The Delivery-Optimized Future of Food

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0:00:21 Hi, and welcome to the A16Z podcast.
0:00:25 I’m Lauren Murrow, and today we’re talking about the delivery optimized grab-and-go future
0:00:26 of food.
0:00:31 The spike in online ordering and food delivery, a trend that’s particularly relevant now,
0:00:35 is evidence of how tech is fundamentally changing how and what we eat.
0:00:40 In this hallway-style conversation recorded on-site at the A16Z summit, we discuss what’s
0:00:45 driving this transformation, how tech can cut costs both to get food delivered and operate
0:00:50 a restaurant, the infusion of data into the restaurant industry, and what this all means
0:00:52 for the future of dining and cooking.
0:00:57 Joining me and general partner Andrew Chen are guests Ken Chong, CEO of Virtual Kitchen
0:01:02 Co., which is a network of delivery-only kitchens that partners with existing restaurants,
0:01:07 and Kevin Tan, CEO of SnackPass, a food ordering app currently on college campuses in which
0:01:10 customers can order ahead at restaurants and skip the line.
0:01:14 The first voice you’ll hear after mine is Ken of Virtual Kitchen Co., followed by Andrew,
0:01:16 and then Kevin of SnackPass.
0:01:21 We’ve seen a shift in the past five years or so from fine dining establishments to the
0:01:25 kind of fast casual to delivery-only and take-out-only.
0:01:27 What do you think is driving this trend?
0:01:31 Millennials in Gen Z is the generation that grew up with a smartphone, grew up with the
0:01:36 Internet, and with everything at the press of a button on the phone, whether it’s a
0:01:41 car with Uber rides or packages from Amazon, they’re growing up with this behavior and
0:01:45 this convenience and this habit, and I think we’re seeing that demand in food as well.
0:01:51 Yeah, I think if you live in a major city and you’re used to the conveniences of using
0:01:57 tech to enable everything in your life, you’ll almost end up with this baseline expectation
0:02:01 where everything ought to act this way, and over time, the question then becomes, is this
0:02:08 generation who grows up on this level of convenience and choice, once they are 21, 22, 23, they
0:02:13 move to the cities, are they going to give that up and revert back to maybe what their
0:02:17 parents did, or are they just going to expect that, “Yes, I do have a remote control for
0:02:22 food and it’s my phone,” and so for both cities and for college campuses as well, where there’s
0:02:27 so much density, there’s so much choice of different food options around you, that’s
0:02:32 the best possible setting to begin the food delivery trends enabling all of this to happen.
0:02:36 But as they say, the future is here but unevenly distributed, right?
0:02:40 So I think the next thing that will end up happening is a lot of this technology that
0:02:45 ends up working in these highly urban places can then ultimately go to places that are
0:02:50 suburban and rural the same way that a lot of technology ends up spreading.
0:02:54 Consumers love food delivery, they love the convenience of it, and at the volumes we see
0:02:58 and what we’re projecting going forward, it just requires a totally new infrastructure
0:03:03 layer to power that, so we’re building the delivery optimized kitchens of the future.
0:03:07 What Amazon did for retail, we’re hoping to do for local restaurants and on-demand food.
0:03:14 If you are a restaurant or a local food truck, you can sign on and deliver your food region-wide,
0:03:15 nationwide even.
0:03:19 Well, I think a lot of people underestimate the cost of owning an operating restaurant
0:03:24 today, and that’s whether that’s a Michelin star restaurant or a food truck, right?
0:03:28 Traditionally maybe dining restaurants are limited by how many people they can seat per
0:03:33 hour, and then there’s also spikes in which times are rush hours, so they really need to
0:03:37 maximize and squeeze every dollar out of it to cover all their fixed costs, but at least
0:03:41 for pickup and delivery, a lot of restaurants are using that as another revenue stream,
0:03:44 and you don’t have some of the limitations, you can have a kitchen in the back or in the
0:03:48 basement or a virtual kitchen, and so, yeah, it really helps restaurant owners survive
0:03:52 with all these other things that they have to worry about, like rent and labor increasing.
0:03:54 I think Kevin hit on a lot of really good points.
0:03:59 It’s no secret that owning an operating restaurant is really tough as a business, and what we
0:04:06 can do is decouple that upfront investment risk, the real estate build out lease and commitment
0:04:10 that a restaurant tour and a chef has right now before even opening the restaurant, we
0:04:15 can remove that and build it into a platform that allows restaurant tours to come in, experiment,
0:04:21 expand, and move with food trends, consumer trends really quickly with a lot less turnover
0:04:22 overhead.
0:04:27 Because of the digital nature of it, we can change the menus, the concepts in a much more
0:04:30 lightweight way, and not only that, when you look at the whole value chain of where all
0:04:36 the money is, the cost of delivering food, thus, in my mind, the biggest thing that needs
0:04:40 to be solved before this can unlock for people on a daily basis.
0:04:43 And research shows that that is the single biggest barrier that is preventing people
0:04:46 from ordering delivery as it’s cost, correct?
0:04:47 That’s right.
0:04:48 That’s right.
0:04:52 And the industry is moving to an interesting place where the costs are a little bit obfuscated.
0:04:55 You have the delivery fee, you have the service fee, you have the tip, they’re all kind of
0:04:56 separate.
0:04:57 You also have the potentially markup on the food.
0:05:03 As a consumer, how many times have we been ordering food on one of these services, and
0:05:05 everything seems like it should be okay.
0:05:09 And then you look at the bill and somehow you end up with a $60, $70 order, and you’re
0:05:10 like, how did that happen?
0:05:11 Right?
0:05:12 It’s like, yeah, it happens one screen at a time.
0:05:17 So when you add that all together, what that means is it’s very, very hard for the current
0:05:22 conception of food delivery to be something that you can do every single day.
0:05:26 So I think we need a more fundamental solve to that before this can be widely available.
0:05:31 I know both of your companies are largely based on customer analytics and data.
0:05:33 How does that translate for your restaurant partners?
0:05:34 Yeah.
0:05:35 I can use the analogy.
0:05:38 Restaurant owners right now, when you have customers go to the store and order at the
0:05:42 cash register, it’s almost like anonymous web visits, and you don’t know who those users
0:05:43 are.
0:05:47 Like if you have a website and you’re just getting anonymous traffic, whereas on a digital
0:05:51 platform, they can retarget their loyal customers, they can incentivize new customers, and they
0:05:54 can incentivize loyal customers to bring new customers in.
0:05:58 So that is definitely a big part of the play is helping them have that additional customer
0:05:59 relationship layer.
0:06:00 What are you tracking?
0:06:06 So we actually work with the restaurant brands to figure out the best locations to put these
0:06:10 virtual kitchens, what people in those zip codes want, and then we work really close
0:06:15 with them as a very tight feedback loop in terms of ordering behaviors, time of day,
0:06:17 what’s selling, what isn’t.
0:06:21 We’re bringing what e-commerce businesses have had the luxury of in the last decade
0:06:26 in terms of analytics and tracking to that business as well, so a very data driven approach.
0:06:31 Can you give any examples of an instance in which having that data fundamentally changed
0:06:32 away?
0:06:33 An owner operated?
0:06:34 Yeah.
0:06:36 For some restaurants, they’ll have a lot of slow hours.
0:06:40 And so if they want to target customers during those slow hours, right now they can put a
0:06:45 sign on their store or on the sidewalk saying we have a happy hour, but I think with a digital
0:06:48 platform, they’re able to market that even better.
0:06:51 And we’ve recently worked with a really great restaurant partner to figure out what are the
0:06:57 optimal basket size ordering behaviors for delivery and how can they optimize and change
0:07:01 the menu to really, really take advantage of what people want, how they’re ordering
0:07:05 with their friends or with their families, or maybe a dessert with their meal.
0:07:10 I think what that means is as the very, very first e-commerce experiences on the internet
0:07:16 when Amazon were among the first to actually figure out how to use web analytics to present
0:07:20 you the right products and all of that, the restaurants that are able to think through
0:07:24 that and adopt the right tools will be able to hugely, hugely succeed.
0:07:27 And the ones that don’t, I think will remain the restaurant on the corner or maybe not
0:07:28 even exist at all.
0:07:32 So the food industry is obviously a hyper competitive place.
0:07:36 What is it about your companies that makes people want to partner rather than a restaurant
0:07:39 developing their own online mobile ordering app?
0:07:42 So we do partner with a lot of restaurants that have their own apps, but I think they
0:07:45 have trouble getting people to use their apps.
0:07:49 What we bring to them is a bigger customer base that they can tap into and grow their
0:07:51 brand and get incremental revenue.
0:07:53 And you’re growing pretty quickly now.
0:07:54 We’ve been around for two years.
0:08:00 We’re at 11 campuses and we plan on being at 100 campuses in the next 20 months.
0:08:05 And take that playbook that we started at Yale, brought it to Brown, brought it to Berkeley,
0:08:10 and maybe taken a page out of Tinder or Facebook’s campus to campus model.
0:08:14 And Ken, I know there’s a lot of competition in the virtual kitchen space.
0:08:18 A lot of restaurant tours we’ve talked to have considered building their own dark kitchens
0:08:22 and have considered all the options out there, but we’re really focused on building the best
0:08:24 platform for restaurant tours.
0:08:30 And we work really closely with them to help them scale and grow their delivery presence
0:08:31 in the most turnkey way.
0:08:36 What they care about is really how do they bring their food to as many people as possible?
0:08:38 And so that’s been really our focus.
0:08:42 And we make it as easy for the restaurant tour to go from their existing three locations
0:08:46 to four than it is to go from three to Bay Area wide.
0:08:47 I was just going to add that.
0:08:53 I think the proliferation of technology for many of these small restaurants presents huge
0:08:57 opportunities and also there will be also check out and changes in the industry as a
0:08:58 result.
0:09:02 First, I think you can see that if you’re a neighborhood Italian restaurant, if you do
0:09:07 really, really well, if you’re like a beloved local brand, what ends up happening is you
0:09:09 can serve a much, much larger audience, right?
0:09:13 Obviously through food delivery, you end up being able to serve pretty much everyone
0:09:17 in the city versus the people that were maybe in walking distance before would have thought
0:09:18 to drive over to you.
0:09:22 And so on one hand, it really grows the addressable market for any restaurant.
0:09:25 There’s a regionalization to what a restaurant actually can face.
0:09:31 And then on the flip side, it also means that restaurants competition can come from everybody
0:09:32 within the city as well.
0:09:37 When you combine that with the complexities around having every restaurant needing social
0:09:42 media accounts and you got to manage all your Yelp reviews, you have to think about what
0:09:46 is the whole technology stack for how you’re going to do checkout and all this other stuff.
0:09:50 These restaurants that maybe previously didn’t actually need a ton of technology in order
0:09:55 to succeed, all of a sudden need to master this very, very different stack of tools and
0:09:57 applications to be there.
0:10:00 Let’s say your grand vision comes to fruition.
0:10:02 What do you see as the future of restaurants?
0:10:05 Is this the end of the restaurant experience as we know it in some ways?
0:10:10 But it’s also the beginning of basically having every meal become a restaurant experience.
0:10:11 How so?
0:10:15 I think with delivery and with pickup, you can basically turn food into a press of a
0:10:16 button for every meal.
0:10:20 If you’re walking on your way to class or you have a 30-minute lunch break and you don’t
0:10:24 want to wait in line or you want to get pasta for dinner, but you don’t want to sit down
0:10:27 in the restaurant and take an hour to do that.
0:10:30 And I think that’s just going to become a bigger part of people’s eating habits.
0:10:35 I think that in the not too distant future, people will be eating the majority of their
0:10:40 meals either through delivery or pickup, the level of convenience and the ability to give
0:10:45 people back their time and really open up the accessibility to different types of foods,
0:10:48 healthy dietary options is really powerful.
0:10:49 And I think that trend is going to continue.
0:10:50 Yeah.
0:10:55 And I think the other angle we’re approaching is anytime someone’s buying something by themselves,
0:10:58 like single player, we’re going to make that multiplayer.
0:11:01 So right now when you buy something, it’s largely a solo experience.
0:11:05 But on snack pass, every time you buy something, you get to share something with a friend,
0:11:09 whether it’s a discount or a future credit that makes sense for everybody involved.
0:11:14 You, your friend and also the merchant in organic referral.
0:11:18 And because it’s categorically rational, but also extremely fun and has an emotion attached
0:11:22 to it, I think that’s just going to become a really powerful e-commerce trend.
0:11:26 You bring up an interesting point, which is the role of social and all of this.
0:11:30 Can you talk about the growing role of social and where you see that in the food space?
0:11:34 I do think there’s a misconception when we talk about this delivery only model that people
0:11:37 are kind of holing up in their apartments or homes.
0:11:41 And in fact, you’re both telling me it’s about expanding access and making it more social
0:11:43 to eat out or to eat at home.
0:11:44 Yeah, absolutely.
0:11:48 Someone posted a meme on the Yale memes page that was, we don’t say I love you.
0:11:51 We send each other gifts on snack pass.
0:11:55 And the social mechanics we’ve created on the app, give people a way to connect that
0:11:58 isn’t like a text or snap.
0:11:59 Actually food is super social.
0:12:03 And so we found a way to weave that together, social and commerce.
0:12:04 So people are flirting through food.
0:12:05 Yeah.
0:12:11 And your boyfriend or girlfriend, a smoothie, if they’re sick, you can even see who’s sending
0:12:12 gifts to each other.
0:12:16 You can see who’s hooking up with other people by who their gifts are being sent to.
0:12:20 So yeah, it’s like this other social network that you wouldn’t really expect.
0:12:24 And it’s definitely not going to replace a visual feed like Instagram or Facebook, but
0:12:27 it’s augmentation of your social life at college.
0:12:29 It’s kind of like a Venmo of food.
0:12:30 Yeah.
0:12:31 I guess you can say that.
0:12:34 What’s the role of social when it comes to virtual kitchens?
0:12:39 I think hitting at the parallels with retail and how that has gone in the last decade from
0:12:41 brick and mortar to more digital.
0:12:47 You see the opportunity for brands to really experiment and build their presence in a digital
0:12:48 first manner.
0:12:53 We’ve seen a lot of direct to consumer products rise in popularity over Instagram and social
0:12:58 media and really reach and connect with their customers in a very direct way.
0:13:01 You can see the same with restaurant brands and food.
0:13:04 Food trucks have been doing this because they don’t have that permanent brick and mortar
0:13:08 presence, but with virtual kitchens, you’ll see that go even a step further.
0:13:11 So if you don’t have a physical kitchen, are these brands spending more on marketing
0:13:12 than?
0:13:13 Potentially.
0:13:17 It depends on how you view Instagram and Facebook and Twitter.
0:13:23 It’s I think really just a new channel for the brand to create its presence and to reach
0:13:25 their customers in a more direct way.
0:13:30 So when we talk about the future of food, it’s impossible not to talk about robotics, everything
0:13:34 from robot chefs to robot delivery.
0:13:38 What role do you think robots will play in the next five years or so?
0:13:42 We’ve seen some interesting things on the kitchen automation side in terms of robotics,
0:13:47 but I think that is a little bit nascent sidewalk robots and autonomous vehicles, obviously
0:13:48 coming later.
0:13:53 I think we’ll really reduce the cost of fulfillment, the actual delivery piece, which then makes
0:13:55 it even more accessible to more people.
0:14:00 The funny thing about robotics that I’ve seen and let’s use autonomous vehicles as a good
0:14:04 linchpin, I know there was so much excitement about the field just a couple of years ago.
0:14:08 You’d ask people that were just reading the news and you’d say, hey, how long before we
0:14:11 have self-driving cars on the road?
0:14:14 And if you talk to some people, they would tell you five years.
0:14:15 Some people would say six years.
0:14:20 And what I noticed at least was when I started to talk to people that were closer and closer
0:14:24 to the problem, working on self-driving, the number of years that it would take before
0:14:28 it was widely available would increase to the point where the people directly working
0:14:31 on it would be like, I don’t know, it might be a long time.
0:14:36 And so going back to the question on how automation and kitchens will come together, I think first,
0:14:41 as Ken mentioned, there’s a lot around what’s going to happen with delivery.
0:14:45 There’s a number of really interesting companies out there like Starship and Kiwi that are
0:14:50 thinking about that and are thinking about it in a way that hybridizes human teleoperations
0:14:54 in addition to having completely software-based navigation.
0:14:58 And then the other big question that I think is super interesting is in the kitchens themselves,
0:15:03 do you get to a point where you have robots making the burgers and making the pizza and
0:15:04 all that stuff?
0:15:07 Or is this something that humans have to be involved?
0:15:11 And what I’ve seen on the research and the companies that we’ve encountered is that,
0:15:16 yes, that will eventually happen, but each food type is actually very different than
0:15:17 the next one.
0:15:22 Like it is an entire company to just solve automation plus smoothies.
0:15:26 And it’s another whole startup that needs a lot of money to go figure out burgers and
0:15:30 a whole other company that needs to be successful to figure out noodles.
0:15:35 When you look at that in comparison to still being able to have human labor, I think there’s
0:15:40 still quite a gap before we’re going to be able to fully realize that robotics vision.
0:15:43 Andrew, you look at food, gaming, social.
0:15:47 When you look at the food landscape, do you have some vision for the future of food?
0:15:53 So much ink has been spilled about the driverless car, but I think more realistic even is the
0:15:55 idea of the kitchenless home.
0:15:59 And it’s really the notion that if this becomes so convenient and you can have amazing food
0:16:05 that exactly fits your dietary needs for your whole family and it’s at the right price and
0:16:10 it’s in the right packaging, the everyday need for people to actually have a kitchen
0:16:13 in order to do this chore might go away.
0:16:17 And so if you think about that as a general idea and then you say, okay, what actually
0:16:23 needs to happen in the entire flow of the customer experience in order to enable that,
0:16:27 what you end up seeing is a lot of room for really interesting, great companies.
0:16:31 Is this the end of cooking in that everyone is getting everything delivered all the time?
0:16:37 I think what’s going to happen with this combination of delivery and dark kitchens is that one day
0:16:41 somebody who’s gluten free is going to open up the app and they’re going to have dozens
0:16:45 upon dozens of amazing, high quality food available to them.
0:16:50 I’m sure that once all of these platforms like Virtual Kitchen and SnackPass have fully
0:16:57 proliferated, the kinds of chains that we’ll see will not just be burgers and pizza.
0:17:01 Very recently, in fact, over 60% of food delivery was just pizza, just because that was the
0:17:04 thing that would keep you could deliver.
0:17:05 Dominoes.
0:17:08 Dominoes as a stock has performed just as well as the top tech companies.
0:17:13 And so when you start to unlock everything, I think that it will be a golden age for food
0:17:14 entrepreneurs.
0:17:19 The other angle is for those that have dietary restrictions, it can be a huge thing as well
0:17:25 because if you’re gluten free, if you’re keto, if you can’t eat nuts or whatever, it’s not
0:17:28 like you have dozens of choices.
0:17:32 There’s a lot of really, really interesting things that will happen through these platform
0:17:33 shifts.
0:17:37 So is this the end of the traditional restaurant experience as we know it?
0:17:41 The big thing for me is really thinking about the bifurcation of how people are going to
0:17:42 think about food.
0:17:46 There’s the everyday sort of utilitarian view of food.
0:17:51 This is the quick bite that you want for lunch or for dinner on a day where you maybe have
0:17:52 a lot of work to do.
0:17:57 And then there’s also the kind of experiential evenings that you might want out with your
0:18:01 significant other, which is where the presentation of the food matters, the story behind the food
0:18:02 matters.
0:18:08 And so first, how do you up level food overall in all its different capacities and bring
0:18:13 the sort of super high quality ingredients designed by a chef who really cares about
0:18:19 the food to consumers in all forms, and even delivery, even fast casual pickup type experience.
0:18:21 I think that bifurcation is going to be really real.
0:18:25 We’ve seen it in the retail space with showrooms versus ordering online.
0:18:29 And I think it’ll actually be a great world for both sides.
0:18:34 We’ll see great restaurant experiences for Dine-In, and then we’ll have great convenience,
0:18:36 great selection, and great price points for delivery.
0:18:37 Great.
0:18:39 Well, thank you so much for joining us on the 16T Podcast.