Slate Money: Food: Technology

Podcast: Slate Money
Host: Felix Salmon
Guest: Jordan Thaler, Founder of What's Busy
Date: March 24, 2020

Episode Overview

This episode of Slate Money Food delves into the increasingly sophisticated role of technology in the restaurant industry. Host Felix Salmon is joined by Jordan Thaler, founder of What’s Busy, a data science company focused on restaurant point-of-sale (POS) data. Together, they explore how delivery platforms, POS systems, and tech innovations affect restaurants’ bottom lines, consumer habits, and the future of the food industry. The discussion is both critical and insightful, reflecting on whether technology is truly beneficial and who is most likely to thrive in this new landscape.

Key Discussion Points and Insights

The Role and Complexity of POS Systems

• Overview of POS: Jordan defines Point of Sale (POS) as the "nerve center" of a restaurant, handling sales, labor, accounting, and payroll data.

  “It's the central nervous system of a merchant's operation.” (Jordan, 01:24)

• Data Science Opportunity: POS systems store valuable yet underutilized data, which What’s Busy leverages to diagnose and solve restaurant operational problems.

  “You are constantly doing inordinate amounts of work to build this brain of a local merchant and you get paid peanuts for the effort.” (Jordan, 01:49)

The Economics and Trends of Food Delivery

• Growth of Delivery: While online food delivery seems to be booming, Jordan points out that it is largely subsidized by VC money, masking its true costs from consumers.

  “Consumers aren't paying the true economic cost for delivery... you might see those economics become a little more transparent...” (Jordan, 02:50)

• Profitability of Delivery Platforms:
  • GrubHub has been profitable mainly because it started as an online ordering platform, not a delivery logistics provider, unlike Uber Eats and DoorDash.

    "GrubHub got into that business. I don't know if they break it out by delivery versus online ordering, but my suspicion is that the delivery business on a unit basis is actually not profitable at all." (Jordan, 03:56)

• Last Mile Delivery: The transition from self-pickup to paid delivery increases service costs significantly—consumers may soon have to shoulder the full burden.

  “Trying to pay someone to drive them to me instead of me doing the job... significantly increases the cost...” (Felix, 05:40)

Cloud Kitchens & Ghost Kitchens

• Business Potential: Ghost kitchens could theoretically win on price and scale by producing popular foods in low rent locations, but it’s unproven if this model can dominate.

  “If my belief is that food is fungible, it’s fairly commoditized, and can I... be the lowest cost producer through scale and volume and just win this category? That’s a thesis... but who knows what’s really going to happen?” (Jordan, 07:02)

• Commoditization Concerns: There is debate over whether food delivery customers are truly price-sensitive or motivated by convenience, with current evidence suggesting limited loyalty and merely “optimizing” their purchases.

  “Most consumers aren't very good at math...” (Jordan, 09:25)

Casual Dining, Fast Casual, and the Impact of Brands

• Market Fragmentation: Despite major brands like McDonald's, the market is highly fragmented with many small operators.

  “Even McDonald's… 15,000 US units out of, let's call it 650,000. So they're not massive.” (Jordan, 10:20)

• Definitions:
  • Casual Dining: Sit-down, table service (e.g., Ruby Tuesday’s, Applebee’s)
  • Fast Casual: Upmarket counter service (e.g., Cava, Zoe’s Kitchen)

    “A fast casual is you might go to a counter and order and they'll call your number…” (Jordan, 11:49)

• Economies of Scale: Chains benefit from purchasing power and middle management but may lack the food quality focus of sole proprietors.

Delivery Platforms as Commodities

• No Brand Loyalty: Consumers switch between delivery apps based on promotions and price, showing little attachment to specific platforms.

  "Customers have no loyalty to an Uber Eats or a DoorDash. And they will just go between whoever got the best promotion that week and that's who they use." (Jordan, 14:45)

• Restaurant Partnerships: Large chains have realized delivery services are interchangeable and have dropped exclusivity agreements.

Success Stories: Domino’s and Olo

• Domino’s: Praised as a technology-driven brand, Domino's leads due to integration and a data-centric culture, making them more competitive in delivery.

  "Domino's has done a very good job of building a culture on data and engineering..." (Jordan, 16:42)

• Olo: Functions as an online ordering middleware, efficiently piping orders from customers to restaurants. The company also built "Dispatch," which automates third-party delivery selection for restaurants.

  “OLO recognized the opportunity of online ordering... especially as their customers are demanding more online ordering.” (Jordan, 18:30)

Payments Processing and Margins

• Lucrative Fees: Payment processing companies take a significant cut (~3%), often through opaque and sometimes unethical means. Smaller operators are particularly at risk.

  “Some of them border on malfeasance. Frankly, I think restaurants have been fleeced on this for a long time.” (Jordan, 21:15)

Tech Sophistication: Enterprises vs. SMBs

• Enterprise Advantage: Larger chains have more resources to invest in and deploy technology, further widening the gap with independent restaurants.

  “It's just a lot easier to do distribution to larger chains than it is to the SMBs.” (Jordan, 22:54)

• Barriers to Adoption: Many restaurateurs are unable (or unwilling) to fully exploit the data and tools available to them, often leaving value on the table.

  “Merchants in general are very frugal and they don't pay for value." (Jordan, 23:43)

Marketing, Discovery, and the Grubhub Proposition

• Marketplace Competition: While delivery platforms once provided exposure, discovery is now more competitive and requires strategic marketing spend or fee increases to sustain.

  "Now it's no longer a secret. Right? And everyone's competing for a top rank on GrubHub or Uber Eats." (Jordan, 27:35)

• Sustainability for Mom & Pops: Additional volume from delivery platforms is offset by high fees and fierce competition, making profitability challenging.

The Future for Independents vs. Chains

• Romantic Notions vs. Reality: Jordan is pragmatic about the survival of independent restaurants; while the environment is harder, creativity and entrepreneurship remain.

  “Every one of those large chains you talked about started as a mom and pop. I don't think you extinguish that part of the market ever.” (Jordan, 29:07)

• Role of Tech Vendors: The ideal technological advancement is to free up restaurateurs to focus on food and guests, not saddle them with new back-office burdens.

Notable Quotes and Memorable Moments

• On the Illusion of Cheap Delivery:

  “Consumers aren't paying the true economic cost for delivery... And so it's going to be a service that's relegated to much smaller parts of the market for people that can afford to pay $10 to have a $5 hamburger delivered.” (Jordan, 06:13)

• On App Loyalty:

  “I have all three apps on my phone... and I just see who's got the lowest price for that restaurant. And that's the one I order from.” (Investor anecdote via Jordan, 15:42)

• On Tech Culture in Food Chains:

  “The real reason why Domino’s wins is they've done a good job with that culture [of data science].” (Jordan, 16:42)

• On the Fragmented Market:

  “The restaurant industry in general is massively unsophisticated... we've seen data from again, large public brands... it’s a disaster.” (Jordan, 25:14)

• On Operators’ Relationship with Technology:

  “I want to live in a world where restaurants are low tech things and… serve me something delicious. But maybe I’m just being too much of a romantic here.” (Felix, 25:34)

• On the Persistent Role of Entrepreneurs:

  “Every one of those large chains you talked about started as a mom and pop... there's always going to be entrepreneurs out there looking to build new concepts and try new things.” (Jordan, 29:07)

Timestamps for Important Segments

• 00:41 — Introduction to Jordan Thaler and What’s Busy
• 01:22 — POS explained and its centrality
• 02:32 — The delivery boom and underlying economic reality
• 03:56 — GrubHub profitability vs. Uber Eats
• 04:45 — The actual growth of delivery and cannibalization of phone orders
• 06:13 — Future viability of delivery models as VC money dries up
• 07:02 — Prospects and challenges of ghost/cloud kitchens
• 10:20 — Fragmentation of the restaurant market
• 11:49 — Fast casual vs. casual dining: Definitions
• 14:45 — Commoditization and low consumer loyalty among delivery apps
• 16:42 — Domino’s success as tech-driven vertical integrator
• 18:30 — Olo’s role in online ordering and delivery
• 21:15 — The murky world of payment processing in restaurants
• 22:54 — Tech adoption gap between enterprises and SMBs
• 27:35 — Is appearing on Grubhub still “free money” for restaurants?
• 29:07 — Outlook for mom & pop restaurants in the evolving landscape

Conclusion

The episode offers a robust, inside look at how technology—both seen (apps, delivery) and unseen (POS systems, payments)—is reshaping restaurant economics, often in ways that benefit larger, more sophisticated chains. While independent operators face growing obstacles, the episode closes with a hopeful reminder that all big brands were once small, and entrepreneurship in food is far from dead. Jordan Thaler’s candid expertise and Felix Salmon’s probing questions provide an engaging, sometimes sobering, but always insightful look at the business of food in the digital age.