gem" has access to raw materials, competitive pricing, quick lead times, and high quality. Like Branded and our other portfolio companies, Supply Caddy wants to be an ally to its customers, and they therefore do NOT charge extra for branding. They price lock for the duration of its contracts and its customers value the certainty that comes with that.

As for its Founders, our friends and now partners, Zack Stein and Bradly Saveth are involved in every deal and every production. This is a dynamic duo and a company that shows up, is in constant contact with its customers and makes decisions with a deep desire to help their customers win.

If you’d like more information on Supply Caddy and specifically how they can help your brand, please reach out to me.

Supply Caddy's Founders, Zack Stein & Bradley Saveth

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 Craig Dunaway COO and a member of the Board of Directors of Penn Station East Coast Subs.

Craig recounts his journey, beginning as a young professional at a regional accounting firm in Indiana before venturing into the world of franchising with Papa John’s Pizza and eventually becoming a multi- unit franchisee of Papa John’s and Penn Station East Coast Subs, culminating in his current role as COO.

You can tune in on SpotifyAppleAmazoniHeart, 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
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

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