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Are Virtual Restaurants Dining's Next Hot Trend?

Silicon Valley is throwing millions at delivery startups


Ando, Green Tiffin, Sprig: No, these aren’t the newest Noble Houses in Westeros, though their existence is nearly as mysterious as the world of Game of Thrones. These are three of the country’s most popular digital restaurants — restaurants that exist to serve food only via delivery.

Increasingly, consumers are turning to delivery for their meals over take-out or dining out. This has been a growing trend for the past few years, but the recent announcement that one such startup, FoodChéri, has raised more than $6,700,000 suggests it’s a global trend, and one that’s worth millions. In fact, there’s probably a lot more lush Silicon Valley-based venture capitalist money headed to the delivery-only sector.

FoodChéri bills itself as a company that caters to busy professionals in and near Paris, delivering some 1,000 ready-to-heat meals per day. It’s not a restaurant in the traditional sense; hungry customers can’t, for instance, pay a visit to FoodChéri and grab a table for two. What they can do is place an order for a meal that, like at a restaurant, is prepared by a chef, and have it delivered to their home or office. This puts it in the same vein as delivery-only American startups like Munchery, or the UK-based EatFirst.

There are numerous stateside services specializing in food delivery. David Chang’s Ando is an on-demand, NYC-based, delivery-only restaurant from a chef who made a name for himself a decade ago by serving noodles and pork buns. SF’s Munchery is an app that offers ready-to-heat meals, made by a chef, similar to FoodChéri. There are countless others (Sprig, Green Tiffin, Freshly, Meal Made), and venture capital interest in the space is apparent: A Munchery spokesperson confirms the startup has raised more than $117 million in its short lifespan.

Delivery-only seems to be a natural evolution of a couple of other trends: namely, meal kits (á la Blue Apron and HelloFresh) and delivery services like Seamless/Grubhub and UberEATS, which connect existing restaurants to the on-demand needs of consumers.

One could argue the differences between a restaurant, a delivery-only restaurant, and a meal delivery service for days. Regardless, the emergence of a whole subset of tech-driven food makers proves this is more than a blip in the matrix. So why the surge in startups offering food for delivery only?

Start-Up Costs

Opening a restaurant — especially one that’s fully staffed — involves a significant investment. Commercial real estate prices have risen over the past few years, especially in big cities like New York and Washington D.C. In Silicon Valley, surging real estate prices have made it nearly impossible for mom-and-pops to stay in business. But those that are delivery-only don’t have to pay the rent on a large space in a nice area with room inside for tables and outside for parking.

Labor Costs

The minimum wage has already increased in several U.S. cities and states, with others proposing similar measures. According to U.S. Census data, most employees earning the minimum or less work in the food service industry. A new set of overtime rules, which ensures that salaried employees earning less than $47,500 will automatically qualify for overtime, will also raise the pay of many restaurant workers.

A delivery-only model could, in theory, solve some of the above problems. A delivery-only restaurant doesn’t need servers, bussers, or hosts. But, opening a restaurant sans front-of-house staff doesn’t come entirely without cost. As delivery-only restaurateur Peter Schatzberg tells Eater’s Serena Dai, "There’s a misconception that what we’re doing is innovative when in fact it is incredibly difficult."

Potential expansion is where the challenges come in. It might be cheaper to own one delivery-only restaurant (which doesn’t need to be in a highly trafficked area and requires no decor or signage) than one stand-alone traditional restaurant, but it’s expensive to scale the delivery-only model.

Tri Tran initially launched Munchery, arguably San Francisco’s most successful digital restaurant, as what he calls a "little online marketplace." But demand grew and the company expanded, eventually requiring more employees and more real estate. "People are looking for convenience and culinary food," he says. "A local place that can deliver a few blocks around them."

For a company to remain a truly "local place" it has to have a location and team in each of the neighborhoods in which it operates. That makes it exponentially more expensive to operate as it grows.

Value Perception

According to research from industry analysts at NPD Group, consumers are currently paying, on average, $8 per person for lunch. That’s higher than what most want to pay. But traditional restaurant takeout (especially when it’s delivered) can be even higher, due to delivery fees. A burrito bowl eaten at Chipotle, for instance, costs around $6.50. Order it through Postmates, and the company will tack on a delivery fee ($4.99 or more) plus a 9 percent service charge. In comparison, Munchery’s pre-made meals range from $7 to $12 per person, including delivery. That’s not necessarily much less than the average takeout meal, but it comes with an added value.

Tran says he and his wife relied on takeout for years — "Chinese food, pizza, that kind of thing" — but eventually began to grow tired of it. Plus, "I couldn’t even fathom the fact that I was feeding my kids these sort of things." Delivery start-up restaurants are (said to be) sourcing high-quality produce and proteins at volume and marketing the health and wellness aspects to their customers who are then willing to pay for what feels like a healthy, home-cooked meal rather than cheap, often fried takeout.

Quality, Efficiency, and Convenience

The main way delivery-only restaurants like Ando or Munchery sell their value proposition to consumers is by outlining the quality of their ingredients and cooks. "Our secret sauce is the quality and the taste," says Tran. "The food is cooked that day, in the same area in which it’s delivered, and it’s convenient."

Meals from companies like FoodChéri (which come chilled and pre-cooked, requiring only some time in the oven or microwave) are as easy to order as takeout but are marketed as containing organic, locally grown, made-in-house, or restaurant-quality ingredients. In the case of Ando, there’s the branding of Chang’s Momofuku that elevates the concept from a cafeteria that delivers to a chef-driven concept and menu that happens to not have a dining room.

Munchery’s reps say the company is able to keep costs lower than at a typical restaurant through savings on rent, but also because it orders food and supplies in bulk. The company doesn’t have to prepare each order individually either; it uses ovens that can cook up to 500 pieces of meat at the same time, a far cry from the smaller orders a traditional restaurant would need to prep.

As TechCrunch notes, delivery-only restaurants use technology to make delivery as efficient as possible. In the case of restaurants that serve meals ready to heat, "orders can be pooled for delivery as food doesn’t need to be delivered hot." FoodChéri enables orders to be placed either on-demand or days in advance. This makes the concepts convenient for both the restaurant and the diner.

Social Shifts and Troubleshooting

The workplace lunch with co-workers has, for many, been replaced by takeout eaten while hunkered over a laptop. According to a report by the NPD Group, weekday visits to restaurants have been negatively impacted by remote workers. The report’s research suggests a 24 percent increase over the last decade in the number of people working from home, coupled with an 8 percent increase over the last year in online shopping.

People are now more comfortable ordering online (be it books, food, or clothing) than ever before. Plus, having food delivered is often easier than having to venture out to a restaurant or the grocery store. An added plus for homebodies? It requires little, if any, social interaction.

But that can be problematic, too, especially in the restaurant world — an industry that relies heavily on customer service. If there’s a mistake with a customer’s order, remedying it isn’t as easy as sending the manager over with the promise of free dessert.

Jag Bath, CEO of Texas-based delivery company Favor, says good customer service in the delivery realm often falls on the shoulders of the driver. To ensure customers are satisfied with their orders — even if they might get them a few minutes late — Favor delivery drivers have begun interacting with their customers much in the way a waiter would.

Like Uber, Favor offers customers the option to call or text their delivery driver. "At first, that function was just used by customers," says Bath, "but over time, runners and customers alike began leveraging that as a way to stay informed or to make changes." And eventually, the runners began noticing that the more unique they were in their interactions (by texting customers gifs or emojis), the more beneficial it was to them.

"Some of our more clever runners are now requested by customers," says Bath. "And the ones who use emojis have seen their tips go up as a result — a sizable increase."

The average delivery time for a Favor order, says Bath, is about 35 minutes. In the instance that a driver is able to deliver it in that time period, or if something is wrong with the order: "The runner can still maintain a good tip, so long as he keeps the customer in the loop."

In other words, a food delivery person can operate just as a waiter should — by over-communicating information from the kitchen — just on a very different, and ever-expanding scale.

French Online Restaurant FoodChéri Raises €6M Series A [TechCrunch]
When Restaurants Ditch the Dining Room [E]
How One Delivery-Only Service Makes Dinner Without a Restaurant [E]
All Delivery Coverage [E]